Within the business world many decisions follow what appear to be trends, but in fact represent the herding instinct many decision makers are influenced by. This desire to be in-line with what the majority are doing represents our instincts and many corporate cultures.
This herd mentality can be seen in almost every area of business, from buying into an overpriced IPO, to outsourcing some functions to different countries, through social media marketing and a host of other examples.
The most virulent example is the feeding frenzy that can occur around certain companies’ valuations during stock price bubbles.
The herd mentality in decision making is not restricted to share valuations, there has been in recent years a strong wave of outsourcing of IT work and call centers to India, followed by a broad realization that the cost savings were not as high as expected, and the communication issues across time zones slowed wider business development. This has led too much of this work now being brought back to home countries.
Our innate herd instinct both within ourselves and within many company cultures drives these tides in what is in vogue. They are not driven by us each looking at the same facts and coming to the same conclusions about the right way forward, if it were, we would not have the busts that follow every bubble.
Other companies have spent millions outsourcing work to other countries and millions bringing it back, with untold damage to their wider business during these changes. It was difficult for many companies to explain to their shareholders five years ago why they were not outsourcing to India, as it is becoming equally hard to explain if they are now not bringing the work home. Not only are many people innately more comfortable in the herd, our business structures often actively encourage going with the herd.
Let me explain you how a business faced the consequences of “following the herd”
Staff Strength: 70-80 employees
This company is into the retail garments business. The company was facing challenges in managing their day to day operations and hence they decided to automate their daily activities and processes.
For this, they did a thorough analysis of their needs and began evaluating software vendors based on these needs & their automation budget.
A software vendor was finalized who met the criteria. Even though this software vendor was a start-up with only a few employees, they were able to deliver a solution as per the requirement and within the strict budget restrictions.
Once the processes were automated, Company A was able to overcome many of the challenges and their day to day operations became much smoother than before.
The business owners then recommended this software vendor to their peers and other business owners.
Enter Company B:
This company is also into the retail garments business.
Company B is at least 3 times the size of Company A with a staff strength of 250-280 employees. The company operates multiple retail outlets in different cities.
When the business owners of Company B got to know of the success achieved by Company A, they immediately contacted the same software vendor & asked for the same software to the implemented in their organization.
However, Company B got completely opposite results compared to Company A
- Software implementation lead to confusion
- Not all tasks were automated due to which manual processes had to continue
- Staff had a difficult time switching between manual work and system
- The software vendor (being a start-up) did not have enough resources to support the company during the implementation & handle the teething issues.
- Eventually the staff stopped using the software and completely reverted to the original way of working
- All the time, effort and money invested in the project came to a naught.
So why did this “Copy-Paste” solution not work for Company B?
- The size of Company B was far bigger than Company A.
- The day to day activities and processes were far more complex compared to Company A.
- Unlike Company A, Company B did not do any analysis of their issues & challenges
- Company B did not check if the software solution would cater to all of their existing issues.
- Company B did not evaluate if the software vendor would be able to support during the implementation and handle issues at the required speed.
Following the “Herd mentality” did not benefit Company B.
So, what should a business owner do:
- Experiment with stepping out of the herd.
- Take what is a given amongst your peer group as a fact, or an impossibility, and question it.
- If you decide you agree with the herd, you will have built your self-confidence in what you believe.
- If you do not agree then you have useful insight, either way it is empowering.