Imagine you are meeting a close friend for dinner at a new restaurant you have heard a lot about. You meet him at the restaurant and are soon seated in a nice corner table. You notice the heavy white fabric on the table along with three different sets of glasses and wrapped cutlery on each side. As you pick the glass of water to drink you recognize soft jazz playing in the background. Dim lights, rich fabric, a great pal with you all set a mood for a nice evening.
You pick a bottle of black cabernet from Napa and choose the house special appetizer. You never go wrong with food choices. Soon you are enjoying your appetizer and the wonderful cabernet. The conversation becomes animated as it always does with you two and both of you are immersed in the discussion.
A waiter arrives at your table. You look up to him hoping to hear about the dinner specials. You do notice that the waiter is looking very uneasy.
”Sir, as you enjoy your meal I would like to tell you something important”, he says
You nod so that he can continue. He comes closer to you and speaks softly.
“You must know that when you walk out of this restaurant, there is a man waiting for you outside”, he is very uneasy with what he is going to say next.
“He has a gun, a knife, and a choice for you. If you choose the gun he will shoot you and you will very likely die. If you choose the knife he will cut your right arm. There is no third choice”, he continues.
You are shocked to hear this but as the waiter continues you are convinced that the only choices you have are the ones he had suggested. There is no back door.
What will you choose?
If you are like most people, you will avoid going out of the restaurant for as long as you possibly can. You are looking at two choices both of which leave you worse off. It is natural to avoid making the decision. Significant research on decision making shows that most people avoid making such choices when both the option leave them worse off.
Firm facing rogue innovations are exactly in the same position and often behave similarly. This is a major curse for incumbent firms when innovations go rogue. If they embrace the rogue innovation, they will accelerate their own profit destruction. If they avoid it, there is a chance they may have to exit the business if other firms make the innovation successful in the market.
You can always look at it more rationally. Losing an arm is not as bad as dying. Many managers I have spoken with tell me that if their business faced a rogue innovation, they would take the choice with lesser downside. In a business setting, they would choose to give up an arm rather than die.
However, my research showed me that firms and managers often did not take a rational position. They avoided the decision for a long time. This behavior is a result of several factors and I don’t find it surprising. A large number of experiments have shown that people often behave different from what they rationally expect to behave.
There are many issues around decision making when faced with rogue innovations. I will write about them in future. Stay tuned.
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