When Championing Innovation, Don’t Pitch the Upside

When Championing Innovation, Don’t Pitch the Upside

From electric cars to streaming services, economic uncertainty is driving many companies to tap the brakes on major growth initiatives that were seen as top priorities until recently. The real challenge may lie in innovation leaders’ inability to account for two fundamental dynamics of human psychology.

It’s a tough moment to be championing growth and innovation. From electric cars to streaming services, economic uncertainty is driving many companies to tap the brakes on major growth initiatives that were seen as top priorities until recently.

Ford, General Motors and Volkswagen are among the carmakers scaling back or delaying their transition to electric vehicles in response to softening demand. Media companies like Peacock and Paramount+ have been cutting spending as they struggle to retain viewership. Meanwhile, the scramble across industries to get a generative AI strategy in place is strangling investments in other innovations that could be just as important for long-term growth. 

In this climate of caution, several leaders of growth and innovation have told me they’re struggling to convince their CEOs to dream big and stay the course. These leaders have worked hard to paint compelling visions about what they can achieve. But to their frustration, they’re being told to scale back their plans or wait until next year.

There’s an old joke that every boss is like a character from the Wizard of Oz: they either have no brains, no heart or no courage. And it’s easy to put your own CEO in one of those buckets. But in most cases that isn’t true. And that sort of thinking misses the underlying problem. The real challenge may lie in innovation leaders’ inability to account for two fundamental dynamics of human psychology. When they understand these dynamics, they can shift their approach to something with a higher likelihood of success.

Avoiding Pain Beats Out Gaining Pleasure

The first challenge with any growth initiative is its focus on the upside. For years, economists used to think that people made decisions based on their “expected utility.” That is, people were rational actors, making decisions based on the relative upside of an outcome and the likelihood of that outcome coming to pass. But in 1979, psychologists Daniel Kahneman and Amos Tversky proposed an entirely different theory, one based on the concept of “loss aversion.” 

According to Kahneman and Tversky, people felt the pain of a loss much more than they felt the pleasure of a gain. In their landmark study, they offered respondents two choices. Option A gave respondents a 50% chance of winning $1,000, and a 50% chance of getting nothing. Option B simply allowed respondents to receive $450 for sure. The vast majority of respondents chose Option B, despite the higher expected value of Option A. Yes, we love getting things. But we really, really hate losing things.

Kahneman and Tversky’s work spawned the field of what we now call neuroeconomics. One of its central insights is that folks will do everything in their power to avoid pain, even if that means foregoing pleasure. For leaders of growth and innovation, the takeaway is clear: stop trying to sell people on the amazing things that you’ll achieve. Instead, clearly communicate the bad things that will happen if you don’t succeed.

Focusing on the Present Beats Out Focusing on the Future

The second challenge with innovation work is its focus on the future. Most people—and most business leaders—are wired to focus on the present. Stanford Psychology professor Philip Zimbardo spent a decade studying what he called people’s “time perspective.” It turns out that some of us tend to get stuck in the past, while some of us are obsessed about what’s going to happen in the future. However, the vast majority of us have a worldview that’s all about the here and now. 

Research conducted by my colleagues at Jump Associates indicates that only 16% of people are truly future-focused, meaning that their reality is framed by what’s going to happen, not just what’s happening right now. They’re the leaders who’ve stopped wondering about whether AI will really be as big as people say and have started putting it to work in their businesses. That same research suggests that nearly 70% of people are present-focused. And when you point out to these folks that the world is changing, their reaction is inevitably, “You’re right. But we need to focus on this quarter.” To succeed, leaders of growth and innovation need to turn future outcomes into near-term implications.

Short-Term Pain Before Long-Term Pleasure 

These two dynamics, loss aversion and the tendency to be present-focused, tend to influence how we prioritize our actions. First, we avoid short-term pain, like when we take ibuprofen to cure a headache. Once that pain is removed, we seek short-term pleasure, which is why donuts are so hard to resist. Then, we avoid long-term pain, such as by buying life insurance. And only then do we opt for long-term pleasure, like saving for a happy retirement.

This dynamic is at the core of what makes life so hard for every Chief Growth Officer and VP of Innovation. Their jobs, and often their personalities, are geared toward dreaming big. But the rest of us are psychologically uninterested in spending too much time on building a bright, shiny future. Most CEOs are far more concerned about avoiding the short-term pain of a bad quarterly earnings report. And when the electric vehicle market starts looking soft, it feels like a smart idea to hold off on investing in new battery technology. That doesn’t make them dumb. It makes them human.

This dynamic is hard to fight. And no snazzy video montage or prototype will capture the imagination of an executive who’s struggling to put out today’s fires. Instead, try reframing the argument in terms that activate one’s fear of short-term pain or need for short-term pleasure.

Reframe the Problem

The fact is that failing to act on long-term goals does create short-term pain. If you can make leaders see and feel this, there’s a much better chance they’ll embrace a more future-focused course of action. Companies that lack a convincing plan for future growth, for example, get punished by the Street with a depressed stock price. And while most leaders know what their company’s revenue was last year, only a few can tell you what their company’s earnings multiple is. That multiple is an assessment of a company’s future. Lower earnings multiples attract activist investors, and activist investors are the embodiment of short-term pain. Frame your innovation activity in terms of what it will do to your share price in the short term. 

If short-term pain isn’t really an issue, it’s good to identify short-term pleasure. While publicizing in-market experiments can tip your hand to competitors, it can also generate media buzz. Many top executives appreciate the value of generating positive stories about their company. It’s worth reminding them that doing something cool and exciting is their best chance of being featured in the Wall Street Journal. 

The reputational lift of being seen as a major player in AI has helped tech companies justify pouring so much money into investments with an uncertain payout. Sure, doing so has the potential for long-term advantage, and not doing so will likely lead to long-term pain. But Microsoft, Meta and Apple have also experienced an immediate boost in their share price when they announced their AI strategies.

Of course, not every growth initiative will have immediate results. In those cases, it’s a good idea to try and make long-term pain feel immediate. As someone with diabetes, I’ve been struck by how physicians motivate people to manage their blood sugar. Rather than focusing on long-term health, every doctor mentions the likelihood of getting your feet amputated. You don’t have to look far to find examples of similarly scary outcomes for companies that failed to innovate, from Kodak to Blockbuster to Blackberry.  

When she was head of strategy and innovation at Target, Carolyn Sakstrup used to achieve a similar effect by starting major presentations with an image from Game of Thrones. A picture of a horde of zombies marching across the ice sought to impress on her peers that the threat from Amazon was urgent and existential. The white walkers were coming.

To be sure, new technologies, new businesses and new markets take a while to develop. Not making these investments can put a company in danger of getting left behind. But there are many points along the journey where it’s critical to keep stakeholders engaged and on your side. When things start to get bumpy, it’s not terribly helpful to have an old vision deck promising a great upside. It’s far better to have a clear articulation of the bad things that happen if you fail.

This is a challenging moment for leaders of strategy and innovation, regardless of how they pitch their plans or defend their existing projects. But they risk making it even harder by failing to appreciate the very different mindset through which other company leaders make sense of the world. They’ll be a lot more successful if they can reverse-engineer tomorrow’s dreams into the language of today’s nightmares.

Dev Patnaik

CEO

Dev Patnaik is the CEO of Jump Associates, the leading independent strategy and innovation firm. He’s a board member of Conscious Capitalism. Dev has been a trusted advisor to CEOs at some of the world’s most admired companies, including Starbucks, Target, Nike, Universal and Virgin.