The Optimism Illusion

In this article for leading magazine Outsource, founding partner Andy Palfrey explores the prevalence of optimism in many outsourcing relationships and provides some pragmatic advice on how to manage it to deliver long lasting business value.

"Many of you may have been, like me, entertained at Volkswagen’s recent series of ‘well worth it’ television adverts. For those who have been trapped on a remote desert island, or been relying on the City of London public Wi-Fi for their streaming media delivery, let me explain…

The series of three adverts – ‘Parachute’, ‘Shark Cage’ and ‘Rope’ – remind viewers of the pitfalls of sacrificing quality in pursuit of a bargain. ‘Parachute’ sees a hapless (and naively optimistic) first-time skydiver purchase a sub-standard parachute which “hasn’t been as rigorously tested…” when the deal is sweetened by the offer of a clock radio. ‘Shark Cage’ sees a father choose, much to the dismay of his young son, a shoddy-looking (but cheap…) shark diving tour operator, armed with the flimsiest of shark cages. ‘Rope’ explores the interaction of two rock climbers about to abseil down a cliff, one of whom questions the frayed-looking rope and is met with the great line of “the guy in the store told me it was almost as good as their standard rope…. You know me, I love a bargain!”.

Whilst clearly tongue-in-cheek, these adverts got me thinking about the similarities between them and many real-world experiences in the outsourcing world where optimism, as opposed to evidence and analysis, seems to have been the basis for critical decision-making. It would be unprofessional of me to share any, let alone my favourites, from my ‘black book’ of poor outsourcing decisions, but I will say this: many single, ill-thought-through yet inherently optimistic decisions have cost organisations tens of millions of pounds, have resulted in many good people losing their jobs and adversely impacted the service quality delivered to tens of thousands of users. This article aims to examine the nature of why we are often too optimistic and of course, explore what we can do to help avoid making similar mistakes.

​Optimism – or, more correctly, an ‘optimism bias’ – is the tendency to overestimate the likelihood of having good outcomes and to underestimate the likelihood of having bad outcomes.

We think we will live longer and have better careers. We think we will be less likely to fall ill from serious disease or be in a car crash. All of these are, of course, disproven by robust evidence, yet we remain inherently more optimistic than realistic. Leading work in the field of cognitive neuroscience has proven that around 80% of us have this optimism bias – but the vast majority of us are oblivious to it.

So when an organisation is over-optimistic about receiving great service and its service provider is over-optimistic about its ability to deliver it, surely the likely outcome will be failure to realise the expected business value? With one leading research organisation informing us that their analysis shows that approximately two-thirds of outsourcing deals fail to deliver the expected benefits, could it be the case that optimism is the ultimate root cause? Perhaps…

Research has shown that unrealistic optimism is often the cause of considerable and costly failures. The tabloids are littered with projects that cost too much, deliver late or worse, get scrapped. Unlikely or statistically ‘impossible’ events seem to happen with alarming regularity – in both major outsourcing programmes and BAU service delivery – which of course frustrate and annoy in equal measure, as well as incurring irrecoverable costs in the millions – or sometimes billions. The root cause of the problem seems blindingly obvious to those distanced from the activity, yet invisible to the programme manager responsible.

Optimism is, however, when well-managed, positive stuff. It is a strong motivational force and it’s well proven that optimists, who typically have high expectations, predominantly feel and perform better in life. Anticipating great outcomes makes us feel better, hence why the National Lottery or Las Vegas exists – as in spite of detailed and inarguable evidence to the contrary, people expect to win the jackpot or choose the winning number on the roulette table.

So, if optimism can be good for us, yet 80% have an optimism bias which gives us a tendency to expect a better (and most likely unrealistic) outcome, it begs one question:

How can outsourcing initiatives maintain a suitable degree of optimism whilst maintaining a tight grip on reality?

The answer in my opinion is simple: lots of information, well shared and understood. Let me expand…

My personal opinion is that many of the ills associated with outsourcing can be attributable to a handful of key areas, which in turn stem from both clients and service providers engaging initially in an outdated, adversarial and often confrontational manner. The result is typically:

  • Slavishly following process, which results in rigidity and a disproportionate allocation of resource
  • Insufficient focus on truly understanding what mutual success looks like and in particular, failing to clarify the delineation between what are musts (‘absolutes’) and wants (‘nice to haves’)
  • Creation of lengthy, professional looking documentation – whose content and purpose is rarely fully understood
  • Development of transition and transformation plans that are (spectacularly) optimistic
  • Creation of contracts that that are not management tools, but ‘weapons of war’
  • Negotiations that focus on short-term savings rather than the realisation of longer-term business outcomes
  • Management and governance of the deal that rarely tracks and measures the original benefits used to gain approval of the business case

My considerable inexperience as a cognitive neuroscientist leads me to offer little advice about how one could address these points by interfering with one’s right inferior frontal gyrus, the area of brain which (poorly) responds to negative information and is responsible for us wearing rose-tinted glasses. However, my much greater experience of developing and managing outsourcing deals that do work leads me to recommend a few simple steps, for both client and service provider organisations alike, that might reduce the rosy tint and create a clearer perspective.

  • Clarify: Be clear on your vision, strategy and objectives and focus on clearly communicating the expected business outcomes. Discuss these at length and only proceed when you are confident that your counterparts fully understand what you are trying to achieve.
  • Collaborate: Work in a manner which encourages both parties to engage and share common goals and outcomes. Spend much more time talking together than writing apart.
  • Compare: Check your solutions, plans, costs and risks against comparable reference data where possible; challenge until you are confident that it collectively make sense. Compare these to as many similar initiatives as possible and if yours appears to be materially ‘better’, ask yourself why? Are you a superhero, was everyone else incapable – or are there too many pairs of rose tinted glasses being worn?
  • Simplify: Being clear and concise results in the production of less extraneous data. Less data is easier to turn into meaningful information which in turn is quicker to understand and hence requires less (optimistic) assumption. I often refer to an outsourcing deal as a ‘machine’ – with inputs, processes and outputs. Using this analogy, when building your own specific ‘outsourcing machine’, make sure you use the fewest parts possible needed to deliver your requirements efficiently and make sure each part is well designed and expertly engineered. It will certainly require less maintenance, be less likely to break down and use less fuel…

Whilst doing these things may require a little extra effort in the short term, the long-term benefits of taking a realistic rather than optimistic approach are considerable and will significantly outweigh the initial investment.

Alternatively, you could dramatically improve your outsourcing outcomes by heeding the simple advice from leading psychologist Barry Schwartz: “The secret to happiness is low expectations.”

This article was first published in Outsource#37 (Autumn 2014)

Optimism Illusion
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