Both in research and in practical life we understand why innovations spread gradually, and why firms copy each other. Whenever an innovation is introduced, it could be good or bad, and this uncertainty makes managers hesitant to adopt the innovation until they have seen that others use it and benefit from it. There are many successful innovations in this world, but also many failures.
What about managers assessing the success or failure of their current strategy? That sounds like a much simpler problem because they know the market share, the revenue, the profit – everything they need to know in order to decide whether to stay with the strategy or adopt it. But, in research I published in Administrative Science Quarterly long time ago, I found that it is not quite that easy. Even when assessing their current strategy, managers copy each other, except in that case they are copying abandonments, not adoptions. If you had the same strategy as me and you abandoned it, I might just decide that mine is not good enough either.
How does this even begin to make sense? They have all the information they need, one may think, and do not need to look at each other. But social influence is so powerful that people copy all sorts of things (as anyone who follows fashion in clothes will know), and managers do the same when making decisions that affect the profit of their firms.
There is in fact a justification for copying abandonment. A strategy should not just be assessed based on how good it is right now, but also on how good it will be in the future. If other firms abandon because they think it is failing, then using that information is smart strategizing. Of course, it is unclear whether managers copy abandonment because of sheer social influence or because they are letting other assess the future.
I did research on how radio stations changed their format (what kind of music and other content they broadcast). To understand what was happening, I also interviewed program directors, who make the decisions, and announcers, who actually create the programs. Interestingly, many of them thought that abandoning an old format was a smart thing in general, because its market share was gradually decreasing, but they also named specific radio stations that had abandoned too soon, and without having a good alternative ready. So what managers is a mixture of social influence and smart strategizing.
This research was done a while ago, but the conclusion has become a theme in much of the research I do on managerial decision making. The smartest story of why they make decisions is not true. The dumbest story is not true either. All decision making is a mix of different influences, and managers are simply trying to balance different considerations to end up with decision that makes sense.
Greve HR. 1995. Jumping ship: The diffusion of strategy abandonment. Administrative Science Quarterly 40(September): 444-473.
This blog is devoted to discussions of how events in the news illustrate organizational research and can be explained by organizational theory. It is only updated when I have time to spare.