Comment les leaders en finance peuvent créer de la valeur grâce à une meilleure compréhension du comportement des clients

Dans cet épisode du balado Better Finance: CFO Insights, Myles Corson et Rory Sutherland expliquent comment les fonctions finance et marketing peuvent conjuguer leurs efforts pour tirer parti des informations des clients et ainsi créer de la valeur.

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Services consultatifs, Comptabilité financière

Ce balado et sa transcription sont disponibles dans la langue originale de production.

Dans cet épisode du balado Better Finance: CFO Insights, l’animateur Myles Corson s’entretient avec Rory Sutherland, vice‑président de l’agence de publicité Ogilvy UK. Fort de sa vaste expérience en économie comportementale, Rory invite les professionnels de la finance à adopter une mentalité qui allie certitude et possibilités.

Rory analyse la perception du besoin de certitude absolue de la fonction finance, qui peut souvent nuire à l’innovation et influencer la prise de décisions. Il préconise une approche probabiliste de la finance, dans laquelle la compréhension des résultats potentiels et l’acceptation de l’incertitude peuvent mener à une innovation accrue et à la création de valeur. Les intervenants se penchent également sur le rôle de l’intelligence artificielle (IA) dans la transformation de la fonction finance et soulignent la nécessité pour les leaders en finance de s’adapter et de tirer parti de l’IA pour libérer du temps à allouer à la réflexion stratégique.

L’épisode met aussi en lumière l’importance de la compréhension du comportement des clients et des facteurs psychologiques connexes qui peuvent motiver les décisions d’achat et les revenus. Rory souligne que les leaders en finance doivent combler le fossé qui sépare les informations financières et les stratégies axées sur le client, car ce rapprochement peut favoriser l’innovation et créer de la valeur. Ce faisant, les leaders en finance peuvent transformer l’image de la fonction finance pour qu’elle ne soit plus un centre de coût, mais bien un partenaire stratégique pour stimuler la croissance.

Éléments importants à retenir :

Tirer les leçons de l’économie comportementale pour améliorer les processus décisionnels au sein de la fonction finance.
Être conscient de l’importance d’accepter l’incertitude et d’adopter une mentalité probabiliste pour favoriser l’innovation.
Favoriser l’apprentissage continu et l’adaptation au sein des équipes de la fonction finance afin de rester à l’avant‑garde des tendances sectorielles et de l’évolution des exigences du marché.

Pour votre information, vous pouvez consulter la transcription intégrale du balado.

Myles Corson

Hello. I'm Myles Corson from Ernst & Young, and welcome to the EY Better Finance Podcast, a series that explores the changing dynamics of the business world and what it means to the finance leaders of today and tomorrow.

Today, I'm thrilled to be joined by Rory Sutherland, Vice Chairman of Ogilvy UK. Rory has dedicated over three decades to pioneering marketing strategies that harness psychological insights to create impactful campaigns. His extensive work in behavioral economics has changed conventional wisdom, particularly surrounding the prevalence of behavioral biases in business.

Rory is also the author of the acclaimed book, Alchemy: The Surprising Power of Ideas That Don't Make Sense, where he explores why abandoning logic and rationality is the best way to solve problems. Additionally, he is the founder of Nudgestock, the world's largest festival celebrating behavioral science and creativity, which brings together thought leaders to share insights on influencing behavior positively. So, with that, Rory, welcome.

Rory Sutherland

Oh, thank you very much. It's a great pleasure and a wonderful opportunity to mildly abuse the finance community as well, I have to admit.

Corson

Well, I appreciate that, because, again, this is a finance-focused podcast—finance and marketing—not necessarily the…

Sutherland

No, not the best of bedfellows, necessarily.

Corson

Not as the best of bedfellows, exactly. I was going to use that term precisely. The reason we connected is that I'm a big fan, and I've read a lot of your work, both the articles and the book, Alchemy, which I think is fantastic and would highly recommend. But recently, I've seen some quotes that you've given about finance and about some of the challenges that finance creates for businesses.

You talk in one quote about finance people not caring about making money. You also mention this issue that there's a cost-based race to the bottom, rather than an opportunity-driven race to the top. So perhaps you could start off by sharing some perspectives.

