Errors, Ignorance, and Self-Interest

One of my fearless forecasts for 2013 has been that more and more companies will find that their greatest challenge will be leading change, even more so than planning change1. The motivation for changes to business models and organizations has become ever more clear in recent years – a shift in the center of growth to emerging markets, a new wave of fierce competitors from those same countries, customer demands for “solutions” that incorporate information and services along with physical products, and supply and competency shortages affecting operations are only part of the list. And along with the understanding of these forces has come the development of strategies designed to address them.

In an earlier article in Business Excellence2, I reported on the factors that were most frequently cited as the reasons why changes to business models yielded less-than- anticipated results. At the top of the list were “internal resistance to change” and “implementation process was poorly managed”. Those findings generated strong reactions among those that read the article. Many individuals offered their own examples of disappointing outcomes that could be traced to those two problems.

But a number of individuals argued that internal pockets of resistance to change were rare and an anomaly, particularly in today’s climate of high unemployment and job insecurity. My reaction to them has involved a citation of the work done by Robert K. Merton in the 1930s, on the topic of “unintended consequences”. He argued that actions of people, companies, and governments almost always produce outcomes that are unintended and unanticipated. Among the reasons for this that he cited were errors, ignorance, and self-interest.

Errors are frequent when firms implement changes to their business model. By definition, such changes will take the firm and its employees into unfamiliar and often uncharted waters. It is easy to make a mistake just because of knowledge gaps. In the Business Excellence article cited earlier, I provided a case study of a firm that introduced a new service offering that created multiple costly and disruptive problems, all unintended and all unanticipated. An executive from that firm summarized his experience by saying “I didn’t even know what our business model was. But I’ve learned my lesson – whatever it is, beware of making changes to it”.

The problem of ignorance is similar to that of errors, and the case study mentioned above includes elements of both. What you don’t know can get you into trouble. One firm implemented a change to its business system without recognizing that it would require changes in the systems in place at all of its distributors. Another firm introduced a new technology into its products without recognizing that its customers placed high importance on compatibility with their installed base, handing that advantage to a key competitor. Another company made a major bet on a technology that had failed to achieve regulatory approval. All of those organizations look back on those experiences and say “Maybe that wasn’t such a good idea after all”.

Self-interest surfaces in multiple ways. I have seen frequent examples of choices made that were motivated far more by incentive plan elements than by the company’s statements on strategy and priorities. Far too frequently, there is a fundamental inconsistency between the changes to the business model defined by the long-range strategic plan and the goals and metrics defined in the current year operational plan. In one instance, an executive caught in that trap remarked that “Even if I was willing to accept the financial consequences of missing my bonus targets, I don’t want to go to each month’s review meeting and get pounded for being off targets. Is there any question which plan wins?”

Remembering the law of unintended consequences can be valuable for companies making changes to their business model, even those that are confident that there will be no deliberate resistance to the changes that must take place. Even in such circumstances, the factors cited by Merton can rear their ugly heads and derail an important initiative.

1 George F. Brown, Jr., Now Comes the Hard Part – Managing Change, Employment Relations Today, Winter 2013.

2 George F. Brown, Jr., You Know It Ain’t Easy, Business Excellence, September 2011.