Wednesday, 30 January 2008

Collective inertia – if you don’t join them, you can beat them!

Ever wondered why newspapers always had this ridiculously large, uncontrollable size? Perhaps when you were trying to read one in your garden on a sunny yet windy afternoon, forcing you to peel the pages of your face every annoying three seconds? Or while reading one on the train, smashing your elbow in a nodding neighbour’s face when turning the page? I did. Not smashing my elbow in anyone’s face, but wondering why these pages had to be so bloody large.

I simply assumed that it was much cheaper to print on large pages than small ones. Turns out I was wrong.

To my surprise, I found out that printing on large pages is actually more expensive than on smaller ones…?! Why did they do it then; are these Times, Guardian and Daily Telegraph people closet sadists, finding secret joy in giving us a daily struggle with inky pages? Here’s what happened:

In 1712 British newspapers came to be taxed on the number of pages published. Editors then decided to print the news on enormous pages, and fewer of them, creating the broadsheet format. The original tax disappeared in 1855 but, despite being considerably more expensive, the format persisted.

As you may remember (if you’re from London), a couple of years ago, after the free newspaper “Metro” entered the industry, the Independent was the first to abandon the broadsheet and “go tabloid”. Their sales figures surged. Soon The Times followed, and later also the Guardian, all to their benefit. But why did it take so long – centuries!? Had no-one ever conceived the idea of printing newspapers on smaller (and cheaper!) pages?

Sure they had. Many times over the years someone would bring it up; “shouldn’t we print on smaller pages?” But they would always dismiss the idea: “no-one is doing it” and, mostly, “the customer would not want it”… Yes we did!

I call this “collective inertia”. Every existing player in the industry was afraid to break the mould and take the plunge. I have also learned, studying many firms in many different lines of business, that most industries have such a slightly strange, idiosyncratic convention that everybody adheres to but nobody really remembers why we’re doing it that way.

But hardly anyone dares to challenge it. And that is where the business opportunity lies. If you’re the first one to spot the silly convention (just to name a few candidates: buy-back guarantees in book publishing, detailing in the pharmaceutical industry, insane working hours in investment banking) and do it differently, it might just make you a heck of a lot of money.

And it would save many of us customers from a daily elbow in the face.


yrrab said...

You example instances where the industry player is spending its own money and so the “eureka” moment to challenge the collective inertia comes out of self-interest. Do you think it is different when you are able to charge your customers the costs of the inertia? Example: fund managers pay for research from brokers with their clients’ commission (arguably opaquely) when executing share transactions. It is obviously idiosyncratic to think that just because someone gives you good research that they must be able to execute a share transaction properly. Annual execution commissions total billions of pounds. Thus might the degree of “collective inertia” be correlated with the size of the elephant in the room too?! Barry Marshall MSc 16

Freek said...

Barry: Good point! I believe it relates to the following: Industries are different. In some industries, if all firms are equally bad, no-one suffers (at least none of the firms; customers usually do!). Consider, for example, retail banks: If all banks are equally bad (UK retail banks do come to mind...) because they have adopted some silly practice, we are stuck with them and still have to choose one. Therefore, the banks don't suffer.

In contrast, consider restaurants. If all restaurants in our town are equally bad because they have adopted some silly practice (e.g. Dutch "cuisine"), we simply would not frequent them (but, instead, for example rely on the microwave at home). Hence, they would suffer from employing the silly practice.

Obviously, the former industry (retail banking) is a nicer place to be in. Yet, I would conjecture that such an industry will, inevitably, at some point, be subject to entry by an outsider with an innovative, disruptive business model (e.g. the "Metro" newspaper), to serve the masses of disgruntled customers. Eventually, justice will be done! although it may take a while...

Samira said...

Otherwise, I call the occurence a flocking (herd) instinct.

Most of the people I know live their lives the way they do only because everybody else does the same. They even start talking the same. It hit me when I had a conference chat with 3 girlfriends. In a minute I couldnt evaluate who was who... all because they all are too much into baby-doll image at the moment, until at some point someone tells them that being natural and individual is a new trend.

Peraps i am ignorant but almost all the genius things done were crazy and "againt the flow" ones, some of them realised and recongnised relatively fast while as some only in decades...