Sutherland

I probably wouldn't say they don't care about making money, but they care more about the certainty of the process than the opportunity.

Corson

Yep.

Sutherland

I don't entirely blame them for that, because in many ways, that's what they're incentivized to do. But it does come with risks, undoubtedly, one of which—I'm slightly channelling Roger L. Martin here—is an impossible standard of proof. You can apply this not only to finance but to the Treasury, I would argue, in government, in terms of demanding absolute certainty and predictability of any course of action before any money can be released, when, of course, we don't actually have that level of certainty about the future because, by definition, we'll be operating in a different context. There's actually a danger to that, by the way, which is, as I always say, all big data comes from the same place: the past. There's a huge danger that you can end up over-optimizing on the past.

There's a very interesting analogy here, which I have to mention because it's mandatory if I appear on a podcast. When scientists studied bees, they discovered, first of all, that they had this magnificent thing called the waggle dance, where they could actually communicate to the other bees and tell them where there was a reliable source of nectar and pollen. The other bees would obediently go off, follow their instructions, and set off in their desired direction, maximizing the efficiency of collection. Fairly simple—what you might call double-entry bookkeeping. Energy expended has to be less than energy collected.

But then, much to their bemusement, scientists discovered that a certain percentage of bees, typically roughly 20%, seemed to ignore the waggle dance. This baffled them because bees have been around for 20 million years—not coincidentally, as long as there have been flowering plants. It seemed odd that for 20 million years, nature would tolerate this level of inefficiency. They looked at it as a complex system over time and realized that if you don't allow for the scout bees, the explorer bees, to go off at random, you become over-optimized on what you already know. You become incapable of growth, incapable of good luck or good fortune, and incapable of adaptation to changing circumstances.

So, you become very, very rigidly focused on a short-term model of efficiency. If you think about it, of course, the financial standards you'd apply to the obedient bees are fairly straightforward. The financial standards you'd have to apply to the scout bees are closer to those you should probably apply to marketing or innovation or R&D (research and development), which is that a large part of what is done probably appears to be wasted. But that's actually a feature, not a bug. That one time in ten, one time in twenty, one time in fifty, one of these bee journeys will uncover something spectacular.

Now, by the way, it's absolutely vital that when these scout bees discover something new, they share it with the obedient bees.

Corson

Yes. They need to do the waggle dance.

Sutherland

Actually, it's very interesting because this pattern recurs. It seems to be fundamentally a natural law. In algorithm design, it's called the explore-exploit trade-off. In animal foraging, it's the whole question of the trade-off between exploiting what you already know and exploring what you don't. There's a wonderful academic at King's College London who argues that this is why humans are neurodiverse: in any group of humans, it pays to have certain people who think about things differently. Because there's a fundamental reward not to all having the same model of the world.

Corson

Yes.

Sutherland

Why I think this is important is that one interesting thing, by the way, is we call it a trade-off, but actually, it isn't. It's actually a benign circle, which is the exploitation funds exploration, and exploration continually refines exploitation. It's really a Mobius strip. It's not two sides of the same coin. But because of our Western mindset, we find it much more difficult, I think, than people in the East, to understand the unity of opposites—that two apparently contradictory behaviors might be contributing to a third thing that's better than either of them.

I think that's very important because in terms of the standard of proof, if you're very comfortable perhaps with measuring the exploit part of the hive—in other words, the maths are very easy…

Corson

It’s more measurable.

Sutherland

No journey appears to be wasteful—wonderfully measurable, easy to quantify. Now, when someone sets off on a new journey, the level of proof simply won't be that good. This is a probabilistic decision, not a deterministic decision, and you have to look at it from a statistical standpoint. What's the potential upside? What's the risk? What are the balance of probabilities here?

The way I always describe this is that, funnily enough, when you're trying to do anything significantly new, there will never be sufficient evidence from the past to justify it. I know you're a consumer goods guy; there was zero evidence anywhere in the world that people would pay £600 for a vacuum cleaner—literally, zero. But anything involving psychology, for example, or behavior, what you don't know is often a lot more important than what you do.

