The Firm That Wouldn't Wash Its Hands
LinkedIn Article by Tim Williams
November 21, 2016
Paradigms take a long, long time to change. The mental maps we carry around in our heads are etched in neural pathways that both dictate and predict our behavior. If our paradigm is that the world is flat, we navigate very carefully to make sure we don’t sail off the edge.
In a business context, our mental maps are almost single-handedly responsible for the way we structure our firms, manage our people, and charge for our services. And the pitfall we all face is that we mostly have incomplete — or obsolete — maps. We operate as though our mental maps represent the way things really are. But as semanticist S.I. Hayakawa famously observed, “The map is not the territory.”
Hayakawa’s work centered on the idea that we all inherit misinformation that points us in the wrong direction. In effect, we’re on a journey using inaccurate maps that have been handed down by our predecessors.
THE PRE-HAND WASHING ERA
This phenomenon is easiest to observe in the world of science, where paradigms sometimes live unreasonably long lives. When the famed nurse Florence Nightingale attended to the wounded soldiers during the Crimean War, the reigning paradigm among medical professionals was that infection is caused by "bad air." So hospitals would open their windows, even in the dead of winter, in the hope of saving the lives of infected patients.
This mental map about infection also produced a host of behaviors that seem inconceivable today, most notably that doctors didn't bother to wash their hands prior to medical procedures. In the battlefields of the American Civil War, surgeons would operate with unsterilized hands and instruments, not just because of chaotic conditions, but because their paradigm of infection was flawed. It wasn’t until Joseph Lister’s germ theory became widely understood and accepted (which took decades) that medical practitioners began to adopt a saner approach to cleanliness.
It’s in this way that paradigms drive practices. In truth, we won’t really ever change our practices until we first change our paradigm. If we don’t accept germ theory, why would we spend the time and money it takes to sterilize hospital rooms and operating tables? On the other hand, once we do accept germ theory, we wouldn’t think of operating in any other way.
PARADIGMS DRIVE PRACTICES
In workshops my colleagues and I do with professional firms around the world in which we teach modern pricing and the nature of value, we can almost always count on a hand going up with the rejoinder, “Well, everything you’re saying sounds good in theory, but we need to know the practices.” We acknowledge that the practices of firms that employ progressive pricing are quite different, but we also know that no one in attendance will actually change their practices — no matter how many examples we present — until they first change their paradigm about what they really sell. It would be the equivalent of teaching airplane construction to a group that doesn’t accept the theory of aerodynamics.
If your mental map is that the inventory of your firm is a warehouse full of hours, guess what kind of practices that model produces when you're selling your services? On the other hand, if your paradigm is that professional service firms sell intellectual capital and solutions to business problems, your practices will be markedly different. You will, in fact, be inspired to invent completely new practices that align with your updated theory of value.
Remember that a theory is not the same thing as a hypothesis. A theory isn’t just conjecture; rather, it explains how something works. If your theory is that the value of a good or service is equal to the labor that went into producing it (the labor theory of value), you’re operating under a precept that dates back to the ideologies of Karl Marx. And just like germ theory finally produced the right practices among healthcare practitioners, today’s updated theory of value (the subjective theory of value) is producing much more productive, innovative ways for professional firms to capture the immense value they create for their clients.
THE MODEL CRISIS IS UPON US
Thomas Kuhn, in his theory of scientific revolutions, refers to what he calls a "model crisis." According to Kuhn, knowledge-related progress is not steady and gradual. It’s marked by sudden paradigm shifts. After a period of normalcy during which everybody embraces a paradigm that seems to be working, there's first "model drift," then a full- scale model crisis when the whole paradigm collapses. That’s where the professional services world is now in relation to their pricing model. The repeated efforts to prop up and optimize the shopworn practice of selling hours has now officially transformed into a crisis that exposes the ineffectiveness of the model. (For evidence of this in the advertising agency business, witness the decades-long decline in profit margins earned by agencies across the globe.)
Your firm can not only survive, but thrive, in the face of this model collapse. The key is to arm yourself with a new map, one that’s much closer to the actual territory. You can successfully change the practices in your firm, but first you have to change the paradigm. It never works the other way around.