Shifting Baseline: How the Abnormal Gradually Becomes Normal

In the previous lecture, we discussed that a company is an intelligent entity run by people, requiring continuous investment. In this lecture, we will explore what happens when that investment is lacking.

It won’t stand still. It will decay.

Let’s consider a hypothetical scenario.

In the winter of 2005, a company manufacturing electric heaters discovered a defect in the switches of a batch of products, resulting in a 0.1% defect rate. CEO Chen immediately ordered all shipped products to be recalled overnight. Distributors largely argued it was unnecessary, stating the industry average defect rate was as high as 2%, and the company was already a top performer. But CEO Chen replied, “The industry is the industry; we are us. Our products are placed in people’s bedrooms; there can be no fire hazards!” That recall cost the company half of its profits for that year.

In 2015, the same company. The defect rate was 0.8%, yet the accompanying PPT title read “Quality Metrics Continuously Surpass Industry Average.” An old employee grumbled, “Ten years ago, this would have caused an uproar!” Younger colleagues laughed at him, saying, “The company was small back then; it could afford the trouble.”

In 2025, still the same company. The defect rate was 2.4%, and nobody discussed it because the internal standard was 3%. A new quality engineer asked, “Why 3%?” The supervisor thought for a moment and said, “It’s always been this way.”

CEO Chen overheard this conversation by chance. He remembered the product recall twenty years ago, with a feeling as if a lifetime had passed.

Once, even a 0.1% defect rate was intolerable; now it’s automatically set to 3%? Are there “bad actors” within the company? Or have we made some major incorrect decisions? The truth is neither; it’s all just subtle, incremental changes.

Many refer to this as organizational “entropy increase.” Academia has a more precise term for it: “shifting baseline.”

The Origin and Definition of Shifting Baseline #

The term “shifting baseline” first originated in fisheries management.

In 1995, fisheries scientist Daniel Pauly identified a huge blind spot in fisheries management [1]. He pointed out that to accurately assess the decline of fish stocks, a fixed baseline must be established; however, each generation of fisheries scientists unconsciously adopted the fish stock size they observed when starting their careers as their baseline, focusing only on a small segment of decline during their professional lives, yet no one could perceive the enormous cumulative decline over three generations.

Imagine a village of fishermen. When the grandfather was young, he would go fishing, catching large fish that required several people to carry, and returning to the village was like a festival. When the father was young, the fish were smaller but still enough to sell and eat. He heard the elders boast about “terrifyingly abundant fish in the past,” dismissing it as old-timers’ exaggeration. The grandson, on holiday, goes out on a boat, catches a few small fish, and everyone happily takes photos and posts them on social media: “Good catch today!” Unbeknownst to him, that’s just what he understands as “good.”

Researchers unearthed tourist fishing photos from the Key West dock in Florida, USA, dating back to 1956 [2]: over half a century, the average size of the “trophy fish” in the photos shrank from 19.9 kg to 2.3 kg, a reduction of nearly 90%—yet the fishermen’s poses and smiles in the photos remained exactly the same.

The fish in front of them grew smaller and smaller, yet they all believed that fish represented the ocean.

The crux of shifting baseline is not merely that the world deteriorates, but that the yardstick used to measure it deteriorates along with it. This is the frog in slowly boiling water, where even the thermometer changes with the rising temperature.

The same applies to organizations.

When the Eight Banners of the Qing Dynasty first entered the Shanhai Pass, they were renowned as invincible with 10,000 men. However, in 1784, when Emperor Qianlong inspected the stationed Eight Banners in Hangzhou during his southern tour, the soldiers missed targets with their arrows and fell from their horses. Fifteen years later, when Emperor Jiaqing faced the White Lotus Rebellion and wanted the Eight Banners to deploy, he couldn’t even muster a single troop, having to rely on local militias.

Jiaqing recalled his experience accompanying Qianlong during that inspection of the Eight Banners, where “arrows flew without hitting targets, and riders fell from their horses,” and wrote a heartbreaking sentence in an imperial edict: “At the time, we thought it was a joke” [3].

One generation’s joke can become the next generation’s ceiling. Shifting baseline robs people not just of fish, but of comparison, and even imagination.

The Psychological Mechanisms of Shifting Baseline #

From a psychological perspective, the phenomenon of shifting baseline is not difficult to understand, underpinned by three main mechanisms.

One is “prospect theory,” which we discussed earlier: people’s perception of gains and losses is not determined by absolute levels, but by changes relative to a “reference point.” Is a monthly salary of 20,000 happy? It depends on whether your previous salary was 10,000 or 50,000. Shifting baseline subtly moves this reference point downwards when you’re not paying attention.