Therefore, anecdotal information… I'm trying to rehabilitate the use of the word anecdotal as a term of approval because interesting information often emerges first in anecdotal forms, so no evidential value. Therefore, your correct mode is investigation, exploration, and experimentation.
There was an awful lot of big data in 1912 to tell the captain of the Titanic that icebergs were very, very rarely sighted that far south in April. But the single datapoint, iceberg dead ahead, countermands everything else you thought you knew about icebergs. This question of at what stage we should be… If you demand complete certainty, as with COVID [the Covid-19 pandemic], the only possible public advice we can give in behavior is based on things we know for certain. That's actually bad advice.

Now, again, this is the question with finance, which is you can demand such a level of certainty that it becomes impossible to do anything different. Because the only things you can do with complete certainty are things you've done before. Even then, actually, it's worth noting that… Someone once said, doing the same thing repeatedly and expecting a different result is the definition of insanity. It's actually the definition of complexity. Because in a complex system, you can indeed do things repeatedly, and they fail five times, and then they don't because the context changed.

Corson

Yes. There's a…

Sutherland

Oh, sorry, an awful lot. Yes. Yes.

Corson

Lot to unpack there. There are a few things. I loved the analogies. The first one, with the bees, with the waggle dance, and this idea of the Mobius strip and the ecosystem…

Sutherland

They’re complementary activities, yes.

Corson

Needing to be in balance. If everyone did the same thing, you would not create the breakthrough identity. It triggers a question for me.

Sutherland

In fact, the reason is that the hives which didn't have scout bees got optimized on a local maximum and ended up starving to death. That's why all bees tolerate this level of trade-offs.

Corson

You have to have the innovation. But it raises the question to me, in the context of AI [artificial intelligence], how do you think about it? Because by definition, AI builds on known information and creates a new interpretation.

Sutherland

Although in ways we have no…

Corson

Where's the breakthrough? Where does the breakthrough come from?

Sutherland

The interesting question which does fascinate me is that there will be an unintended creative dividend from AI, which is entirely down to psychological factors. If you went to someone who was a very experienced marketer or a very good inventor and you said, "Why do you think this will work?" and they go, "Trust me, I think it'll work. Based on everything I know, my instincts tell me this will work," this would be considered in business completely unacceptable as a basis on which to make a decision.

But strangely, when we replace that person with a black box, computerized process, we're all going to pay attention. Now, that's a bit odd, isn't it? We're completely unwilling to take human recommendation without demanding proof of their working out and fully rigorous, logical, reverse-engineered post-rationalizations of how they got there. Because you can't just take something on trust.

Weirdly, and don't ask me why, when the output is from a black box that's effectively using silicon rather than carbon, we think it's okay. Now, don't ask me why that is. It's probably something to do with blame avoidance, which is that if a… In other words, the computer says no, the computer told me to do it. We feel if we're following the instructions of some model, it's not that it's necessarily a good recommendation, but we are confident that we can't be blamed for it, which worries me a bit.

Corson

Yes. I think I've seen some data that also goes the other way, that the expectations we have in terms of proving out computer-generated answers are higher than we would sometimes hold people to account for.

Sutherland

Interesting.

Corson

Which I think points to, and again, I love your point, I think, with the AI example, actually, it's going to be the way it frees up people's time to have the breakthrough moments because of the insights they get from being able to pool this massive source of information.

Sutherland

And, also, I think it's really… I wouldn't rely on it to do the last mile or to make the final decision, necessarily. But, A, in getting people to a better starting point from which they can get to a better destination as humans, I buy the benefits there. I think I also buy the benefits in terms of a checklist, which is, have you thought about this?

I've found it actually in my use of it; occasionally, it has moments of brilliance, by the way. I don't think it's fair to say that it’s just an average of mediocre human best practice. It has occasional inspired moments. It's never come up with a good joke, for some weird reason, yet, which is an odd kind of dog that didn't bark in the night. But it does have moments of inspiration.

