Rory Sutherland is an extraordinary mind. As the vice chairman of advertising giant Ogilvy, Sutherland has made a career out of challenging traditional thinking. With his signature wit and irreverent style, he’s become one of the industry’s most influential and original voices.
Sutherland is a pioneer in the application of behavioural economics to advertising. He’s a firm believer that understanding human irrationality is the key to effective marketing. “The problem with market research is that people don’t think what they feel, don’t say what they think, and don’t do what they say,” he explains. This insight has led to some of Ogilvy’s most successful campaigns under Sutherland’s leadership. From convincing Brits to take “staycations” by rebranding places like Wales, to making Diamond Shreddies a sensation by simply turning the square cereal 45 degrees – Sutherland excels at finding the small changes that have an outsized impact.
But Sutherland’s influence extends beyond the advertising world. His TED Talks on behavioural science here & here have garnered millions of views. He’s advised the UK government on “nudging” public behaviour. And his bestselling books like Alchemy have popularised the idea that the irrational often matters more than the rational.
In this interview I speak to Rory Sutherland, Vice Chairman of Ogilvy and one of the world’s foremost experts in marketing, branding & human behaviour. We discuss how a deep understanding of human psychology and behaviour has enabled some of the world’s most successful brands to succeed.
Q: How do we prime ourselves to give a psychological edge in business?
[Rory Sutherland]: This is why I think good humanities education will always be very valuable in business. Because if you’re simply trained in accounting or marketing, first of all you’ll never have what I call a kind of epiphany. You’ll check all the boxes, you’ll do all the things you’re supposed to do, but that’s not what produces a fantastic business. A fantastic business stumbles onto something psychological which just gives it a fantastic edge.
And there’s a story I love to tell about this. They always ridicule the people at Blockbuster video because they turned down an offer to buy Netflix for $50 million. What people haven’t understood there is if you look at the history of Netflix, Netflix wasn’t worth $50 million because at the time it was just the postal equivalent of Blockbuster. You chose a film, they sent it to you, they charged you, you sent it back. Blockbuster could have replicated that business with its own brand, for a few million, less than that possibly.
Now what happened subsequently was Netflix failed to sell, Blockbuster got desperate, and they tried this offer which was instead of “decide what you want to watch in 2 days time, we send you the film, you watch it, you send it back,” it was “have 3 DVDs at any one time, watch them as often as you want, change them out as often as you want, £19.95 a month. No late fees ever.” And that was the killer psychological hack that turned into a business that was worth 50, 100, a billion dollars. Even before they started streaming.
And it’s also worth noting, by the way, that Netflix’s success is very largely down to the fact that technologically they cracked streaming in a way that wasn’t psychologically irritating earlier than anybody else did. And they got the psychology of that right. I suspect that there are a load of hacks there, in other words while you were browsing films it was kind of downloading the first half minute of one which it had predicted you were going to watch. I’m sure there was some pretty clever stuff which made Netflix feel faster than everybody else. I need to investigate what those were.
But I think what makes a really remarkable business, if you look at it, nearly every really extraordinary business has just hacked into or tapped into something psychological. With Uber I think it was the map to a large extent. And I always make the point that we tend to think that what happens in business is inevitable and marketing slightly accelerates things a bit. But I always joke that there’s a parallel universe somewhere, where everything’s the same, except Steve Jobs was 40% less charismatic. And in that universe, we’re still using phones with keyboards. Which by the way would be better. The people in Canada working for RIM were kind of right, they just got out marketed.
Q: What are your views on data driven decision making in business?
[Rory Sutherland]: Let’s not forget that most data in businesses, the cost of effectively acquiring it is actually driven not by the needs of marketers, it’s driven by the needs of finance, sometimes legal. And consequently most of that data ends up getting aggregated which means you lose the really valuable information, because marketers generally should be interested in the outliers, not the averages.
There’s a great phrase of Mark Ritson, “the average is the enemy of the marketer,” because it actually disguises what you really need to know, which is the outliers, the unusual use cases, the anecdotal eccentricity, where most of the really valuable information lies, I think. But because businesses collect data for the same legal and financial reasons, they end up with pretty similar data. And consequently, differentiation when you’re data driven becomes doubly hard.