Another is psychologist Harry Helson’s “adaptation-level theory” [4]: human sensory judgment depends on the average level of past stimuli. You move into a house facing a busy street, and for the first week, you can’t sleep due to traffic noise—but after three months, you adapt, perhaps not even noticing the traffic noise anymore. Adaptation allows us to coexist with harsh realities, but often it merely teaches us not to cry out in pain.

The third is “normalization of deviance,” proposed by sociologist Diane Vaughan [5]: a practice that violates norms, as long as it doesn’t immediately cause problems, will gradually be accepted by the organization as normal operation, allowing it to be performed with peace of mind next time.

Reference points subtly shift, senses gradually dull, and deviations are normalized as routine—these three mechanisms together constitute an instrument that automatically adjusts standards: no matter how much the environment deteriorates, it can adjust the definition of “normal” accordingly.

In the short term, it might help us temporarily overcome difficulties—after all, people must always compromise with reality. However, in the long run, this inevitably leads to decay.

The Gradual Process of Organizational Shifting Baseline #

Let’s look at how shifting baseline occurs step-by-step in an organization.

The first step is a small transgression under pressure. This month’s delivery is simply too late, and the inspection process has to be simplified just once: this one time, and never again! The person saying this is not only not a bad person but might even be the most responsible person in the entire company—he even held a special meeting to explain why this instance was exceptional.

The second step: nothing went wrong. This is the most dangerous link in the entire chain, because “nothing went wrong” will be taken as evidence: “See, even simplified, it was fine; perhaps the old process was redundant anyway.” Survival is mistaken for safety.

The third step: the exception becomes a precedent. Next time pressure mounts, there’s no need for a meeting—“We did it this way last time.”

The fourth step: the roles are reversed. The simplified version becomes the default action; wanting to follow the old process now requires special approval and questions about why you’re delaying progress.

The fifth step: generational amnesia. New hires learn the simplified version. They don’t know an older version ever existed—they believe the process is, and always has been, this way.

The sixth step: immune response. If someone at this point is dissatisfied with the status quo, questions it based on history, and advocates for restoring old rules, they will be met with widespread eye-rolls and rejection—this is interpreted as distrusting leadership and peer departments, an act of disregard for the bigger picture! At this point, the system has not only grown oblivious to the original error but has also developed antibodies against any attempts at correction.

Transgression, no incident, precedent, default, amnesia, rejection. Each step is reasonable, each moves only slightly, each is hardly worth a fuss. But each step steadfastly makes things worse.

Management’s Response and Reflection #

The field of management has studied the shifting baseline phenomenon for decades and proposed several countermeasures.

First, clarify baselines: explicitly stipulate which incidents must halt operations, which risks must be reported, and empower anyone to call a stop.

Second, establish dedicated reporting channels for bad news: do not punish those who report bad news, only those who conceal it, and set up channels for skipping management levels.

Third, measure oneself against external standards: such as customer feedback, competitors’ products, and even the “fuss” made by new employees.

Fourth, conduct baseline audits: formally ask the entire company each year—among the things we now take for granted, which ones would have been unacceptable five years ago?

These methods undoubtedly have their uses, but I highly doubt their long-term effectiveness. Let’s look at two cases.

Let’s first look at a story from the Ming Dynasty.

In the 17th year of Hongwu’s reign (1384), Zhu Yuanzhang deeply feared eunuchs interfering in politics in later generations, so he erected a three-foot iron plaque at the palace gate, on which eleven large characters were cast: “Eunuchs are forbidden from interfering in political affairs; those who do shall be beheaded” [6]. This baseline was extremely strict; however, the drift soon subtly began.

Firstly, when Zhu Di launched the Jingnan Campaign, eunuchs rendered meritorious service in military intelligence and were subsequently entrusted with significant responsibilities—Zheng He, of “Zheng He’s Voyages to the Western Seas,” was one of them. Zhu Di might have argued that these were merely special assignments, not political interference.

During the Xuande reign (1426-1435), the emperor found state affairs too heavy and couldn’t finish all the memorials. He established the “Internal Library,” inviting Hanlin academicians to teach young eunuchs to read and write so they could “ghostwrite” red endorsements for him. Eunuchs merely acted as secretaries; this, it seems… wouldn’t be considered political interference, right? But don’t forget, Emperor Taizu’s rules originally forbade eunuchs from being literate.