One thing I noticed is that when I set it challenges like, "How do you improve a train journey?" it looked at a mixture of engineering and psychological factors. Now, to be honest, an awful lot of human engineers wouldn't even consider, you know, "Well, if we had really nice seats in the train, would people mind if it was ten minutes slower?" A lot of engineers wouldn't even factor that in.

In terms of covering the waterfront and breaking out of siloed thinking, I think it can be quite useful, actually.

Corson

Yes. That's great. Bringing it back to finance and extending the bee analogy, I think you have your worker bees that need to do the routine stuff, and the business of finance is really important—it's a non-negotiable. But getting this balance right with who are the people actually looking at some of those opportunities to do things differently, the scout bees that can achieve different things, I think is an important balance for finance leaders.

Usually, we talk about in this context of protecting value, which is seen as the historic role of finance, but now there’s an opportunity to create value. So, as you think about opportunities for finance leaders to be shifting the perception of where they've come from to where they need to be going forward, how would you think about being successful?

Sutherland

Again, I'm channelling Roger L. Martin a little bit here because his point was that he thinks—now, this seems quite harsh to me—that actually the median CFO [chief financial officer] is actually deleterious to strategy. He thinks it's the best quartile who are actually valuable. One of them is looking at decisions probabilistically, understanding that the world is probabilistic, not deterministic.

There's a wonderful story, which I think comes from Richard Thaler, the now Nobel Prize-winning author of Nudge. He went to the board of directors of a very large American company and tried this experiment where he went around the table to the heads of their eight largest divisions and said, "Okay, I can offer you all a decision where the chance of success is 50%, and in which case you'll increase your revenue and your profits by 50%. 20% of the time, nothing will happen. 30% of the time, you'll lose 30% of your revenue and 30% of your profit." It's a thought experiment; it's never that linear. "Which of you would take that decision?"

Of the eight people, six said no, and two said yes. He then asked, "Well, why wouldn't you take that decision, given that, on balance, you're going to end up better off?" They said, "Because a third of the time, I'd lose my job."

It's worth noting that the incentives for people are very asymmetric. In other words, career suicide and shame and loss of job is the downside risk. The upside gain is often a pat on the back. Not true in things like city trading, but in most areas of business, there's this massive risk aversion created by asymmetry of risk and reward.

What was interesting is that six of the eight said, "No, I wouldn't touch that," because I could probably do it once and get away with it, a bit like Russian roulette. But if I do that every year, I won't survive for more than two and a half years, on average. Interestingly, the chief executive at the end of the table looks completely bemused and goes, "But I want all of you to take those odds because net-net we're definitely going to end up, up. Unless we're spectacularly unlucky, effectively, of the eight of you, what is it, 50% of you’ll be 50% more profitable, and let's say two of you will be a little less profitable. Well, actually, that's a win in nearly all foreseeable outcomes."

Then you realize, of course, that when you effectively push risk aversion down the organization, you create more and more risk aversion. At the top, people can accept probabilistically, "Look, you know, swings and roundabouts." At the bottom, when every single person is exposed to that same asymmetry of risk and reward, you basically create an organization that's paranoid—in other words, do not disappoint under any circumstances.

You also have some wonderfully asymmetric effects in things like procurement, where they realize that it's much better off getting everybody to drop their prices by 3% every year. If you get someone to… A friend of mine worked in procurement for a large car company, and on his first week at work, he went and negotiated someone down by 8%. His boss was furious. "No, no, I told you to negotiate them down by three."

But he said, "I got them down to eight." He said, "I know, what are we going to do next year?" There are these huge asymmetries in incentives.

Now, in finance, of course, predictability is disproportionately appealing. Also, I suppose at least one's opinion of your investors or the stock market is that they really, really value predictability. But, of course, you can change that with a good narrative, which is, "We're taking this risk." You can actually explain why the risk makes sense. That's the big thing: demanding too much proof, regarding a ridiculous burden of proof can be a problem.

On the upside, and again, this is a bit of Roger L. Martin, there are insights that finance people have about the business that marketing simply haven't got a clue about. In other words, not many marketing people would understand the full… Let's say you're a hotel. A lot of marketing people—now, I think they should go and damn well find out—but a lot of marketing people wouldn't know what the cost of turning over a hotel room is—in other words, replacing the sheets rather than leaving it empty for the night.

