Editor's View - February 2010

Breaking Away From The Herd
By Wanda Jankowski, Editor-in-Chief

Throughout the multiple show and market frenzy of the first quarter, it’s interesting to see what everyone is doing and what the directions are for the year. You might think seeking out patterns, particularly among industry leaders, and mimicking them is always the wisest thing to do in these radically changing and uncertain times.

However, Albrecht Enders, professor of strategy and innovation at IMD, the global business school based in Switzerland, and Andreas König, affiliate research fellow at IMD, in a Forbes.com article titled, “Why Most Companies Can’t Handle Change,” caution decision makers to beware of something called “social proof.” Coined by psychologist Robert Cialdini, the term “social proof” refers to the behavior of people to look to others for clues on how to act in response to radical change or uncertainty.

An example of “social proof” behavior cited by the authors occurs when there is an accident. The more bystanders there are, the less likely it is that anyone will help the victims. The individuals hesitate because each imitates others’ passive behavior, misinterpreting it as a cue that there’s no emergency.

In all areas of business, there come times when small start-ups upstage larger, established leaders by introducing innovations that are out of the ordinary pattern of evolving new ideas. Why are those leaders outdone? Enders and König believe the problem lies for two reasons in the habit of decision makers to base choices on what peers are doing, using the most successful companies in the field as a benchmark.

First, a company (in our case, a retailer or supplier) can become a “deer in the headlights,” hesitating on adopting new technologies or designs because they observe competitors’ inaction and misinterpret updating or innovating as unnecessary or not valuable. The authors write, “We talked to many owners of brick-and-mortar bookstores, for instance, who explained that they had waited too long to react to the rise of new online retailers such as Amazon because their competitors weren’t responding either.” Oops!

The second reason is that larger, leading companies have the most to lose by radically changing. They want to protect the success they have with existing products and systems, and so are adverse to taking the risks involved in adopting something completely new.

If companies look only to the leaders as a benchmark and fail to act independently at crucial times, the authors conjecture it can lead to an entire industry failing to adapt successfully to radical change.
Enders and König suggest one way to overcome the pitfall of “social proof” behavior is to broaden your view. Look at how successful companies in other industries as well as your own are responding to change.

In these extraordinary times, companies large and small need to exercise vigilance in spotting when the right moment is to break away from the herd.

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