I think there’s something really interesting there, which is effectively – I don’t know if you’re a fan of Roger L. Martin, the Canadian business writer, he’s absolutely amazing, I think he’s the heir to Peter Drucker. And he always makes this point that economists have this weird fantasy of perfect competition, where in other words it’s lots and lots of concentric circles, focused on providing exactly the same thing. And his example is that’s the economist fantasy, and to some extent when you have data driven decision making, that’s what tends to emerge. And his fantasy is lots and lots of overlapping circles, where each business has a territory much more its own, and where the overall value of the category is vastly higher.
Because I think it’s worth noting that competition in itself is usually inefficient. The miracle of capitalism is that if you have a central government trying to solve something, it will come up with one averagely optimal solution for everybody. And capitalism will come up with 10 different solutions to the same problem. And that is both much more resilient, it’s less efficient. The Russian idea of “we will produce one car which everybody will buy or aspire to buy and then have to wait 3 years to acquire” is notionally efficient. But actually it only captures a small part of the potential money that’s on the table.
And the miracle of capitalism is by solving the problem in 6 different ways, it both creates more value overall, it creates much more resilience, because some of those businesses are ultimately going to die, and some are going to thrive. But also, it discovers far more opportunities. There’s a really interesting guy, he was like chief investment advisor at Merrill Lynch. And he made the point about investing, that everybody was effectively looking at the idea of investment which is you want to maximise your wealth over time, as if it’s a unidimensional thing.
And this guy said no it’s not like that, actually for both anthropological reasons and probably for very good evolutionary reasons people are trying to do three things. One of them, which is the bit in the middle, is optimize your wealth over time. Take advantage of compounding effects, in other words get richer on Wednesday than you were on Monday. Incremental stuff. The other two things are don’t go bankrupt – avoiding catastrophe is a second objective, then the third objective is having the chance to have a big win. In other words, don’t turn your back on the opportunity to get lucky. Now I think most businesses, most PLCs, are so driven by the finance department’s love of the middle one, that they’re both neglecting what you might call large scale risk at one level, in other words they’re not necessarily ensuring against eradication. And similarly, they’ve actually lost the capacity to get lucky.
Q: What are the consequences of benchmarking?
[Rory Sutherland]: The net result of following that process is you become benchmarked against your competitors. And the benchmarking, I mean Roger Martin is very good on this and various other people, basically go that benchmarking is actually dumb. There are probably fields in which it’s a really good idea, which are what you might call wholly logistical or technical fields. Those kinds of things are okay, but ultimately if you benchmark on everything, you simply become more similar to your competitors and move into a red ocean space which is highly, highly, brutally competitive. And I think Martin’s observation that yes, okay in every market there’s probably room for one, maybe two at most, cost-cutting, cost-led businesses. But first of all you don’t necessarily want to work in those. Secondly, a lot of people don’t want to shop there, and thirdly, there’s only room for two. At most.
The net result of following that process is you become benchmarked against your competitors. And the benchmarking – I mean Roger Martin is very good on this and various other people – basically go that benchmarking is actually dumb. There are probably fields in which it’s a really good idea, which are what you might call wholly logistical or technical fields. Those kinds of things are okay, but ultimately if you benchmark on everything, you simply become more similar to your competitors and move into a red ocean space which is highly, highly, brutally competitive. And I think Martin’s observation that yes, okay in every market there’s probably room for one, maybe two at most, cost-cutting, cost-led businesses. But first of all you don’t necessarily want to work in those. Secondly, a lot of people don’t want to shop there, and thirdly, there’s only room for two. At most.
Q: How good are British, European and American companies at exploiting the outliers?
[Rory Sutherland]: British companies aren’t. European companies aren’t. And partly I think, I mean America in a sense, if you’re in a market, there are two great markets to be in if you want to be opportunity driven, which is a really big one like the United States or a really small one like Sweden. When they come up with Spotify, not for one second did they go “hey, this could be a great Swedish company.” Because they realize, I don’t know how many million Swedes there are, is it 9-10 million? Something like that? And they realize there’s absolutely no point in being a great Swedish company, because although you’re going to have a nice life, there’s a limit to how big you can go if you focus on the Swedish market.
So you immediately have to think of export, in the same way the United States, the opportunity is so vast that an opportunity mindset tends to take hold rather than the “let’s just make sure we’re in the top 3 in Pennsylvania” approach. Now in Britain and Italy and Germany and France, you have A) the massive influence of finance who are broadly speaking risk and variance averse. And this fundamental business, which is if you make everything you do data driven, it’s an inherent limitation on experimentation.
