It is not surprising that factors like cost and availability of skilled workers can slow down the pursuit of digital strategy. It was more surprising that there was an inertia about technology, especially at times when digitalization is required to stay agile. This can be explained by psychological factors that hold business leaders back.
Leaders and business owners who are responsible for driving digital strategy have to be aware that their perception of risk is far more important than any other factor. It can be difficult to decide whether or not you want to integrate digital infrastructure. However, it can also be scary because of the unknown. Industry stakeholders should understand the psychological barriers to digital decision-making and encourage adoption of technology in small and medium-sized enterprises. This will help strengthen the backbone economy.
Human decision-making is complex. Numerous studies have been done on this topic to highlight the factors that govern our mental processes. Many studies have shown that we can be influenced to choose an outcome that is not in our best interest. This is also true in business.
It’s easy for corporate decision-making to be viewed as a complex process that requires careful consideration. Businesses are run by people. Our choices, individually or collectively, determine our commercial success.
The unpredictable nature of the human brain can have an impact on a variety of business decisions. This is especially true when we consider the consequences of technology-related decisions. It teases out every aspect of our psyche. For many companies, particularly small and medium-sized ones, new technology is still a leap into unknown territory.
Sometimes, we need a catalyst when faced with difficult decisions. The Covid-19 pandemic, for example, accelerated technology adoption in many businesses, who took the leap and embraced new digital tools to survive. While many small-to-medium-sized enterprises (SMEs) set up websites or e-commerce platforms to process online orders, a significant portion were less willing to take the plunge.
I recently collaborated with Xero to conduct a behavioral sciences study which explored the psychological barriers that prevent digital adoption. It revealed that people still resist change and are skeptical about technology, which prevents widespread adoption. Despite the obvious benefits, this is unfortunate.
The Factors That Drive Digital Apathy
Six out of the 10 companies were confident in adopting new technology. However, only three of the 10 felt worse off if they had to delay digital investment.
It is not surprising that factors like cost and availability of skilled workers can slow down the pursuit of digital strategies. What was more surprising was the inertia surrounding technology, especially at times when digitalization is required to remain agile. This can be explained by psychological factors that hold business leaders back.
Understanding Resistance to Change
Mid-sized businesses might be more accustomed to change after a turbulent few years. It is reasonable to expect that mid-sized businesses will be more open to new tools and processes to help them get back on track, adapt, and thrive in a digital economy.
Many choose to keep the status quo. The Xero study found that many businesses struggle with the “hassle element” — a behavioral barrier that prevents them from convincing themselves that investing is worthwhile, especially if they don’t have unlimited funds.
Change is a constant in life, along with death and taxes. It is something that many people fear, just as it is in the other examples. According to theory, this fear is caused by a lack or control over the future and an inability to anticipate it. It’s simple, really. Fear of the unknown can lead to bad decisions.
This uncertainty is common in business. It doesn’t matter if it’s a new tool or a new colleague. There’s no denying that there is a lot of uncertainty in the business world. It stands to reason, therefore, that despite all the positive changes experienced, an unknown outcome can often be the greatest barrier to action.
Inertia in a context of pandemic dominance can be explained by short-term thinking. It’s difficult for small and medium-sized businesses to see the future when they have to manage the day to day.
The study by Xero confirmed this finding, which showed that seven of the 10 SMEs are still focused on their short-term survival and not how to run their businesses better. This mindset, while necessary in times of crisis, prevents them investing in initiatives like digital transformation which will likely pay dividends over the long-term.
Avoiding mind traps and other decision-making flaws
There are many psychological traps that business leaders can fall into when making decisions regarding digital strategy. These factors can vary depending upon the size of an organization.
“Group thinking” is a dangerous trap. This can happen when the leadership team is too introspective and doesn’t seek out input from others in the company. Often it is the most cohesive teams that fall victim to this because there is no friction or difference of