The insight from that will be, "Well, hold on, if it only costs $15 to turn over a hotel room, theoretically, I'm not saying you should, we could take in guests at midnight who'd pay us $50 to stay in a hotel, and we'd still turn a profit." They're undoubtedly going into the weeds of where the business makes money, where the business loses money, and, in many cases, the strange butterfly effects, where changing one or two seemingly unimportant metrics can make a huge difference to your profitability. Those insights should really drive strategy, and often they don't, I think.

Corson

Yes. And again, picking up on your point around risk, it is risk management, not risk elimination.

Sutherland

Yes.

Corson

Again, I think a lot of people in finance potentially struggle with that, particularly to a point where it becomes systematic and can drive unintended consequences. I love your points around the asymmetry. I think it comes back to some of the behavioral economics insights, which is loss aversion is a much stronger driver…

Sutherland

It is.

Corson

Of human behavior…

Sutherland

Than gain.

Corson

Than gain.

Sutherland

Yes.

Corson

So, again, bringing it back to the finance context, a lot of the measurement of success ultimately is through shareholder value, and I'm interested in, again, your perspectives on that.

Sutherland

This is, I think, a terrible perspective because it isn’t your shareholders who give you money. Your shareholders are actually a fairly poor way of raising capital, I would argue, compared to the alternatives. Ultimately, it's your customers who give you money. But what's important about that, I think, is that a focus on customer value creation, one, unites far more people in the organization. A lot of people—some people in your organization may be time servers or swinging the lead—but a large proportion of them enjoy doing what it is that the organization does for customers and would like to do it better, more efficiently, and would like to do more of it.

The number of people who get out of bed motivated by enriching, say, I don't know, the state of Wisconsin DMV Pension Fund is relatively small. Effectively, you have to bribe the very senior people to care about shareholder value with enormous incentive schemes, which then completely disconnects them from the motivations of the organization as a whole.

There's another really interesting thing, which is—and this is a point that John Kay makes, which never occurred to me. I worked in marketing for bloody ages, and he said, if you look at the companies that have been in the FTSE for ages, or you look at the companies that have been in the Fortune 500—P&G, Unilever, Nestlé—they're disproportionately consumer goods companies. P&G’s, what, 1837, I think it was founded. It's been in that index for, what, 180 years or something?

His argument, John Kay's argument, is that their focus on the consumer through the lens of marketing keeps them agile and relevant in a way that businesses that develop these artificial economic proxies do not. The idea being that effectively, business competition is all about operational efficiency and cost-cutting. Those businesses which are less consumer-focused or less customer-focused may make quite a lot of money for a short time as they stumble on something fortunate. But they’re surprisingly and increasingly short-lived.

Now, P&G, Unilever, Nestlé keep on going. Part of the value of marketing, which of course is never really measured, is longevity—just continued relevance. That fascinates me because one of the interesting problems you notice with businesses—don't get me wrong, there is such a thing as cost leadership, but it does require you to be significantly cheaper than your competition.

But an awful lot of activity to reduce costs doesn't get you to cost leadership. It just gets you to cost parity with all your competitors. That's not a winning position. You've put in a huge amount of effort, really, to get nowhere. You’d have been better off actually justifying a price premium and going after a different segment of the market or trying to find…

This is the great thing: the laws of physics and economics are absolutely rigid. The laws of psychology, you can rewrite them yourself. That drives deterministic people practically insane because they want to live in a world that is entirely rule-bound and predictable. I can understand why people who… Engineers often find marketing infuriating because to them, it's cheating, you see.

You should be aiming to produce the fastest train, not the train that's most enjoyable to ride on. But I would argue what we should have done with High Speed 2 is given one of the briefs to an engineering firm, but another brief to Disney. Disney would have rewritten the question. Disney would have said, "Not what's the fastest way of getting people in capacity at a low cost between London and Manchester? How can we make the train journey between Manchester and London so bloody enjoyable that people feel stupid going by car?"