Now let me explain this perfectly, there’s a perfect analogy to explain why being what you might call data-led is problematic. Let’s look at a police investigation, which is a way in which you’re seeking to discover something. The cops will, in the course of an investigation, make use of a lot of information which doesn’t have, at the time, evidential value. Here’s a question that a cop would ask. Let’s say somebody is found dead. Cops would go door to door around the area where they think the crime occurred and they would ask a question like “on the evening on the 17th October, did you notice anything unusual?” Totally open ended question.
To me, the answer could be the dog that didn’t bark in the night, if you’re Sherlock Holmes. Or it could be a pervy looking man in a white van. It could be anything – “did you notice anything unusual.” Our brains, quite rightly, are optimised to pay more attention to things that surprise us than to things we expect. There’s a very good evolutionary reason for that, which is they’re much more important. Surprising things are much more important than unsurprising things. I don’t think data makes that evolutionary distinction between “ooh that’s funny” and “oh, 7.3.”
Now just to be clear, in order to, finally it is absolutely true that you need to be data driven to the extent that the cops know that eventually, it’s not enough to find out who did it, they have to secure a conviction. And that means you have to have information that has evidential value. But in the course of the initial enquiry, you’re free to make use of information which is anecdotal, unexpected. You made no particular prior definition of what information you actually need, obviously as a good cop you’ll have a process list, you’ll have a check list. Whether you do door to door enquiries, DNA samples, you photograph the scene, but you’re also open to information that comes from any source of any kind.
I’ll tell you a great story about this, your part of the world. The Yorkshire Ripper, when he was finally caught, it was two beat cops who actually deserve extraordinary praise for their behaviour. Because they first of all spot that Sutcliffe’s number plate doesn’t really tie with the car that he’s driving. He’s got false plates on. And then they go in and they find a girl in the back of the car, and they arrest Sutcliffe for having the fake plates. At that stage, they’re not totally suspicious but they think there’s something a bit odd going on.
And while they let the girl go free, probably saving her life by the way in the process, while they were arresting Sutcliffe he asked to have a pee around the corner in a couple of plants. Seems a reasonable request, they let him go and have a pee, you don’t stare at someone peeing, and they get into the car, he’s back in custody. And then one of the cops has a little bit of an epiphany which neither of us I think unless you’re a massive habitue of the Bradford red light district, neither of us would have noticed. Which is they go “did you notice that guy was parked the wrong way round?”
And you’re going what the hell does this mean? But they knew it well enough, they said that generally the punters in the red light district used to park with the windscreen facing the wall so you couldn’t see what was happening in the back seat. Sutcliffe had parked with the car facing outwards, as if he wanted to make a quick getaway. And they went “that’s a bit funny isn’t it? No-one parks like that.” Neither of us would have known that. And they go “do you remember he went and asked for a piss? Let’s just go back and have a look at where he went and had a pee.” And they go back to where he went and had a pee, and he hadn’t really had a pee at all, he’d actually dropped a screwdriver and a hammer in a clump of nettles.
Now you’ve got evidential value. Up until that point they had no evidential value, but they used an investigative open-minded open-ended process of thinking backwards as Sherlock Holmes calls it, to get to that point. You can’t bang someone up for life for parking in a funny way, nor should you be able to. There could have been multiple other reasons why he parked in a funny way, if he was very bad at parking perhaps, I don’t know! But he’s a lorry driver, I think we can assume he was pretty good at reversing. But the point was that in the process of getting somewhere significantly new, yes ultimately you will need evidence to support what you do, but it is absolutely essential that you’re allowed to make use of information that is merely anecdotal, peculiar or unusual.
Q: It does seem car makers really get this?
[Rory Sutherland]: Actually car makers are very clever, at least in that they also realise… I’ll give you a lovely example of that. I mean, Elon Musk has a certain kind of childish quality to him which partly makes him successful as an entrepreneur. Which is the Tesla dog mode.
I don’t even have a dog. Or a cat. But the fact that they have dog mode, it isn’t really saying “here is a great function if you have dogs.” It’s a clever idea because the problem, just for people who don’t understand what I’m talking about, because the Tesla is electric you can leave the air con running while the car is unattended, without the engine notably running. So people would leave a dog in a Tesla and the air con was running, the dog was perfectly happy, it was 72 degrees Fahrenheit inside even though you’re in a car park in Phoenix or Arizona somewhere or whatever.
