How does loss aversion bias impacts AI adoption and what can we do to mitigate it against? Bonus: a success story in retail.
Everyone talks about digital transformation, what’s the right way to do it and why are companies failing at it.
Digital transformation is NOT a new thing. In the simplest terms, it means buying and adapting new technology across a company. So, if digital transformation isn’t new why it has been such a hype recently about it, why do companies fail at it and why am I linking it to bias?
First of all, digital transformation is now almost exclusively associated with the use of Artificial Intelligence. Mostly because the majority of digital technologies use AI for automating processes and thus reducing manual workload which ultimately should lead to people having more time to be creative (see the image below). However, this is only the case if there’s sufficient AI-human integration. That’s only the case if a company or a staff actually uses AI and adapts new software. If an AI-powered technology improves our work then why are people skeptical about using it?
From Fitts 1951; Hollnagel, 1999
This brings me to loss aversion bias which Psychology Today describes as an “expression of fear”. Our brains are designed to keep us safe. It dates back to the good ol’ times when we lived in caves and were yet to invent weapons to chase away scary predators so our detection systems (unconscious of course) for risk are more sensitive than the ones that gauge reward or positive outcomes.
It’s not your imagination, we are wired to pay more attention to the negative things. Moreover, negative emotions (receiving criticism) have a stronger impact than good ones (receiving praise). Classic example- have you ever argued with the partner about why he/she didn’t do the dishes? You’ll always remember that time they didn’t do it. They are simply more attention-grabbing to our brains.
It can manifest itself with us being avoiding new technology, findings excuses to stick with old legacy systems and resenting a change because we are used to doing things the old way. The other issue with introducing AI and digital transformation is that people are often afraid that technology will replace their jobs because the software is more efficient when it comes to operational tasks and cheaper than hiring a human who needs holidays, gets sick, gets into conflicts with coworkers over who drunk almond-milk from the communal fridge etc.
Digital transformation is about the change. We can all admit we find it hard to change hence our brains can unconsciously start manifesting loss aversion bias. We may be concerned that new technology or processes might be difficult for us to adopt if not even fully replace us.
So what are some ways that we can reduce risk aversion bias when our company is undergoing a digital transformation?
· Introduce language that will encourage experimentation. One way to familiarize yourself with risk is to consider using language that will encourage experimentation. It can help you reduce the feelings of risk so you can be more comfortable with experimenting with new ideas.
· Break it down. If the initiative you are underdoing will take 2 years and cost thousands of pounds, break it down into smaller blocks like quarterly reviews. This approach is helpful for presenting new ideas to your board because they don’t have to commit to one large resourcing or budget ask, but smaller, more manageable ones. After all, the best way to eat an elephant is a bite at a time.
· Walk the talk. If you are a leader within your team, set an example. Demonstrate your commitment to the cause and encourage new behaviors. You can do it by attending a training session on the new technology that’s being rolled out and be open to the feedback. Be open to any feedback from your team so you can have a realistic picture of how things are going and make any adjustments as you go.
· Track and facilitate adoption. One way that can help your team to make them less averse of adopting new technology is to show them how much more time/resources/manual work they were doing prior to acquiring technology and compare it with how the automation will free them up to.
· Provide incentives for change. Consider recognizing and rewarding employees who are engaging with new technology and processes. You can consider tasking the team member who has been positive about the change to be an internal champion within the team.
· Focus on the benefits. Keep in perspective that if the initiative doesn’t work out, you can change things back to the way they used to be. Even if 80% of the project fails, what was the 20% that was of benefit to the business? In order to improve, we need to test things to see what we can do better and how we can drive better results (I’ll cover the subject of testing in the next post).
A common misconception about digital transformation is that it’s all about technology, where in reality it’s about the customer. Technology change is involved but the ultimate goal is to create a better business to better serve your customers. Let’s finish on a positive note and look at a success story of Galleries Lafayette.
In the challenging retail environment, Galleries Lafayette is a good example of how a digital transformation can be rolled out successfully to create a hybrid between digital and physical. GL understands that the physical presence to be close to customers is at the heart of their business. The new store at Champs-Elysees will carry curated luxury items and the sales staff will be known as personal shoppers or stylists to bond with the customer. This interaction will make the physical store an initial interaction. GL’s other store has been equipped with tablets for the employees. The Gallery recognizes shoppers who come to the store often have a lot of knowledge from an online search. The tablets allow employees to quickly browse the online catalogue and become equally informed.
Galleries Lafayette is an example of how hybrid models can put the customer at the center of the business.