During the Zhengtong reign (1436-1449), the nine-year-old emperor, upon ascending the throne, was naturally assisted in governance by Wang Zhen, the eunuch who had taught him to read since childhood. After the Grand Empress Dowager’s death, Wang Zhen not only directly took over all state affairs but also removed the iron plaque at the palace gate [6].

Then came Wang Zhi during Chenghua, Liu Jin during Zhengde, and finally, Wei Zhongxian during the Tianqi reign.

In the 6th year of Tianqi (1626), Pan Ruzhen, the Governor of Zhejiang, submitted a memorial requesting the construction of “living shrines” for Wei Zhongxian. Governors and grand coordinators across the country, as if waking from a dream, followed suit, and within a year, living shrines were spread throughout the realm. Lu Wanling, a student of the Imperial Academy, even memorialized, requesting that Wei Zhongxian be honored alongside Confucius [7].

From “eunuchs are forbidden from interfering in political affairs; those who do shall be beheaded” to “please allow a eunuch to be honored alongside Confucius,” over 240 years of history elapsed. Each step of this evolution had its “reasonableness” at the time, and it’s not that no one expressed dissatisfaction (e.g., through bad news hotlines), yet the shifting baseline was never reversed.

Perhaps you might say that in the modern business world, we have contracts and laws, which serve as external benchmarks and tools for baseline audits! So, let’s look at another phenomenon occurring in a society governed by the rule of law.

A common problem in current Chinese manufacturing is that suppliers often struggle to receive timely payments after delivering goods to original equipment manufacturers (OEMs), frequently experiencing long delays. The “Regulations on Ensuring Payments to Small and Medium-sized Enterprises,” promulgated and implemented in 2020, already made clear requirements for payment deadlines; the standard at the time was 60 days [8].

Imagine you are an automotive parts supplier, and the OEM informs you that payment for this batch of goods will be settled in 90 days. How should you respond? To avoid losing the order, you have no choice but to accept.

So the next year, it became 120 days. Another year later, the payment term was not only longer, but the payment method was no longer cash but commercial bills, which could be further extended upon maturity.

In 2024, according to car manufacturers’ financial reports, the average payment cycle for BYD and Geely was 127 days, Great Wall 163 days, and SAIC 164 days [8].

Suppliers felt humiliated in the first year, regarded it as an industry norm in the second, and by the third year, when hiring new accountants, even directly incorporated a 180-day payment term into their cash flow models.

In 2025, the state released a revised version of the “Regulations,” this time extending the strict 60-day deadline, originally mainly imposed on government agencies and public institutions, to “payments by large enterprises to small and medium-sized enterprises,” and also closing loopholes like using commercial bills. Consequently, 17 car manufacturers including FAW, Dongfeng, GAC, Geely, Great Wall, Xiaomi, and Li Auto collectively issued a statement: committing to payment terms for suppliers not exceeding 60 days [8]. Suddenly, the news went viral nationwide, suppliers spread the word, and the media hailed it as an industry milestone…

Five years ago, a 60-day payment term was an industry benchmark; today, 60 days has become a legally mandated requirement. The legal provisions are sufficiently clear, and market players generally accept them. Yet, what was the result?

According to a May 2026 report in the Financial Times [9], BYD was indeed shifting from supply-chain finance tools like “Di Chain” to more formal bills and cash payments, indicating that regulation had an effect; however, BYD’s payment cycle still stood at 123 days, only 4 days shorter than a year prior. The report also stated that while some small suppliers saw improvements in payment collection, two larger suppliers reported no change in payment rhythm.

The baseline merely paused slightly, then continued to drift.

Ineffective Defense: The Fundamental Challenge of Shifting Baseline #

In my view, these methods have limited effectiveness because they are all essentially defensive strategies. Baselines are static, but pressures are dynamic. Rules may be in place, but reasons to circumvent them arise daily. Plug a hundred loopholes, and the 101st will still emerge.

Defense is passive, and long-term defense ultimately leads only to despair. If the strategy to counter shifting baseline is merely to “return to the past,” then you are doomed to fail.

Take Starbucks as an example.

Starbucks once claimed to be people’s “third place” outside of home and work; now it increasingly resembles a takeaway counter. Moreover, it raises prices more frequently, lines grow longer, and the experience deteriorates. In September 2024, Brian Niccol parachuted in as CEO, announced reforms, with the slogan “Back to Starbucks.” They cut the menu by 30% to improve efficiency, promised a four-minute turnaround for orders, restored ceramic cups and comfortable chairs in stores, and baristas began handwriting customer names on cups again [10]… Every measure aimed to pull back the drifted experience, a textbook example of anti-shifting baseline.