And then occasionally, animal rights people or concerned bystanders would assume because the engine wasn’t running, “shit that dog’s going to die in that car, it’s going to die of heat exhaustion.” And they go and smash the window. And so Elon developed software which is called dog mode, where if you approach a Tesla with a dog in it in hot weather, a big sign comes up on the screen saying “don’t worry, it’s 72 degrees inside, I’m completely comfortable. My owner will be back soon.” No smashed window. Actually yes that’s valuable in and of itself, but even for people who don’t have a dog, it’s beautifully emblematic of attention to detail. It’s if we put this much effort into this small thing, just imagine how much discretionary effort we put into all the other stuff. There’s a great British Airways ad, “we don’t just fuel the plane, we fuel the passenger”, which shows a knife cutting into a mushroom that looks like a jet engine.
Vikas: Entrepreneurs like Elon Musk really do seem to fundamentally get what the customer really wants?
[Rory Sutherland]: This is the wonderful thing about what you might call the alignment problem. The alignment problem is well known in algorithm design and so forth. But it also applies in marketing, in the sense that where you devote your effort as a car company is usually things like the drive chain, the suspension. But the consumer doesn’t have time — that’s not quite true, there’s a small percentage of consumers who obsess about that kind of stuff — if you’re in a market that’s selling motor cycles, there will be a significant portion of your customer base who are what you might call spec driven, who are also computing on mobile phones. There is a percentage of people who are just “I want the spec.”
But the majority of people are less aspergic, the people who buy your product are generally less aspergic than the people who design, manufacture and produce it. Many of those people don’t care about those things at all. So famously, when David Ogilvy wrote that advertisement which was “at 60mph the loudest sound in the new Rolls Royce is the ticking of the electric clock”, which he actually got from an auto car review, he didn’t actually write the line but he spotted the line. The engineers were really annoyed about it because A) it was criticising the clock, but also because they spent a fortune designing the whole Rolls Royce, and here you are talking about what you might call as a totally irrelevant sub feature of the product. But what’s meaningful to consumers and what’s decisive to consumers is not well aligned with what people designing a product think is important. Which is why Steve Jobs, by the way, was such an important person in tech, because he couldn’t even cope. And the thing about Steve was he was not a technologist. And he obviously surrounded himself with people who are brilliant technologists, that was absolutely necessary, but nonetheless the iPhone won, not because the spec was more impressive than the leading Nokia phone at that time.
Q: How do you really understand what the buyer wants?
[Rory Sutherland]: Everybody goes “ooh Rory.” You’ve got to remember, this shit’s my job and I’m paid to think about it. It’s also my hobby. So I’m paid to think about it a lot of the time, and when I’m not being paid to think about it, I’m still thinking about it. My dad ran a small business, conscious of the fact that we didn’t have enough marketing. It could have been a more successful business if we just advertised more, because one of them was running water boats on the Brecon and Abergavenny canal, they were water buses that seated 48 people, and he booked them out for parties.
And thinking about it, to be honest he made enough money from it, maybe he didn’t want it to be 8 trips a day in the summer. We didn’t do special offers weekdays; we didn’t do any of that marketing stuff. People came and they booked and either we were free or we weren’t. There wasn’t a reduction for doing it on Wednesdays, which there should have been, looking back. We didn’t think about that stuff.
I sympathise with anybody running a business, because unless you’re actually paid to think about this stuff and it’s your exclusive job, and if you’re a small business there’s no-one in a pub who’s the marketing person. Now here’s where it gets problematic. You get into much more trouble in business for a cost than you do for an opportunity cost. So consequently, your marketing may be very, very important, but it’s never urgent.
And let me tell this story which I thought was really revealing, because I’m driving along a dual carriageway, the A40, between Monmouth and Raglan. It’s kind of like 10 o’clock at night. My wife and I know there’s a motorway dual carriageway service station there, and my wife and I need to buy milk or some bullshit. And we drive along and all the lights are off, and my wife goes “oh shit, it’s closed.” And I said “it looks completely closed, it looks less welcoming than the Bates Motel to be absolutely honest.” I said “but I’m sure I went there on Christmas Day, I bought something like 11 o’clock on Christmas Day, I’m pretty sure they’re open 24 hours.”
So we turn off anyway, what’s to lose? Sure enough the whole place is open. Sure enough because it looks so closed, we’re the only customers. And I think for the whole duration of our 10-15 minutes there, nobody else came in. And I go to the guy behind the counter who’s operating the service station, and I go “do you realise all your lights are off on the road? It looks like you’re closed.” And the guy goes “oh yeah, I think the guy on the last shift probably forgot to turn the lights on.”
