The Backwards Brain Bicycle
Do you know how to ride a bicycle? If you’re like most people, the answer is likely yes.
Now let’s say I take your bike and make a slight modification to it. I will change the configuration of the handlebars such that if you turn right, the bike will now turn left. Similarly, if you turn right, the bike will instead turn left. Admittedly, that’s a weird modification to make. However, bikes like this do exist. They look fairly similar to traditional bikes except the slightly weird look of the handlebar:
Now, let’s say I challenge you to ride the bike for only ten feet without your feet touching the ground. If you are successful, I’ll pay you $200. Otherwise, you will owe me $10. Over the years I’ve actually asked a bunch of people this question. Every single person has been confident that they could easily do it. And yet I have had to explain to them that they will almost certainly lose the bet. Despite the seemingly obvious configuration change, most humans would struggle to ride this bike for even a couple of yards.
I encourage you to watch this video if what I’ve told you has piqued your curiosity:
This type of bike is actually called a backwards brain bike. The difficulty we face riding it is tied to how human brains are configured. A lot of things humans do routinely like riding a bike involves neural circuitry that take months or years to build up. However, once these neural pathways are defined, they take just as long to break. Psychologists typically refer to this as muscle memory. Learning how to ride a backward brain bike will typically require at least six months of practice. Once learnt, it will become part of the user’s muscle memory. However, after that riding a ‘normal’ bicycle becomes an impossible task.
Now, let’s turn to business. Muscle memory actually plays a huge role in business. It is a big reason why incumbents are better at operations versus startups. However, faced with innovations or new ways of working, this same muscle memory hurts incumbents. If you’re like me, I’m sure you’ve read/heard these three narratives:
Microsoft missed out on mobile and lost its dominant position among operating systems to Apple/Google
Blockbuster lost to Netflix because they focused on physical branches
Kodak missed out on the digital revolution
Now, these narratives aren’t false. But they aren’t necessarily true either. For a start, they confused cause and effect. I recently listened to this talk by a Microsoft senior leaders on muscle memory and the role it played in his company missing out on mobile. He spoke at length about how by the mid-2000s, the Microsoft senior leadership team had realized that the smartphone could be big. Sure, they wouldn’t have expected it to be that big but almost no one did at that point. After Google’s Anrdoid acquisition, Microsoft poured billions of dollars into developing a Windows operating systems. They offered hardware manufacturers and developers billions in incentives to come on Windows. And yet, for a variety of reasons none of this took off. But the executive noted that the main reason, this didn’t take off was the fact that Microsoft as an organization was set up to focus around desktop*. Making products for desktop was part of Microsoft’s muscle memory.
Everything in the company’s history and culture - from developing applications to charging ecosystem players was focused around the rules of the PC era. To take a concrete example, the mobile era was marked by Web 2.0 rules and the proliferation of recurring subscriptions. Apple notoriously started charging developers a 30% cut off these subscriptions to sell on its app store. And yet, Microsoft’s core product - Microsoft Office - at that point operated with a traditional enterprise license model and wasn’t built to be cross-platform.
Microsoft’s board probably understood the shifting landscape better than most give them credit for. However, getting these changes passed through the DNA of a 75k+ employee organization was a momentous task. In the early years, it was still up for debate whether mobile was just a fad - as a result, often the mobile and desktop teams would find themselves in conflict over product needs and visions. A situation like the graphic below:
Ultimately, it was really the shift towards cloud that brought about the culture change. With cloud, the board was a lot more decisive in pushing the necessary changes to ensure that cloud would be at the center of the group’s forward strategy. A lot of the focus in recent years has been on getting Microsoft products to work seamlessly with Microsoft’s cloud offerings (aka Microsoft Azure). As a result, even though AWS is generally cheaper and Google is better (for AI/ML), a lot of enterprises have chosen Azure for the shift of their workloads to the cloud.
(*Desktop here refers to both desktop PCs + laptop computers)
Microsoft’s story is no exception. It is important to realize that other failures like Blockbuster and Kodak were ultimately failures of failing to unlearn things in your muscle memory. Blockbuster as a multi-billion dollar enterprise focused around optimizing in-store inventory of DVDs. Sure, a few in its leadership might have even foreseen the shift towards online. But the company was already a 50k employee company with thousands of physical locations at that point. I’m sure they might have even paid tens of millions in outsourced development costs to build them a technology stack. But the core offering of the company was DVD variety at in-store location. Anything else they would invest in would almost have to be an orders of magnitude smaller than their focus on their core business.
One day, a few journalists will write the obituary for the traditional insurance industry. I can already visualize some of the headlines:
GEICO fails to adapt to technological changes - loses billions in market cap as new tech-savvy competitors gain ground
Prudential misses out on AI, reports worst-ever LR as competitors get better at risk-based pricing
This might very well turn out to be true. GEICO and Prudential could both stand to lose a lot from such market changes. However, such headlines don’t do justice to how much these companies are probably already doing AI and technology. Moreover, they fail to acknowledge that running a modern insurance company today is about being a very good call center organization. Ultimately, these insurers are very good at training tens of thousands of customer service folks who talk to people on the phone and comfort them everyday. This isn’t rocket science. These are call center organizations which pool money and disburse them over the course of a year. Sure, there’s some other stuff like solvency and a few Excel models here and there. But everything pales in comparison to the focus on talking to customers on the phone. 90%+ of customers won’t claim in a given year. And so for any given year, this one pleasant call they have with an agent is all they get in return for the $1000. And when they do claim, guess what they do - why, of course they will call the helpline. Thus, everything ranging from new business to claims management is focused primarily around getting better at talking to folks on the phone. And the reason these companies have become so successful is by routinizing call center processes into their muscle memory.
Just as it is hard to unlearn riding a bike, it is hard to unlearn what is already in your company’s DNA. There is a lot of pain along the way. Often, it involves leaving money on the table. It can lead to disgruntled employees and even more disgruntled customers. And there is no guarantee that the world will pan out as predicted. In the face of this dynamic, most companies go for the easy option and push for the status quo. Being a contrarian only works once in a while. But there will likely be a reckoning some day as software eats into more and more traditional industries. A lot of incumbents will need to unlearn many things and learn new things. And just like learning to ride a bike, this will take years of deliberate practice.
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