While these reforms had some temporary success in the US, they couldn’t prevent Starbucks from losing to Luckin Coffee in China. In November 2025, Starbucks sold a 60% stake in its China retail business [11], while Luckin’s total store count was already more than three times that of Starbucks China.

Niccol’s reforms were defensive, but Luckin was on the offensive. Luckin Coffee rewrote the reference point for “a cup of coffee” in the Chinese market from over thirty yuan to 9.9 yuan. Consumers don’t perceive Luckin as cheap; they only perceive Starbucks as expensive. Luckin is redefining what’s normal; how can Starbucks compete by returning to the past?

In fact, the moment the word “back” appears, the baseline has already shifted.

The 1990s Starbucks Niccol wanted to return to was a company constantly inventing things. It brought sociologist Ray Oldenburg’s “third place” concept into business, made Frappuccino a global product, and sold Italian espresso to Americans accustomed to drip coffee [12]. The greatness of 1990s Starbucks wasn’t about what it preserved, but about its offensive strategy.

Even if you precisely restore 2025 Starbucks to its 1995 appearance, what you get is not 1995 Starbucks, but merely its corpse.

The true past had not only state f, but also the rate of change df/dt. Today’s systems, processes, strategies, and business models are all results of continuous exploration in the past—if you only preserve these results but stop exploring, you are not inheriting the past; you are betraying it.

Large companies often talk about preserving the “fine traditions” of their founding era—but then, are you preserving the practices of that time, or the drive that generated those practices?

If a second generation merely inherits their father’s business but not his creative spirit, and is eventually defeated by a creative competitor, then we could roughly say that competitor is more like the second generation’s father than the second generation themselves.

The Leader’s Ideal Blueprint: The Only Solution Against Drift #

Thus, shifting baseline is a process where not advancing means retreating: merely trying not to regress is far from enough; it’s more important to think about how to move forward.

While companies should indeed adhere to baselines of safety, quality, and integrity, and stay at the forefront of the world’s best practices—as a leader, you must also hold a grand ideal blueprint in your mind: a vision of a future state for the company that does not yet exist in the world, one you aspire to lead it towards.

If everything were exactly as you wished, what would this company be like? What products and services should you offer? How should information flow? How should people be motivated? How should customers be treated?

If you don’t have such a blueprint in your mind, merely content with maintaining the company’s existing state, then you can only helplessly watch the baseline inevitably slide towards decay.

In fact, personal growth is also like this. When you try to preserve the status quo, you’ve actually already begun to drift. Ambitious young people never think about maintaining their figure, let alone “preserving health”; they only care about df/dt.

If you find df/dt < 0, your correct approach is not to pray for it to equal 0, but to find a new growth point to counter the drift.

My advice is: we should all become idealists.

An idealist is someone who carries a vision in their heart of “how things ought to be,” and therefore finds everything dissatisfying. Ordinary people learn the rules wherever they go, and the more they learn, the more they conform; an idealist, however, constantly compares reality with their ideals—and then sees nothing but gaps: this is wrong, that’s wrong, this could clearly be better.

We read not to become accustomed to the world, but to discern its shortcomings and dare to challenge them. Books contain the highest peaks humanity has ever reached and even higher realms achievable: the best systems, the most advanced ideas, the wisest strategies, the most dignified lives. Precisely because one understands what is beautiful, one cannot tolerate mediocrity and ugliness. Therefore, if you take over a company, a department, or a task, you will be full of vigor, eager to lead it to a better place.

A “leader” leads. If others don’t know where to go, and you guide them, that’s true leadership.

A person without an ideal blueprint in their heart should not be a leader. They should be led.

Notes

[1] Pauly, Daniel. “Anecdotes and the Shifting Baseline Syndrome of Fisheries.” Trends in Ecology & Evolution 10, no. 10 (1995): 430.

[2] McClenachan, Loren. “Documenting Loss of Large Trophy Fish from the Florida Keys with Historical Photographs.” Conservation Biology 23, no. 3 (2009): 636–643.

[3] Veritable Records of Emperor Renzong of Qing, Vol. 38, Emperor Jiaqing’s Edict in the First Month of the Fourth Year (criticizing Zhejiang Governor Yu De): “When I accompanied the Emperor on his southern tour to Hangzhou in the Jia-chen year, I personally witnessed the military camps’ riding and archery. Arrows flew without hitting targets, and riders fell from their horses, which we considered a joke at the time; has there truly been diligent training in these past years?” The Jia-chen year was the 49th year of Qianlong’s reign (1784), marking Qianlong’s sixth southern tour.