Now I’m a marketer, and I’m going “turn the fucking lights on. Go and turn them on right now. You’re pissing away £1000 worth of revenue overnight, between now and daylight, 6 in the morning, whatever. You’re pissing away £1000 of sales.” But the guy seemed completely unconcerned, because it was a sin of omission. Now it occurred to me, if that same guy had nicked a Lion bar at 2am in the morning because he got a bit peckish, there’d be hell to pay, he’d lose his job, all sorts of people would come in and say we’ve got evidence that you’ve been stealing a Lion Bar.
So a sin of commission doing something badly, is a terrible career move in business, but a sin of omission which is failing to do something which you should be doing, in other words what I’m saying is marketing for small businesses always falls into that category of something that we should be doing, but we can always put it off until tomorrow and if we don’t do it nobody gets a b****cking. Because you don’t get a b****cking for an opportunity cost as much as you get a b****cking for a direct cost.
And the problem, I totally sympathise because my dad ran a small business and we should have done a lot of marketing but we were busy and it’s always the thing you can put off until tomorrow. Putting an ad in the local paper. Coming up with new products. That’s the stuff that is important but it’s never urgent. And so there’s this fundamental problem.
One of the things I think is interesting is let’s say you’re in the small shop or you’re in the restaurant/café business, I’d be very interested, obviously those businesses can see Deliveroo as like a frenemy, but actually Deliveroo I think has an opportunity to go and help those people, not only by marketing their delivery business but actually by marketing their restaurant business. Because I totally sympathise. You’re running a restaurant. What is going to get attention? We need to do two Instagram posts to our current thing, or there’s a leak in the back room and there’s water tipping all over the kitchen floor. The second one is always going to be the focus of your attention.
So that problem, one of the reasons I’m glad I’m on TikTok and YouTube and everything else is that most marketing agencies, ad agencies, tend to sell insights like bloody Faberge eggs. Here’s one, it’s really precious, it’s specific to your brand and your brand only and nobody else can use it, but it’s just for you and your brand communications budget and maybe 3 years later we can give you another one. I’m going “no no no, we should be selling marketing insights like coke”. Which is everybody can have one and they’re all great. And I think there’s something about that, which I go if you’re looking at that agency, in the course of perusing advertising, it produces as a byproduct tons and tons of really interesting insights, most of which end up rusting on a heap somewhere because they only provide one. And I think this is a terrible, terrible, terribly inefficient use of information.
Q: It seems very hard to apply these principles to B2B sales, where there are so many controls, processes and gatekeepers?
[Rory Sutherland]: That’s a brilliant, brilliant point, which is that whole question of particularly B2B marketing. I find this absolutely fascinating. There’s something there which I think is fascinating, because we’ve now created a world where the challenge for the B2B marketer, you’ve got compliance, you’ve got procurement, you’ve got all those bureaucratic procedures people have to go through. It’s not just a world now where it’s difficult to sell. You’ve actually created a world where it’s difficult to buy.
Now the consumer world, if you’ve got the money the one thing you can say is it’s not difficult to actually spend money, generally. You could argue that big purchases require sanction from another member of the family, you can’t just get your kitchen remodelled without discussing it with another person, but in the case of B2B the buying unit has become, I met somebody who knew a business where they were trying to sell to the NHS, quite a useful innovation. And the innovation, the application of that product had to be approved by 11 people in sequence, and if one of those people vetoed it for whatever reason, it couldn’t go ahead.
That just strikes me as fundamentally terrifying. I despair for the economy because of the extent to which in B2B we’ve made actually buying anything so bureaucratic and difficult process that it’s now incredibly difficult for companies to innovate. I genuinely don’t know what we do about this.
I think that what’s happened in business is fear of litigation and general paranoia, and you can extend that to things like fear of bad DEI figures or whatever. The byproduct of this, an unintended consequence is that what you might call those ancillary organisations like HR and procurement and compliance have basically taken over the running of businesses. Effectively parts of the organisation which should be in support of the main business objective. It’s called Pournelle’s iron law of bureaucracy, there’s actually a name for it, which is that the people dedicated to the bureaucracy generally triumph over the people who are genuinely trying to do what the business is supposed to be doing. And I think it’s a large part of a wider economic malaise. It genuinely worries me. Because it’s difficult enough selling in B2B but now you’ve got people who are trying to sell in B2B to people, I occasionally go to a business audience and say “is there anybody here who can make a decision on their own anymore?” Other than when you go on a business trip, you might be able to decide which of 4 hotels you stay in.