It's actually a lot cheaper to make a train journey fun than it is to make it fast. It's a lot more environmentally friendly as well, I might add. But nobody was asking that question because it was given to determinists, not to probabilistic thinkers or creative thinkers.

What is interesting there, I think, genuinely, is that fundamentally, an awful lot of really, really successful businesses exist because they stumbled on a psychological insight, either through insight and genius and general inspiration on their part, sometimes, I think, accidentally. One of the funniest stories, you'll love this, from your consumer goods background, is everybody absolutely, literally everybody, told James Dyson. They said, "Nobody wants to see the dirt."

I would pretty confidently argue that there's a parallel universe where James Dyson listened to that advice, made the vacuum cleaners opaque, and then ended up selling 250 vacuum cleaners, to be absolutely honest. There are all kinds of reasons. People like the workings. The elegance of the engineering is worth displaying. But, also, there's that immediate…

Corson

Satisfaction.

Sutherland

Feedback loop of seeing the dirt come out of your carpet and into your vacuum cleaner. That's a psychological hack, which I don't think… There's a parallel universe in which everything is the same, except Steve Jobs was 30% less charismatic in that parallel universe. In that universe, we're still using BlackBerrys, let's be honest about it.

It is almost painful, either for people with an engineering or finance background, to acknowledge the extraordinary effect that seemingly trivial psychological factors can have on success and failure. A bit of me sympathizes. Maybe part of me wishes the world weren't quite so subject to these psychological butterfly effects. But if we want to work in a free market economy, we've just got to acknowledge that and learn to live with it, I think.

Corson

Yes. Again, so many great insights there, so much to pick up on. I want to bring it back to finance again. So, we talked a lot about actually thinking differently about how to create value. Hopefully, that resonates with the audience, that we get beyond just thinking about the costs and into value creation.

Sutherland

If you don't do marketing, you never ask this question, which Stafford Beer, the cybernetician, would say. He called this business philosophy, which is you have to spend some time as a business asking, "What is value? Why do people value what we do? What are we in business for? What is our motivation for doing what we do, and what is their motivation for appreciating it? What makes us different?" Because if you dodge those questions, you haven't got a strategy; you've just got a plan.

Corson

I think that goes where I was going to go to. Because I think one of the, again, challenges for finance executives is the brand of the function and the perception—where we go back to where we started. Finance is often seen as being the people that say no; they prevent some of the progress. So, I think there is a branding issue, effectively.

Sutherland

By the way, sometimes that's very wise. Just to be absolutely clear, I need to rebalance what I've said because sometimes they're absolutely right. What you may say is that you shouldn't allow finance to tell you what to do; you should tell finance what you're doing. If they panic and raise perfectly healthy objections, you should listen emphatically because they know things that you don't.

I mentioned that about the internal financial dynamics of some businesses. There are businesses where actually a small behavioral change on the part of consumers could make an enormous difference to the profits of a business. Yet, the marketing people or the strategists may not be aware of that. A very interesting marketing idea where you need to know the financials would be the Ocado green van. I don't know if you know that.

Corson

Yes. Yes.

Sutherland

It encourages people to pick delivery slots when Ocado is already delivering nearby. Now, the maths of working out the gains to that and what proportion of people need to do it for it to fully pay—patently, that's a finance person who is the only person who can answer that question. A finance person could be having that idea. No, absolutely, they’re best placed to do so.

Corson

Yes. And that's the point I'm really trying to get at. So, how as a finance person do you change the perception? Because, to your point, finance people have all this insight. But I think oftentimes, they would feel excluded from some of those commercial conversations because actually, the insights they can provide aren't necessarily understood or appreciated.

Sutherland

All that's needed, I think, is effectively what you might call a different mode of thinking, which is the mode of thinking we tend to deploy when we don't have all the information we need or when what we don't know is more important than what we do. It's abductive inference, I think, is the technical term. It's, "What would happen if?" or "What would have to be true if?"—there’s a Roger Martinism, where to play, how to win?

If the finance person is merely looking at behavior without imagining how finances would be different if only the behavior were different, and what are the behaviors you could adopt…? There are wonderful cases where, by the way, you can have a brilliant financial idea, and it's a psychological catastrophe.

