The Key To Digital Transformation? Don’t Be A Marshmallow Eater

Quick question: how is a technology decision maker like a four-year-old child?

If you said something snarky — be nice. If you said they are alike because they’re both human, you are correct. If you said that they are alike because, being humans, they are susceptible to cognitive biases, then I’m not sure how you came up with such a specific answer — but nonetheless, nice job, you are even more correct.

Cognitive biases are blind spots in the way our brains are wired. We’ve all experienced them — when you look at the clock and it’s much later than you’d imagined or when you check your step counter at the end of your day to find you weren’t as active as you’d thought.

I bring this up because many of us remain prone to certain biases throughout our lives, even as we mature, gain new information, and developer new perspectives. Looking specifically at cognitive biases that affect how we assess value, it’s clear that those of us who work in digital strategy and enterprise IT can actually learn a lot by watching how 4-year-olds make decisions.

In the 1960s and 70s, Walter Mischel (among others) ran some experiments to highlight this particular kind of cognitive bias. He offered children two choices: They could take a marshmallow — a big, juicy, yummy marshmallow to gobble down right away — or, if they were willing to wait a few minutes, they could have two marshmallows.

Easy, right? Unless you are one of those rare marshmallow haters, two marshmallows are better than one.

So all of the children waited for the second marshmallow? Nope. Not even half of them. In the end, only about a third of the kids waited for the big payoff. What???

The kind of bias observed in this experiment is called hyperbolic discounting. In a nutshell, hyperbolic discounting is when people choose a smaller reward that arrives sooner instead of experiencing a delay before receiving a bigger reward. The reason why it is hyperbolic (and not linear) is that this effect is more pronounced if the delay comes sooner.

You read that right. The farther in the future the delay occurs, the more likely a person is to wait for the bigger reward. It’s when the delay happens near the present moment that we so often fumble.

This is why people can save for a house but not resist the chocolate cake after dinner.

I was once involved with a company in New York that made these kinds of cognitively-biased decisions. I won’t mention the name, but if any of you are reading this, you know what you did! One time, a middle manager decided that the free coffee in the break rooms cost the company too much money. He got rid of the free coffee and all the employees started leaving the building on their breaks, wandering the streets of lower Manhattan looking for a warm cup of brew. The loss in productivity was staggering and would manifest over many quarters. But the short term savings on the coffee was registered immediately.

It’s not like this company is alone in this behavior. Every company falls victim to hyperbolic discounting — again, it’s human nature.

When I talk to companies about their need to modernize, transform, and go digital, I hear over and over again that they want to do it, but some short-term project, fire or committee needs to be resolved first. And, once that project is done, they’ll just need to finish the next one. And the next one. Guess what never happens? The big transformation that could save the company.

Stop eating the single marshmallow, folks! Wait for the bigger marshmallow payoff.

If we really want to innovate — really want to save our companies and dominate our markets — we need to overcome this human urge for hyperbolic discounting.

Sure, the project that’s on fire is important. And sure, because it’s already lumbering along through some decades-old systems integration process, disrupting the project might be complicated and cause delays. But you know what’s even more important than that burning project and its deadlines?

Putting APIs in front of all your systems now so that you can reap the massive payoff soon. Taking the extra time to make those APIs easy for developers to consume, instead of just exposing complicated systems. Focusing on user experiences instead of simply completing a project and checking it off the list. If you’d just delay that burning integration project now and do it the right way, with APIs other developers would actually be able to reuse in the future, you’ll already have the foundation for transformation ready for your next project.

Enterprise leaders sometimes talk about transformation as though it will happen automatically some time in the future. Companies use words like “innovation,” “omnichannel,” and “experiences.” But are you willing to wait for the second marshmallow? Two-thirds of you won’t — and we know where that leads. Look at the companies that milked their cash cows dry and waited too long to innovate. When your margins are squeezed, it might be too late.

As I say when I see someone make a bad short-term decision instead of accepting an immediate delay, don’t be a marshmallow eater.

[Looking for more insights about digital transformation? Check out Apigee’s resource hub here.]