James Drogan

From Dobbs, R., Ramaswamy, S., Stephenson, E., & Viguerie, S. P. (2014, September). Management Intuition for the Next 50 Years.

Change is hard. Social scientists and behavioral economists find that we human beings are biased toward the status quo and resist changing our assumptions and approaches even in the face of the evidence. In 1988, William Samuelson and Richard Zeckhauser, economists at Boston University and Harvard, respectively, highlighted a case in which the West German government needed to relocate a small town to mine the lignite that lay beneath. The authorities suggested many options for planning the new town, but its citizens chose a plan that looked “extraordinarily like the serpentine layout of the old town—a layout that had evolved over centuries without (conscious) rhyme or reason.”

Businesses suffer from a surprising degree of inertia in their decisions about how to back up strategies with hard cash to make them come to fruition. Research by our colleagues showed that between 1990 and 2010, US companies almost always allocated resources on the basis of past, rather than future, opportunities. Even during the global recession of 2009, this passive behavior persisted. Yet the most active companies in resource allocation achieved an average of 30 percent higher total returns to shareholders annually compared with the least active. The period ahead should raise the rewards for moving with agility and speed as digitization blurs boundaries between industries and competition in emerging markets heats up.