The example was a hotel that had the seemingly brilliant idea—quite a premium hotel—and it simply said, "When people arrived early, they said, 'If you want to check in early to your room, that'll be £50.'" They’d done the calculations. It was going to earn them a fortune. The problem was that by saying, "You can check in early to your room, but it’ll cost you £50," you were admitting that the room was already available.

That's a wonderful case where it's perfectly rational economically, but psychologically, it's a disaster. But equally, late checkout—you can probably get money from quite a lot of people offering that, actually. If you can actually identify the customers who, where you wouldn't be incommoded by a late checkout, and you said, "By the way, let us know if you'd like a late checkout." Then you said, depending on how late they wanted to be, "Oh, you can have that for free." Or if they wanted to check out absurdly late, "I'm afraid if you stay until eight, it will have to be this much."

I think you can actually bring in quite a lot of money that way. That’s a pretty data-intensive job, but you could undoubtedly create some value there.

Corson

And you keep coming back to this theme of understanding the data but then getting the customer and the psychological insight together. That's where the real power comes from.

Sutherland

Absolutely, yes. If you can combine the two, you've got a real powerhouse. By the way, my hope for behavioral science and behavioral economics is it can be a common language between marketing and finance. First of all, because you're talking about behavior. You're not talking about some proxy measure, like unprompted awareness or brand health. You're talking about behavior to which you can attach a value. So, you are at least in the finance person's wheelhouse at that point.

Also, you're talking about psychology and a recognized body of economic literature rather than a load of marketing weird stuff about brand.

Corson

I think your point about a common language is really important because, again, too often finance relies on...

Sutherland

I will hang out with finance people in Ogilvy and talk about behavioral economics because they find it really, really interesting. Their whole questions in B2B—of course, we're a B2B business, as you are in EY—there is still an awful lot of psychology, a huge amount of psychology in B2B, for instance.

Corson

At the end of the day, it's people buying.

Sutherland

It’s people buying people, to a very large extent. Yes.

Corson

Just to round us out, Rory, because we could carry on talking for hours, but make it very tangible for the finance leaders. One of the big things they're responsible for, obviously, is the transformation of their functions. What we talk about a lot in this podcast is how finance leaders prepare for this uncertainty.

Sutherland

To what extent can they be replaced with AI, do you think? Are they nervous?

Corson

That's part of the challenge. I think there will clearly be change. It’s how do you prepare for that?

Sutherland

What terrifies me about every organization is they're looking at AI, first and foremost, to replace the people who do what they actually do. Is AI medicine replacing doctors? Is, I don't know, AI drones replacing soldiers? At some level, what worries me is the administration—what you might call the bureaucracy in organizations—will make the decisions about the deployment of AI, mysteriously, to their own advantage.

They will see themselves as now programming or prompt writing for AI. The extent to which organizations are led by the shareholder value movement to see the people in the organization who do the thing that the organization exists for as a cost strikes me as truly horrendous. Peter Drucker claims that the only two things a business does are value and marketing and innovation. Everything else is a cost.

Now, that's a hell of an extreme position, which I'm not even sure I’d adhere to entirely myself. But, nonetheless, the extent to which we've got into a mindset where, in many cases, there is an organization at the top that, in some senses, comes to resent the people who do the things that the customer actually pays for.

You see this, by the way, in terrible things like underinvestment in customer service. That's nothing to do with the fact that customer service isn't valuable. It's rather like the business that finance people have introduced all these self-checkouts at supermarkets because they're looking for operational efficiency.

Two problems: One, people have started nicking things. There are some branches where they sell more carrots than they buy, and the reason is that actually people are checking out avocados and pretending they're carrots. The second thing nobody seems to notice is you can't really do a big weekly shop through a self-checkout till. It’s great if you've got a basket; it's great as an option. But when it becomes an obligation, because you're driving your customers to the lowest cost channel, you're effectively losing those really big shops.

Now, if you're a big Tesco Extra or whatever, it's the big shop which is the rationale to go to Tesco Extra in the first place because you want the range. The whole thing—this absolute obsession with operational efficiency—as if consumers want it necessarily… The cost is what you might call immediate and salient and quantifiable, and the benefit is unquantifiable, in some ways, nebulous, and deferred.

