“This instinct to ‘do nothing’ in the presence of danger runs very deep in our instincts; and it’s related to a cognitive quirk within our brains that psychologists call ‘normalcy bias’. We’ve discussed this before. Normalcy bias is what causes human beings to believe, even in the face of obvious perils, that everything is going to be just fine.

Humans are creatures of habit. We easily fall into routines—waking up, going to work, stopping by the coffee shop on the way, spending time with the family in the evening, etc. And those routines define ‘normal’ for each and every one of us.

When the routine is disrupted, we often have a difficult time coping—even with little things. If the bakery down the street is out of the croissant flavor that we order every morning on the way to work, we’re irritated by it and don’t want to break routine by trying something new.

And major disruptions to our ‘normal’ are met by severe psychological backlash. Our brains simply refuse to acknowledge it.”

Simon Black, in Sovereign Man

Much has been written about the timetable for returning to a “new normal”. I have argued that the “new normal” in reality just means a return to some sort of stability and predictability. It will not be anything like the past unless you consider the past as somehow “normal”. It will however surely be “new”.

Simon Black’s article (excerpt above) got me thinking about some very strange reactions I am seeing to the past year’s black swan events. Nothing in the slightest “normal” about these events but so many people seem to be convinced that things will shortly return to “normal”, as in the “past”.

The likelihood that the past will return is at best zero, and probably much less. Most people must realize this – or must they? What we seem to have here is a severe case of normalcy bias.

What is a “normalcy bias”?

Wikipedia as always has a concise definition:

Normalcy bias, or normality bias, is a cognitive bias which leads people to disbelieve or minimize threat warnings. Consequently, individuals underestimate the likelihood of a disaster, when it might affect them, and its potential adverse effects. The normalcy bias causes many people to not adequately prepare for natural disasters, pandemics, and calamities caused by human error. About 70% of people reportedly display normalcy bias during a disaster.”

Well, we certainly do have a multi-dimensional disaster at hand. No longer a threat or likelihood but much too real, harsh, and immediate. It’s here. No time to prepare.

And how are people reacting? With cognitive dissonance:

“In the field of psychology, cognitive dissonance occurs when a person holds contradictory beliefs, ideas, or values, and is typically experienced as psychological stress when they participate in an action that goes against one or more of them. According to this theory, when two actions or ideas are not psychologically consistent with each other, people do all in their power to change them until they become consistent. The discomfort is triggered by the person’s belief clashing with new information perceived, wherein they try to find a way to resolve the contradiction to reduce their discomfort.”

Apparently, many people are expecting a return soon to something pretty much like the pre-COVID, pre-election past – that is, to “normal”, at long last. Well, except for COVID, which seems somehow to have become part of “normal”.

Reality bites

A normalcy bias normally goes away – eventually – as people get used to the new situation, which becomes normal in their minds. That’s a relief.

Well, not quite – when you are trying to run a business. If you have many of your key people managing as if the past will return, their normalcy bias may not fade away quickly enough to save your business from disaster. Non-normal disaster.

Cognitive dissonance appears when people believe in one thing but act as if they believe in something entirely different. COVID, for example. So many truly believe that COVID is the Black Death or worse and react in ways that will ultimately damage or destroy a business. But they truly believe that they are doing the right thing regardless. Until reality bites.

No matter what each of us believes, the reality of COVID will eventually prevail. Kind of hard to see that reality right now but it is out there someplace.

If you are in the Black Death camp of believers and COVID turns out, heretically for sure, to be just a garden variety cold, you will regret making changes based on the Black Death view. But if you are in the common cold camp and COVID mutates into something truly awful and millions die, you will probably regret not making the necessary changes.

Or worse yet, both. COVID may indeed be a common cold but the global overreactions are not. They are in many cases catastrophes of our own making. This situation may well lead to businesses making the wrong response.

The solution is small steps based on testing

Reality, as it so often does, may well become evident over an extended period of confusion. Acting as if one or other extreme (Black Death or common cold in this example) is inevitable can place a large bet on a huge unknown.