[Rory Sutherland]: But there isn’t a real decision maker. Maybe the CEO on a really good day. In a developed economy like the UK or US, B2B is 50% of the economy. Business to business businesses. In the Soviet Union if you wanted to buy something from GUM which was their department store, in order to maximise employment, you queued to specify what you wanted, I’m not making this up, then you queued having said “I’d like a pen”, you’ve queued in a separate queue to pay for the pen, and then you joined a third queue to collect the pen.
Now anybody in that kind of world would say we’ve got a major economic problem here because fundamentally, we’re imposing this massive friction on consumerism which is making people really reluctant to go out and buy a pen. And we would spot that. Now in B2B, this exact same thing is happening in a capitalist economy, where we’re making it almost impossible.
I mean, I told a joke, I was at an event, a Christmas event, and I said I must admit, while I’m staying here in the hotel in Canada, I’m getting a bit wild on the dry cleaning, because it’s the only thing over which I now have any kind of… I’ll probably get told off by someone who says this is in breach of our travel policy. A travel policy as I said is advised by finance people who never actually travel anywhere.
But the extent to which this rulebound thing. I always joke about this, the great thing about Britain is we’re really good at being pirates. And then we were so good at being pirates that all the descendants of the pirates decided to become bankers and accountants. Ultimately the wealth came from the British East India company or Francis Drake or whatever. So you create wealth through this opportunism effectively. Then what happens is once the wealth accumulates, the bureaucrats effectively take over.
And there’s a weird theory about this by the way, about Latin America, which is that what happened in Latin America is a lot of the gold, untold wealth, why Latin America became bureaucratic is a lot of the gold got stolen. And so they put massive procedures in place to prevent gold being stolen on the way between the mine and Spain or Portugal. And as a consequence, the people couldn’t steal the gold, but what they could do was delay shipment. Sufficient to actually command a bribe to speed things up. So you then created a kind of bureaucracy which was effectively demanding money with menaces if you’d like. And it’s only one of many theories about why North America was wealthy and South America had tons of other things which also have explanatory powers. But you can see how that kind of culture emerges.
Vikas: Are we losing that human-to-human skill, and relying too much therefore on digital?
[Rory Sutherland]: Here’s my little thing, I’m totally in favour of an organisation being heavily data informed. I also accept you reach a point where you need evidential value for what you’re doing. But you need an investigative process that precedes the evidential process. There are two problems there. If you demand data first, the data that there was a funny man in a white van outside or Mr. Sutcliffe had parked the wrong way around doesn’t fit in, it’s anecdotal and not really considered robust or evidential. But it’s nonetheless significant, it tells you where to direct your attention next.
The second thing is if you demand that every single business decision that’s taken must be argued first, you’re demanding a level of reason before you act, which is fundamentally at odds with a process of discovery. And I always give the example that Red Bull, Dyson, there was a list of about 5, there was absolutely no Nespresso. There was no evidence before those businesses existed that there was a market for what they were selling, precisely because what they were selling was fundamentally different.
You had to at some level accept the degree that look, my argument for Nespresso would have been people are becoming much fussier about coffee. The espresso type coffee is an increasing part of everybody’s share of throat, therefore we need to find a lucrative way in which we can actually tap that market at home, without people having to buy a £700 bean to cup. That’s not an argument, that’s merely a hypothesis. And if you demand that the only activity a business can undertake is one for which it has a pre-existing ROI, you can’t do anything. All you can do is do what you did last time but cheaper. So as a result, business becomes overly focused on cost cutting, and the efficient performance of current activities, and completely under focused on exploration and discovery.
Q: What do you hope your legacy will be?
[Rory Sutherland]: There are a few books, Alex Hormozi’s book $100M offers and the sequels he’s written, there are books like Richard Shotton’s The Choice Factory, I would like to be remembered as one of the people in a general movement, that simply made, whether you call it behavioural economics, behavioural science, psychology, doesn’t really matter, but made the importance of understanding psychological firewalls and consequently the search for psychological solutions for the problems which were assumed to only have a technological answer.
