Thursday, 21 October 2010

Forced to be stupid

Jessica Nolan, a researcher at the University of Arkansas, was interested in persuading residents of a particular California Community to conserve more energy at home. For this purpose, she designed four types of notes, to be delivered to people’s homes. These notes (roughly) said the following:

1. do it because it helps the environment
2. do it because it benefits society
3. do it because it saves you money
4. do it because everybody else is already doing it

Before using the notes, she knocked on a number of residents’ doors and asked them which of the four arguments would most likely persuade them. Pretty much everybody said, “Not the fourth! (I care about the environment, I care about society, I certainly care about money, but I couldn’t care less about what everybody else is doing”). But did they?

Subsequently, Jessica sneaked out at night and hammered one of the four notes on each door in the community.

Some time after that, she went back to check people’s meter readings. And guess what: households that had received the fourth note (“everybody else is doing it”) had by far the biggest reduction in energy consumption.

We are hugely affected in our decision-making and behaviour by our notion of what others are doing, although we usually don’t quite realise it (and deny it vigorously!). We might think that “oh no, I don’t care what others are doing” but reality is: we do. It is only human

Even top managers can be almost human (or at least some of them). For example, there is a lot of research on what influences managers’ strategic decisions (e.g. whether to choose strategic option A or B). And guess what, it’s imitation.

There is research on where firms choose to locate their new plants, whether or not they enter a particular market, adopt a new type of organizational structure, a governance instrument, etc. etc. Consistently, results show that managers are led by one simple question: “what are my competitors doing?” And then just do the same thing.

The problem is, sometimes what your competitors are doing is stupid. For example, research has indicated that (in certain industries) ISO9000 quality norms are counter-productive. Yet, throughout the 1990s firms imitated each other anyway and adopted the system.

And it gets worse. Sometimes, if you’re the odd one out that does not adopt the new practice, you start to look “illegitimate”. Analysts, shareholders, customers and so on start asking questions: “everybody else is doing it; shouldn’t you?” “Surely, everybody else can not be wrong”. But yes they can!

In this case – because customers start to shun them, investors criticize them, analysts downgrade them, etc. – firms may actually start to suffer from not having adopted the silly practice.

This places pressure on the firm to also act stupid, just to fit in, and be accepted. It takes a brave firm, to stop such a vicious cycle of imitation.



4 comments:

Emre said...

I think mimetic isomorphism is one of the decisive factors in the cyclical M&A trends. This issue is pointed out by Linda Stearns and Kenneth Allan in an article published in Amercan Sociological Review. In this study they use institutional perspective to categorize players as challengers, quick learners, members and late adopters; depending on their role and behavior in the M&A trend.

I guess one can also study the performance of different M&A deals by comparing the timing of transaction along the wave. This way, it may be possible to surface the role of vicarious learning and supericial imitation on the odds of a takeover's success. The role of imitative action notwithstanding, late entrant may also suffer from shortage of attractive targets left behind by early acquirers. Yet, to the best of my knowledge, this point has not been extensively studied to date.

Emre,
Stockholm School of Economics

David J Foster MBA said...

Welcome back Freek! I subscribed to HBR in part so that I could continue to read your musings and have missed your sharp insight over the last year, so I hope that you're back here to stay!

Sildenafil Citrate said...

I agree it takes time to change people's minds and especially rooted habits, but if more people start doing it, little by little we can create or change the bad habit into a good one!

Spurwing Plover said...

The parrots more intellegent then the collage grad from U.C. SANTA CRUZ and U.C. BERKELEY