YOU WON'T BELIEVE IT!

Let’s start by rewinding the clock to 2007.

A new smartphone

In January 2007 Apple announced the iPhone, a smartphone with a touchscreen but no keyboard. It was launched later in June. Of course, the smartphone category already existed with devices from companies like Blackberry (owned by RIM at that time), Nokia, Samsung and Toshiba. Many retained the traditional keyboard like on the Blackberry devices.

RIM rose to prominence with a smartphone and keyboard device but unique in the secure way email was managed. In fact, security was its competitive differentiation with governments, security services and politicians using the device. 

This, together with a great keyboard and long battery life, led them to control half the world's smartphone market. Many know that RIM's stock price collapsed subsequent to the Apple iPhone launch, but what is interesting is that it didn't happen for over a year.  

In fact, RIM shares continued to rise and peak in 2008 (coinciding with the launch of the Apple iPhone 3G and Apple App Store as well as Google's new Android mobile operating system) with revenues peaking three years later in 2011 (the year of the launch of the Apple iPhone 4S). Continuing to succeed for a short period of time after the launch of the iPhone turned out to be catastrophic for the company…

Mental models in Business

So, what was happening in the C-Suite of RIM between 2007 and 2008? In this article we are going to look at the neuroscience of mental models in business and apply that to the case with RIM. Let’s start with some basics about brain function.

The core component of the brain is the neuron.  Neurons are stimulated by electricity and chemicals that allows information to flow (be transmitted) along branches called Dendrites (which are closer to the Neuron) and Axons (that cover longer distances in the brain, like railway lines between stations). Information exchange takes place by specialised cells called Synapses that exist on either the neuron, dendrites or the axon. When you combine all of this together this allows up to 1,000 trillion synaptic connections to form powerful neural networks across the brain. However, some axon branches are stronger (or thicker) than others.

Between 2002 and 2008 RIM's share price had risen 5,000%. With success comes reinforcing cultures of practice (dominant behaviours) as their business model was working i.e. creating success. This creates neural pathways that become stronger (thicker) over time until they are the dominant pathway (the new dominant way of thinking).

These strong neural pathways are extremely difficult to break. Why would you want to break a pathway, why not just travel around it? The brain is sometimes compared to a computer - albeit a sophisticated one. However, a major difference between a computer and a brain is that the "wired circuits" can physically form, break and re-wire (Neural Plasticity) which is not possible on a printed computer circuit board. However, it is possible to form dominant pathways in the brain and these can become hard coded in the way we think - like travelling along a train line and not being able to take a different spur line.  We can but not think in a certain way, especially when this way of thinking has been embedded and reinforced over the period of a minimum of one to two years. Almost impossible when longer.  This was an evolutionary feature that allowed us to think more quickly and reinforce success, that made humans one of the most adaptable species but also vulnerable to being unable to change when there is a sustained steady-state environment e.g. plenty of food, shelter, no intruders or competing species.

Leadership reaction

“It’s OK, we’ll be fine” - Jim Balsillie Co-CEO RIM

When Apple demonstrated the iPhone in 2007, there were likely two default modes exhibited by the RIM leadership team that are almost universal in successful steady-state businesses. Data Denial and Data Rationalisation.  

• Firstly, Data Denial is when you understand the data being presented (you see it, hear it, and store it) but you don't believe it is true - the data is wrong.
• Secondly, Data Rationalisation is where you believe the data (eventually as RIM did in 2008/2009) but you don't believe it is relevant to your business. At the time RIM rationalised the data by saying that the Apple iPhone was a consumer-focussed device, it had poor email security, short battery life and it didn't have a physical keyboard. This was the initial reaction by the then co-CEO of RIM.

This process of denying and rationalising data is physically painful for the brain as when you continue to conduct your business as usual, you get presented with the new data (e.g. a falling share price) but you continue to do the same thing. This is called Cognitive Dissonance - a state in the brain where two contradictory beliefs are held i.e. the way you think is getting challenged from failure, but the same way of thinking used to get you success.

Failure

The usual reaction to being presented with data that you are failing is to work harder i.e. push the same mental model harder but causing the brain to become more painful as you continue to fail (not meet your goals). This continues until some catastrophic event. The catastrophic event is when you finally accept failure e.g. a share price collapse, the Board removing a CEO, missing bonus and incentives or trusted employees leaving. This creates a strong signal that you have failed, the brain treats this as a threat to survival, and finally that hard-coded mental model (neural pathway) physically breaks. I say physically, because that is what happens. The neural pathway breaks, there is no connection, and the brain struggles a great deal as there is no connection where one used to exist. It can never reconnect again, and you will have no memory that this connection was ever so strong. Interestingly, even with video evidence of the prior way a person thought they don’t believe it or try and rationalise it with the new way of thinking.

Again, this is an evolutionary feature of the brain. The brain is extremely fuel hungry consuming up to 20% of a human's fuel intake. It must save fuel wherever possible and one way of doing that is not changing the physical wiring if it doesn't need to. That is why it takes emotionally impactful failure (a threat event) to break these strong neural pathways.

In its place, new, young connections start to form around it. Rational business people will try and get out of a failure state as quickly as possible. So, they try new things. At first some fail, and some succeed. Failures get discarded and successes get reinforced until such time a mental model is strong enough to get results and become the new pathway. The good news is that these pathways are not reinforced and strong just yet, so they remain flexible and easy to break. This is called Cognitive Agility - the process of being able to function with high capability but also change direction quickly when presented with new data. However, once a business model works, the mental model is reinforced and over one to two years again (without any market challenges) the same strong (thick) neural pathway is laid down and this becomes the dominant pathway (mental model). And the cycle starts all over again.

Implications in business

You can therefore see that failure, doing new things and challenging yourself when doing well, are all essential to prevent dominant mental models threatening or destroying your business as it did with RIM and many other businesses before it and since. If your business has been successful in a steady-state market for more than one to two years you can be sure you are vulnerable to market change. The shocking thing though, is that you probably won't be able to see it, and if you do, you won't believe it - until it is too late.

How can you protect your business?

Given the power and complexity in brain function it is hard to believe that we can possibly understand it or manipulate its function. However, neuroscience research has been greatly advanced since 1991 with the advent of functional Magnetic Resonance Imaging (fMRI) that allowed researchers to physically see brain function in real-time given certain external stimuli. This research has since led to extraordinary advances in the understanding of brain function and new methods to change cultures of practice in business.

One such technique is to allow the acceleration of time given the above market shocks using simulation and gamification methods and supporting technologies. This has seen traditional one-year change programs compressed down to just two (2) days, accelerating the iterations of data denial, data rationalisation until such time that failure is accepted, and new mental models start to form. This technique is so successful it saw one company become the best performing stock on the Australian Stock Exchange (ASX) in 2015, but with many case studies around the world for large and smaller companies.

Contact

If you would like to talk about transformation, change and innovation in your business, these methods or whether your business is vulnerable to market change please email me at [email protected] or call me on +61 477 220 233 to discuss further.

David is a Director at Mission Dynamics, a Strategy Consulting firm helping Executives with shortcuts to achieve their goals. David has considerable expertise of working with executive teams on the development and successful execution of sustainable business strategies. He has over 20 years’ experience in business transformation and combines classical techniques with the latest research in human behaviour and the neuroscience of change. David has an MBA from Melbourne Business School, an Honours graduate degree in Mathematics and Computer Science, and tertiary qualifications in change management and behavioural science from Georgetown University and Stanford Graduate School of Business.