Welcome to Lake Wobegon,” exalts Garrison Keillor on his long-running NPR radio show A Prairie Home Companion, “where all the women are strong, all the men are good-looking, and all the children are above average.”
“Above average” is how a disproportionately large percentage of companies commonly view their own business performance outcomes compared to the competition with respect to technology-enabled business initiatives – even when, in reality, they may be performing at a level that is far below average.
This disparity between how companies commonly perceive themselves to stack up against their competitors and how they actually compare according to a set of objective performance metrics speaks to a phenomenon known as the Dunning-Kruger effect.
A large body of research in cognitive psychology is devoted to this phenomenon. Simply put, the Dunning-Kruger effect holds that ineffective people tend to overestimate their capabilities and performance. At the same time, those who are truly effective tend to underestimate their capabilities and performance.
As suggested, the phenomenon is equally applicable to companies and is clearly evident in nearly all Gleanster research across a wide range of topic areas, from social media monitoring and marketing automation to business intelligence and customer relationship management.
Virtually every new benchmark report reveals that companies that are “satisfied” or “very satisfied” with their capabilities with respect to a given business initiative often fail to achieve the expected performance outcomes. Moreover, they often lag behind those companies that are “dissatisfied” with their capabilities, but that, in fact, may actually rank as Top Performers. (By definition, Top Performers represent the top 25% of survey respondents based on key performance indicators that are relevant to the topic of the report.)
Targeted marketing effectiveness is a good example. The latest research findings suggest that the vast majority of marketers are confident that the current tactics and technologies they employ to deliver targeted customer offers at the right time with the right message are working well, with only 12% of respondents self-reporting that they were “not effective” at delivering targeted marketing offers. Yet the research shows that most of these same marketers are, in fact, achieving relatively dismal results when it comes to cross-sell / upsell effectiveness and year-over-year improvement in customer profitability and marketing ROI.
Companies should avoid falling into the trap of thinking that self-assessment reflects actual performance outcomes. Overestimation of capabilities and performance breeds complacency and prevents companies from maximizing the value of their investments in technology-enabled business initiatives. Instead, companies should benchmark best practices while using relevant performance metrics to track and measure success on an ongoing basis.
Charles Darwin, in The Descent of Man, nicely captures the folly that plagues many companies when it comes to this disconnect between perception and reality when he wrote: “Ignorance more frequently begets confidence than does knowledge.” Companies can remedy the disconnect by simply getting a reality check.