But suppose that the reality of COVID takes a couple of years more to become visible?

As I have argued repeatedly in these posts (here, here, and here), you have to move slowly and carefully – small steps – and most important, build a routine, reality-testing mechanism into your action sequence. Reality-testing goes something like this:

In most big, nasty happenings, you will quickly get both an idea of what is happening and some sense for its real severity. These may not be persuasive for some period but you can begin to make some projections about what should happen next under some scenarios.

Take a few small steps – doing the least you can get away with for the moment – and begin comparing your projections with what appears to be actually happening. In most cases, actions and reality-testing will be a coordinated process.

Black swans travel in flocks

It is becoming pretty clear that the early 2020 COVID black swan’s visit was expected to be brief – a couple of months at most. Then came the business-destroying, extended lockdowns and COVID testing. Vaccines recently began rolling out at warp speed, along with some concerning side-effects. Black swan days appear to be a semi-permanent happening. The flock has arrived.

Source: Yuting Liu (Unsplash)

A black swan flock is likely to keep massive changes coming and unpredictability maxed out for some lengthy period. This may even become our long-awaited new normal. A normalcy bias may reappear when this situation goes away. Black swan days as normal?

And anyone today without cognitive dissonance is simply not normal or has expired.

Application time: how is your business planning to respond?

Some businesses are able to keep on just as if COVID and its flock never happened. Amazon, Costco, Walmart, and many large retail food chains. The small business carnage continues. Airlines and hospitality businesses remain devastated.

Of the 17.6 million businesses in the US (2020), just 0.2% – 35,000 – are large, with annual sales above $100 million. Another 6.6% – 1.2 million business – are medium-sized, with annual sales between $1 million and $100 million. By far the vast majority of businesses – 82.6% – have less than $1 million in annual sales.      

Clearly, small businesses that have the least ability to respond and survive are being hit the hardest. This is extremely bad news under any scenario.

Medium and larger businesses will generally have some significant options in their responses. My guess is that the majority of these will hunker down with some combination of normalcy bias and cognitive dissonance responses – doing mostly what they have always done and hoping for the best.

A quick read of today’s news tells me that there is a lot more bad news coming in 2021. Mostly black swan types of bad news. Normal seems to be a long way off and reality is still very fuzzy.

What can you do if you are pretty sure that some serious bad stuff is rolling in but you don’t as yet have any reliable knowledge of just what “bad stuff” might be. Lots of theories and wild guesses but nothing that you can bet your business on.

Small steps and reality-testing

This is not a time for placing big bets if you are a typical non-Amazon type business. My previous post in fact argued for thinking small as a way to restructure so that any unit failure doesn’t kill the whole business.

Thinking small is proactive generally over a somewhat longer-term. But what can you do today? Again, take actions in small steps so that you can readily and quickly pull back if things are not working well.

These small steps are in effect experiments that give you real-world information about what may be happening. If you have a set of scenarios available, step responses should begin to tell you which of these scenarios seems to reflect what is actually taking place – reality in other worlds.  

Discovering sequentially some aspects of a still-fuzzy reality can help guide your small-step action sequence. You don’t need the full story but just a fact-based, gradually-unfolding picture of your most likely scenario.

This process also does not require any foreknowledge of what the black swan flock may be up to next. Good thing, because black swans are inherently unknowable except after the fact.

What is a “small step”?

Calling the steps “small” may be misleading. What each step should be is an action that does not endanger the business it if does not work out and also one that can be rolled back with an acceptable cost.

Suppose for example you are a retailer that needs to have pickup and delivery (P&D) services added at most of its locations. Locations without such services may well have to be closed since in-store traffic is down by 75% or more. What is a small step in this situation?

You may be able to come up with a much better idea here but my sense is that the first small step would be to add P&D services at only your highest volume locations. This should tell you enough about the impact of these services on store profitability to be able to make a sound decision about the next rollout step.

