Over the past few years, you have often heard me mention the concept of mindfulness. I purposefully use this word in the context of an emerging theory on organizational mindfulness that is researched more and more in organizations. I actually conducted a research inquiry on the topic, and I hope to continue the exploration on the relationship between mindfulness and pricing.
So what is organizational mindfulness and how does this apply to pricing?
Mindfulness, originally characterized by Ellen Langer in 1989, is a state of alertness that is manifest in active information processing. It includes creating new categories rather than relying on categories present in our memory; welcoming new information by being open and attending to changed signals; welcoming more than one view and being aware of multiple interpretations; and avoiding being on “auto-pilot.”
In 1999, Karl Weick and Kathleen Sutcliffe extended the concept of individual mindfulness to the collective dimension, describing it as the widespread adoption and diffusion of mindfulness by the organization’s members. Mindfulness helps organizations notice more issues, process them with care, and detect and respond to early signs of trouble. Weick and Sutcliffe describe five cognitive processes that constitute organizational mindfulness: 1) preoccupation with failure; 2) reluctance to simplify interpretations; 3) sensitivity to operations; 4) commitment to resilience; and 5) deference to expertise. These, they contend, are prevalent among members of high reliability organizations.
So how can that apply to pricing then? Let us look at them one-by-one:
1. Preoccupation with Failures
Firms engaged in a pricing transformation project demonstrate an ability to learn from pilot studies, to learn from what did not work and to identify organizational gaps to ensure transformational success. These firms see failures as an opportunity to learn and to try again, instead of getting discouraged and throwing in the towel.
2. Reluctance to Simplify Interpretations
High-performance pricing organizations refuse to simplify interpretations, especially in the areas of pricing data analysis and customer value assessment. Pricing professionals are exposed to an enormous amount of data and customer information. They face variations in the degree of analyzability of market information; in the degree of information commensurability; and in the equivocality of information coming out of optimization software. The inherent levels of information uncertainty and ambiguity require that they focus on complex problems without reductionism and over simplification.
3. Sensitivity to Operations
Firms engaged in advanced pricing programs purposefully invest in developing pricing capabilities of their front-line personnel. My Ph.D. research shows that these firms focus heavily on pricing training for commercial employees in order to equip them with the tools and competencies to achieve the firm’s pricing goals. Sensitivity to operations also entails adjusting pricing programs by taking into account the knowledge of people who actually do the work.
4. Commitment to Resilience
Resilience is one of the dimensions of the organizational confidence construct. Mindful pricing organizations commit to the success of pricing programs. They purposefully develop programs to develop shared beliefs, courage and resilience when implementing pricing strategies. The role of pricing champions and change agents is equally important to build collective confidence in teams.
5. Deference to Experts
Decisions makers in business units should rely on the expertise of specialized centers of pricing excellence to optimize pricing decisions and firm performance. Business leaders should not improvise with pricing and ought to defer tough decisions or complex problems to pricing experts.
I strongly believe that the five characteristics of high reliability organizations proposed by Weick and Sutcliffe strongly correlate with the organizational transformation towards pricing excellence. Organizational mindfulness and mindful champions play a critical role in the success of this organizational transformation. I call this mindful pricing management. I encourage you to read more about this emerging theory on organizational mindfulness.