You have this fundamental problem that an opportunity cost is always harder to quantify than a cost. Anyone who's focused on purely this reductionist business of cost reduction will create this appalling situation where you cut costs visibly while invisibly destroying opportunities, including future customer value and so forth.

There is this fundamental problem that if you are obsessed with what you can measure, you end up with this quantification bias. The FT [Financial Times] wrote this piece saying, "How did customer service get so bad?" I felt like saying, "Well, if the FT itself occasionally acknowledged there was something interesting about a business other than its quarterly financial returns, you wouldn't have been in this pickle to begin with."

That fundamental problem, which is that costs are always immediate and quantifiable, and opportunities are always probabilistic, my argument would be that if you have an overly powerful finance function... Consequently, I think what's interesting there is that there is a danger in certain categories, like, for example, what you might call distance commerce, where if the customer service—or insurance, for that matter—if you end up with 20% to 30% of people having had two or three really bad customer experiences of the thing, they will abandon not just the brand but the whole category.

In other words, they'll go, "Okay, so you have something which is a bit of an economic gift to business, which is consumers' readiness to actually engage and exchange money with you remotely through digital channels." The risk you face is that it isn't just your brand that suffers; actually, if a category drops below a certain level of trust, the category dies.

If you think that's totally implausible, the example I always give of that is timeshare. Timeshare was a really good idea. Nobody wants to own a house in Fuerteventura for 52 weeks of the year unless you want to actually emigrate there. But there are a hell of a lot of people who like to own a tenth of a house in Fuerteventura. Brilliant idea. Unfortunately, it was so profitable that it attracted 20% of the people operating there who were basically crooks.

Once you fall below that level of expectation of trust, oddly speaking, it's just about dragging its way back through the rebranding as fractional ownership.

Corson

Fractional ownership, yes.

Sutherland

You can genuinely, I think, if level… It's the old London taxi driver. The reason London taxi drivers police each other and they have the knowledge is they know that you only need 3% of black cabbies to be crooks, and people's willingness to actually hail one on the street disappears.

We need to really, really worry about this because it's not just a brand risk, which it is. It's also, in some cases, I think, a category risk.

Corson

Fantastic. Rory, it's been wonderful to have this conversation.

Sutherland

What a pleasure.

Corson

You've done a beautiful job wrapping it up with, I think, this balance between short-term and long-term thinking.

Sutherland

And easy-to-prove and hard-to-prove.

Corson

And easy-to-prove and hard-to-prove. I think it's hopefully so relevant for many finance leaders. Just to, again, round it out, I think the opportunity, as we look at opportunities from AI and other automation, it's really, again, how that frees up time to spend with this integration to the customer-facing insights.

Sutherland

By the way, a finance person who went to the marketing department and said, "If you could generate this one behavior, it would make more difference to my life than anything else." Maybe that's what should happen—that every two weeks or every four weeks, the finance person should go…

For example, an awful lot of the cost of customer service actually arises from not getting it right the first time. It's people, effectively, ringing back repeatedly. If you can get everybody who rings customer service, effectively, that's a wonderful marketing achievement. It’s also probably a huge financial gain as well. There are these win-wins, I think, dotted all over the place.

Corson

Fantastic. That's a great insight to end on. Rory, really appreciate you being here.

Sutherland

Fantastic.

Corson

Thank you.

Sutherland

Pleasure. Thank you very much, indeed.

Corson

Thank you to our listeners, as always. If you've enjoyed this or any episode of the EY Better Finance Podcast, please leave a rating or review. Don't forget to subscribe so you get future episodes. You'll find related links in the show notes or at EY.com/betterfinance. As always, thank you for listening. If you have ideas or topics you'd like to see covered, or guests you'd like to see featured, please don't hesitate to reach out. I look forward to speaking to you next time on the EY Better Finance Podcast.

Présentateurs

Myles Corson, Services consultatifs, Comptabilité financière, leader, Stratégie et marchés, réseau mondial d’EY.

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Saison 7, épisode 11

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39m 53s

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