[4] Helson, Harry. Adaptation-Level Theory: An Experimental and Systematic Approach to Behavior. New York: Harper & Row, 1964.

[5] Vaughan, Diane. The Challenger Launch Decision: Risky Technology, Culture, and Deviance at NASA. Chicago: University of Chicago Press, 1996.

[6] For the iron plaque, see History of Ming, Official Records III: In the 17th year of Hongwu, “an iron plaque was cast with the inscription ‘Eunuchs are forbidden from interfering in political affairs; those who do shall be beheaded,’ and placed within the palace gate.” For its removal, see Gu Yingtai, Ming Shi Ji Shi Ben Mo, Vol. 29, “Wang Zhen’s Usurpation”: “It still existed during the Xuande reign, but Wang Zhen removed it.” Grand Empress Dowager Zhang died in the tenth month of the seventh year of Zhengtong, after which Wang Zhen monopolized power, see History of Ming, Biographies of Eunuchs, Wang Zhen entry.

[7] Pan Ruzhen’s initial request for a shrine and to be honored alongside Confucius, see History of Ming, Biographies of Eunuchs, Wei Zhongxian: “Zhejiang Governor Pan Ruzhen memorialized requesting the construction of a living shrine for Zhongxian… whereupon praises for his virtues followed, and all shrines originated from this”; “Lu Wanling, a student of the Imperial Academy, even requested that Zhongxian be honored alongside Confucius, and Zhongxian’s father alongside Qisheng Gong.” Yuan Chonghuan’s co-signing is mentioned in Veritable Records of Emperor Xizong of Ming, fourth month of the seventh year of Tianqi: “Jiliao Military Commissioner Yan Mingtai and Governor Yuan Chonghuan submitted a memorial praising Wei Zhongxian’s virtues, requesting the construction of a shrine in Ningqian.” The couplet “Confucius composed the Spring and Autumn Annals, Zhongxian composed the Essential Statutes” is from Lu Wanling’s memorial, as recorded in Ming Shi Ji Shi Ben Mo, Vol. 71, “Wei Zhongxian’s Political Chaos,” etc.

[8] State Council Order No. 728, Regulations on Ensuring Payments to Small and Medium-sized Enterprises, promulgated on July 5, 2020, effective from September 1, 2020; State Council Order No. 802, revised edition, promulgated on March 17, 2025, effective from June 1, 2025; “In Just Two Days, 17 Car Manufacturers Collectively Speak Out: Payment Terms for Suppliers Unified to Within 60 Days,” Securities Times, June 12, 2025; The average payment cycles for various car manufacturers (BYD 127 days, Geely 127 days, Great Wall 163 days, SAIC 164 days) disclosed by BYD’s Li Yunfei are based on 2024 annual report figures, as reported publicly in June 2025.

[9] Financial Times. “World’s biggest EV maker weans itself off supply-chain finance.” May 27, 2026. https://www.ft.com/content/336bf35b-a87d-49e8-95d8-36a0f234be5d.

[10] “Starbucks’ ‘Self-Mutilating’ Reforms”, 36Kr, July 2025; “‘Back to Starbucks’ Nearly One Year On: North America Under Pressure, China Warms Up”, Tencent News, August 2025.

[11] Starbucks announcement on November 4, 2025: Boyu Capital acquired a 60% stake in Starbucks’ China retail business, with an enterprise value of approximately $4 billion. Starbucks retained brand ownership and a 40% stake, and the two parties plan to gradually expand the number of stores from approximately 8,000 to 20,000. See AP News, “Starbucks sells majority stake in its Chinese business to Boyu Capital,” Nov 4, 2025, <https://apnews.com/article/290006ba2eec33168b42985eb6576818; Business> Insider, https://www.businessinsider.com/starbucks-china-boyu-capital-sale-4-billion-2025-11. Store count data: Luckin’s 26,206 stores are the total store count as of June 30, 2025; Starbucks China’s 8,011 stores are the China store count as of September 28, 2025, as reported by Cailian Press.

[12] Oldenburg, Ray. The Great Good Place: Cafés, Coffee Shops, Bookstores, Bars, Hair Salons, and Other Hangouts at the Heart of a Community. New York: Paragon House, 1989; Schultz, Howard, and Dori Jones Yang. Pour Your Heart Into It: How Starbucks Built a Company One Cup at a Time. New York: Hyperion, 1997; Nanos, Janelle. “The Story of the Frappuccino: How a Chilly Coffee Drink Became a Billion-Dollar Behemoth.” Boston Magazine, December 7, 2012.