If there’s a consequence of what I say or do or write, 1% of people 1% of the time in any kind of decision making capacity just go “I wonder if there’s another way to do this” or “are we actually optimising to the wrong metric here because we’re optimising to a numerical metric rather than an emotional metric” for example. If just very occasionally a license is given for those kind of solutions to be at the very least explored and tested, then that’s enough of a legacy.
Because I’m not claiming for a second by the way that my mode of decision making or thinking and the mode of other people who tend to think a bit like me, and entrepreneurs nearly always have an unusual cognitive style by the way, whether it’s Musk or Bezos or whoever, they actually have an interesting philosophy of decision making which is not that normally found in bureaucratic organisations. And if you can foster permission for that in just a small percentage of cases, the difference it makes overall, to everything by the way from economic health to consumer and citizen wellbeing, because this applies to the public sector even more than it does to the private sector, it applies to the charitable sector by the way, if you can do that and slightly reverse this dangerous trend towards what I call painting-by-numbers consulting led business optimisation, then it’s valuable. And I think the value of it compounds by the way. I don’t think it’s something you do once you get a return and then you stop. I think it’s literally a case where you create compounding value.
And I’m not claiming for a second that every single problem in the world, I think it’s great that people are making electric car batteries have a bigger range. I think it’s great we’re spending billions researching that kind of thing. And that lies within the realm of science, pure and simple. But my argument is look, there are two components we’ve got to challenge. There’s range anxiety which consists of two things, range and anxiety. And it might be a lot easier and cheaper and quicker while we’re about it, to reduce anxiety than it is to increase range.
Range anxiety first of all isn’t really range anxiety, it’s infrastructure anxiety. Okay, we’re not anxious unless we’re in the middle of the desert, if we’re in the middle of Death Valley, you’ve got range anxiety in a petrol car because you don’t know whether there’s going to be a gas station within 40 miles. But for the most part, range anxiety is actually infrastructure anxiety. We’re not confident that within any given distance, there will be several charging stations of appropriate speed that are working and are not occupied. Now the solution to that problem actually involves information and perception and psychology.
One, I don’t think it’s impossible to replicate that with electric cars. In some ways electric cars have to start off being fairly conventional aesthetically, within reason, because if you’re asking someone to make a big shift in one way, don’t make the shift totally weird in every direction. It can only be weird in one direction at once.
Vikas: ….I do think a lot of it is about aesthetics?
[Rory Sutherland]: Interestingly the guy I spoke to is the electric car guru at Wired, he said that one of the things that will start to suddenly retain much more focus, because the basic reliability, the software, those things, will become table stakes. And actually interiors and really imaginative car interiors which of course is made possible by the electric thing because you don’t have the usual constraints of a battery can be a range of different shapes, you see the cars having longer wheel bases increasingly because of electrification. You will be able to produce really interesting configurations of cars inside.
It always drives me crazy that the one car I’d buy like a shot, is if you have one with a big screen in the back and a fold down table so you could use your car as an office, I’d buy that like a shot. If you had Zoom capability, big screen, obviously when you’re not driving, that strikes me as complete. But I think what you will find is, in other words the status of the mechanical engineers will to some extent diminish a bit, because that stuff is easy. The performance of even a fairly basic electric car is more than most normal people would ever want.
I will make a point that aesthetically if you’re a minimalist, it is worth noting that all those 297 moving parts and replaceable parts in a gasoline car, the oil filter, the air filter, the gearbox, the cam shaft, the this and that, the spark plugs. All of those things exist to perform one function, which is to rotate a shaft to give you form and movement. I don’t want to be rude, but an electric car, you put electricity into an electric motor, it rotates. That’s it.
Aesthetically you have to argue that form follows function and all that kind of thing, there is something absurd, to an alien there’s something utterly brilliant but absurd about the internal combustion engine. Because the entire thing is driven really by the high energy density of gasoline.
Why don’t we just produce a Heath Robinson electric car then, where the motor drives a paddle wheel which then drives a river around the outside of the car. Come on!
We’ll stop this right now. There is a huge aesthetic argument for rejecting electrification and going back to an old form of motor car. And it’s not the internal combustion engine. It’s the fucking steam locomotive. Because okay, genuinely in terms of absolute beauty… there is absolute gorgeousness. I will totally accept the fact that although the logical arguments for electrification on the railways are in fairness reliability of course, it’s huge with electric things. Okay. There’s every rational reason for electrifying the railways. But my god, a steam locomotive. Yeah okay a Ferrari is a wonderful, wonderful thing. It’s fantastic in lots of ways. But let’s be honest, compared to the Mallard or the Union Pacific Big Boy, it’s nothing.