Non-P&D stores could be left open and subsidized as needed while this focused step is implemented and results assessed. If P&D costs prove too high or your products do not readily attract sufficient P&D volume, you could stop the services where they are clearly not working and try another approach.

As a second step, you might be able to add or switch to products that are proven to attract solid P&D volume. You might close a few locations to see if you can move most of their sales to remaining locations.

A third step might be to centralize pickup and delivery services to see if volume and costs are high enough relative to location-based services.

What could you learn about your new world?

Each step should tell you something about where your markets (and products) may be headed. You may learn that your products cannot be sold profitably using P&D services. You may learn that only stores with specific demographics will support P&D services profitably. You may learn that only certain products or categories can be handled this way.

In an unpredictable, fast-changing business environment, you have to learn as much as you can at each step without making a major or permanent commitment to a step until its value can be firmly established.

You may think that all of this is what good managers do today. What is different here?

The difference is simply to do as much as possible in small recoverable steps and to make sure that each action is designed to tell you something about the reality you are dealing with.

Bottom line:

A flock of black swans seems to be upon us. Just what they are bringing will be largely unknown until it is too late to act. This unavoidable situation calls for cautious actions in as small as scale as possible and for using each step to generate firsthand information about what works and what does not.

Inc magazine in a recent article offered some alternative guidance in its “How to Protect Your Company From the Normalcy Bias Trap During Covid”:

“As companies rush to reopen, many are falling into the trap of “getting back to normal.” They don’t realize we’re heading into an era with waves of restrictions due to spikes in Covid-19 cases. Several states that opened early have now reimposed some restrictions, showing that–as I predicted at the start of the pandemic–we may face rolling shutdowns, and therefore need to focus much more on virtual interactions.

To survive and thrive in this new abnormal and avoid the trap of normalcy bias, leaders must understand the parallels between what’s going on now and what happened at the pandemic’s start.”

Another timely Inc magazine article provides yet another viewpoint on the normalcy bias: “How Normalcy Led Boeing Into Disaster”:

“Due to the grounding of its 737 Max airplane following two deadly crashes that killed 346 people, Boeing lost $5 billion in direct revenue by ?July 2019. Investors valued the overall losses–ranging from damage to the brand to losing customers–at over $25 billion by March 2019. In October, new revelations about 737 Max problems exacerbated the company’s losses. In late December, Boeing fired CEO Dennis Muilenburg due to the 737 Max fiasco.”

“What led to this disaster for Boeing? On the surface, it came from Boeing’s efforts to compete effectively with Airbus’s newer, more fuel-efficient Airbus 320. To do so, Boeing rushed the 737 Max into production and misled the Federal Aviation Administration (FAA) to gain rapid approval. In the process, Boeing failed to install safety systems that engineers pushed for and failed to address known software bugs in the 737 Max–glitches that resulted in the eventual crashes.”

Aidan McCullen writing in Medium.com addresses business cognitive dissonance in its article “Split-Brained Business: Corporate Cognitive Dissonance”:

“Cognitive dissonance is the mental discomfort (psychological stress) experienced when we simultaneously hold two or more contradictory beliefs, concepts, or values. The occurrence of cognitive dissonance is a consequence of a person performing an action that contradicts personal beliefs, ideas, and values; and also occurs when confronted with new information that contradicts said beliefs, concepts, and values.”

“Many CEOs and leaders experience cognitive dissonance when they are aware they are managing a business while many competitors or startups are operating a newer version of their business. Often this newer version is built for the needs of the customer of today, while the older business knows their business is a melting iceberg.”

“Business leaders deal with this in various ways. Some choose to ignore the inconvenient truth. Some launch sheep-dip innovation projects to appease the board and shareholders. The few that accept the challenge realise that they need to change the business operating system. They cannot throw the baby out with the bathwater; after all, the business of today is making money and is well established.” “The dilemma arises: how do we manage the business of today while implementing a new operating system for the business of tomorrow?”