In Practice

Managing Through Rose-Colored Glasses

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It is common for senior managers to look for meaningful correlations within their businesses — for example, to search for the most direct drivers of profitability. However, managers often overreach, overstating relationships that are tenuous at best or may not even exist. In support of this view, the authors, who are consultants in the area of customer loyalty, cite their own recent investigation into common beliefs about customer loyalty (that is, “It costs more to acquire a customer than to retain a customer”), many of which proved to be unfounded. In general, the authors argue, professional managers are too willing to suspend disbelief about cause-and-effect relationships. They allow biases toward a specific business outcome to shape their interpretation of causes and effects. The authors refer to this phenomenon as management teleology.

The tendency to hold onto the most rewarding view of events, the authors offer, is not unique to managers. However, when managers substitute beliefs for knowledge and don’t acknowledge the leap, they put their businesses at risk. New management ideas will always challenge current practices. But before managers embrace new ways of approaching problems, they should require a higher level of analytic rigor. They need to cultivate the habit of questioning the underlying assumptions of their own views, and be open to ideas that come from the outside.

Timothy L. Keiningham is senior vice president and head of consulting at Ipsos Loyalty, Parsippany, New Jersey. Terry G. Vavra is principal of Terry Vavra Associates, in Allendale, New Jersey. Lerzan Aksoy is an assistant professor of marketing at Koç University, in Istanbul, Turkey. They are authors (with Henri Wallard) of Loyalty Myths: Hyped Strategies That Will Put You Out of Business — and Proven Tactics That Really Work (John Wiley & Sons, 2005).

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