I get it, I think there is an aesthetic argument for the internal combustion engine, and one would not want a world in which classic cars were taken off the road. I completely accept that, it’s part of our heritage. Just like a cathedral is a very inefficient way to keep the rain off the congregation, but that doesn’t mean it doesn’t have… no, so I do appreciate that, I’ll go along with that.
But I think it’s fundamental business that a business needs to allow for enough variation to have the chance of getting lucky. Because a large business, as a byproduct of its core activity, should be stumbling on loads of things that it never expected, never planned for, never anticipated. And if we lose the capacity to notice those things or equally plausible that you still notice those things because they’re not sufficiently evidential, you’re not allowed to act on them.
I mean it goes down to that thing which I think is important, which is partly because of its 18th century origins in times of food scarcity, I think economics has fundamentally framed the problem in the wrong way, I think economics is predominantly now about information, it’s not about goods. And there are various writers, and actually I would also argue that free market capitalism is not particularly efficient. What gives it its strength is its value as a discovery mechanism.
So here’s an interesting area where I will get into, it is quite useful for business people, when we have this discussion about flexible working and working from home, you tend to get this Luddite school which goes “no, we need serendipity, we must get everybody back into the office.” Now my first point is, your first premise may be right, but your second is wrong. Which is yes we need serendipity, in which case you need to think about what fosters serendipity. And it may not be a fucking open plan office in 2024, which is actually a very bad space for serendipity.
They always go “the water cooler moment”. I’ve worked for 34 years, I’ve never had a fucking interesting conversation by a water cooler. Not a single one. It’s a total delusion. What I do remember, 150 times, is having really valuable serendipitous encounters in the pub, over pizza, going out for food, having coffee with people. It’s not the water cooler for god’s sake. The only conversation I’ve had is “what’s wrong with this water cooler? Why does the bubble setting no longer work, am I pressing the wrong button?”
Q: Is this why businesses really do need to optimise for serendipity?
[Rory Sutherland]: So it’s absolutely right that you should optimise serendipity but nobody was optimising serendipity for the previous 20 years. They were just getting people in the office, putting people in an open plan office with hotdesking, because they thought that was more efficient because it reduced the amount of office space you needed, and they then gave them email which further destroyed serendipity because anybody with 10 minutes to spare wouldn’t have a chat with the person next door, they’d catch up on their email.
So we’ve been pissing on serendipity for the past 25 years, and then suddenly when something interesting happens instead of saying okay what does flexible working do really well, what does it do really badly, how do we create a yin and yang union of opposites where people get the best of the flexible remote working with the best of colocation. What does that look like? That’s the right question to ask.
What’s so amusing to me is no-one gave a shit about open plan offices, no-one ever went “are open plan offices any good? Are they efficient?” I literally heard of an organisation yesterday where they have something like 300 well paid people and they only have one executive assistant. I’m going so what you’re saying is the actual staff, the highly paid staff are doing their own time sheets, they’re doing their own calendaring, and then you realise no no no, it’s because the highly paid staff are billable but the executive assistant isn’t. And that is obviously totally stupidly inefficient. It runs completely against Adam Smith’s principle of the division of labour, it’s absolutely stupid.
But they’re doing it because the assumption in business is what makes you money is where you add value. And that’s reliably true just about, in consumer goods I think. Where you make money is where you’re adding value in some shape or form. In B2B, the way B2B businesses charge, charging by the hour, the likelihood that where you make money and where you add value are in any way correlated is pretty unlikely.
First of all, the answer is probably not go back to the office. It’s actually go to two extremes. In other words, turn your office into half pub, half library. So it’s a place where people go either for unusual quietude or unusual sociability, restore your budget for individual managers to take people out for pizza and to go to the pub, put those budgets back in place, and then say “okay we don’t generally come in on Fridays, but 1 Friday in 4 we’re all going to come in and do a bit of work in the morning and then go out for lunch together.” That would then maximise serendipity, but they don’t do that, they just say no we need everyone back in the office.
My other argument is this, which is the whole point of capitalism, is it is an endless discovery mechanism, using whatever technology and indeed other information might be available for how you continually improve the value exchange between different parties to a transaction. It’s a continual source of discovery of new sources of value. It seems to be self evident that a lot of people a lot of the time value some degree of flexibility of where and when, around where they work.