Setting Expectations for Growth & Profitability - Stratford Group Ltd.

In a now-famous experiment conducted during the ‘64-‘65 school year, researchers gave teachers at Oak School a list of student names. They told the teachers that these students had scored in the top 10% of their class in a new, specialized test called the Harvard Test of Inflected Acquisition. They claimed that the Harvard Test measured intellectual capacity and predicted learning “spurts”.

In fact, the researchers had given the students a generic IQ test called the TOGA or Test of General Ability. Moreover, they had chosen the names on the list randomly, not based on the test results…sneaky researchers.

At the end of the school year, the researchers gave the students the TOGA again. They then looked for any correlation between the results and the names from the original list. What do you think they found?

You guessed it. The TOGA score improvements for students on the list were 50% higher than the rest of the class. In other words, those lucky students improved their IQs because their teachers expected them to get smarter.

Let me repeat that astounded result. Because the teachers expected certain randomly selected kids to learn faster – and for no other reason – those kids did in fact learn faster. This is called the Expectation Effect and has been demonstrated in numerous similar studies.

Here’s why this research is important to business. We often expect certain outcomes without realizing that our expectations are in fact contributing to the very outcome. There is a management maxim that says “you get what you measure.” I’d like to write more about that in a future article, but for now let me suggest another maxim: “you get what you expect.” Let me illustrate.

One of our clients at Stratford asked us to help them find ways to improve their profitability. We looked at their business and concluded that the biggest impact would come from increasing their prices. They said, “Well, we don’t think our customers will pay more. In fact, we often lose business to our competitors because of price. We don’t really have much room to move.” However, some of their competitors were charging higher prices and were recording higher profits.

I think we were seeing the Expectation Effect at play. Our client expected that their customers wouldn’t tolerate higher prices. This belief stopped them from thinking about what they needed to do in order to successfully charge higher prices. Do you see the subtle but powerful force at play here? Our client had fallen victim to a self-fulfilling prophecy without even realizing it.

We see this happening in many businesses. Perhaps it is happening to you too. Here are some ideas for avoiding this trap:

1. Spend some time benchmarking your competitors. Search for examples of the Expectation Effect in your company by looking at yourself through their eyes.
2. Assemble a knowledgeable but independent board of directors or advisors and meet with them regularly. The reason it is hard to see the Expectation Effect in action within your own company is because the underlying assumptions creating the expectations are often not conscious. An independent board can challenge your assumptions and help expose the Expectation Effect.
3. Write down the key targets and goals of your company. Make the key expectations explicit. Then challenge them.
4. Hire people who by their nature will challenge the status quo. Listen to them.
5. Get in the habit of asking “Why?” or “Why not?” This is a powerful tool to expose unconscious assumptions.

Growing a profitable company requires many skills. You have to get a lot things right along the way or your competition will eat your lunch. Occasionally the biggest risk is internal. It is in the way you think about your business and in the expectations you have for your business.

In a future article I hope to report that our client changed their expectations, increased their prices and grew more profitable. In the meantime, beware the Expectation Effect and remember the maxim “you get what you expect.”

This article appeared in the September 20, 2010 issue of the Ottawa Business Journal