Ripple effects and business decisions


photo by Sukanto Debnath

Causality is a know phenomenon. Every one of us has seen something in his life that answered to the simple law of cause and effect. I think that we think and talk under the basic assumption that this rule almost always applies. And some cases, it does. But life, in most cases, and especially in the business context, is much more complicated than that.

I guess that if you would ask most people whether more money would make them happier, their instinctive answer will be yes. They seem to think about it in a cause and effect, linear fashion. But does it really work like that? We know that people who won the lottery don’t, after a certain time, report increased levels of happiness.

Because every effect that a cause creates, has ripples. And, our mind, which is a very lazy machine that looks for effective ways not to waste energy, makes a shortcut and assumes causality without the ripple effects.

Take this example I read about in Rita Mcgrath’s article in the Harvard business review blog, titled:  “A better way to cut costs“:

Beware the hidden dependencies among different parts of your operations when you are evaluating areas to cut. In the Home Depot case, a huge part of their value proposition was the experienced and helpful nature of their long-employed staff. These were people who had been professional carpenters, plumbers and electricians, in many cases, and they could help a neophyte tackle do-it-yourself projects with confidence. Firing them and replacing them with part-timers and inexperienced people looked good on the bottom line for a while, but ultimately undermined the Home Depot’s fundamental value proposition to its customers. Other cuts resulted in long checkout lines, out-of-stock items and a general undermining of customer loyalty

A business setting is a place where many parts are dependent, in various ways, on other parts. Their unique synergy is what makes the business what it is for good and bad. And many times our decisions ignore theses dependencies. This happens, for example when an organization is going through structural changes. The changes are built, and might work, with the specific people that the organization has at the moment. But as people change, it ceases to work. I saw this process happen a couple of times.

Newton’s third law of motion states that: “for every action has an equal and opposite reaction”. In business, there are many times opposite reactions, but they are far from equal.

So, do you consider the ripple effects when you make decision about your organization?



2 Responses to “Ripple effects and business decisions”

  1. People’s tendency to cheat and the implication on business and national leadership « The Comparative Advantage Says:

    […] about society as a whole? Every corruption we hear about in the news is devastating because it has ripple effects. If that guy did it, how did he influence others around him? What are the moral implications? In […]

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