Articles
The three laws of corporate stupidity
Carlo M. Cipolla, in his book, The Basic Laws of Human Stupidity (1976), delved into the attributes that characterize a "stupid person". In his work, Cipolla highlights five fundamental laws of human stupidity:
Always and inevitably, one underestimates the number of "stupid individuals" in circulation.
The probability that a certain person is "stupid" is independent of any other characteristic of that person.
A "stupid person" is someone who causes a loss to another person or groups of people, without obtaining any gain or, even, while possibly incurring losses.
"Non-stupid people" always underestimate the harmful power of "stupid people." In particular, "non-stupid people" constantly forget that, in every place, at every moment and under any circumstances, dealing with a "stupid person" is highly costly.
"Stupid people" are the most dangerous type of person, even more so than a "bandit[1]."
From this, many explanations can be drawn as to why the consumer is, at times, irrational. But is it possible that irrationality begins at home?
In research on the behavior of Venezuelan companies, we have found a pattern of conduct when these companies face a "crisis." Companies going through a crisis, whether caused by factors in the international economic and political environment, by changes in their market, or by internal organizational factors, tend to "cut investment" primarily in three types of services:
Memberships in chambers of commerce, trade guilds or business associations.
Economic-political environment analysis services and market research.
Advertising.
The mission of a chamber of commerce, according to Dr. José Antonio Gil Yepes, is "to group companies to articulate their interests in government-business relations or with other sectors, and to develop alliance and coopetition mechanisms that lower transaction costs in order to increase productivity and competitiveness."
Therefore, if a company disengages from guilds or chambers, following the above definition, the first thing it would lose is the ability to articulate interests with sector peers in order to put forward public policy proposals, which can play an important role in improving those conditions in the environment that may be causing the crisis.
A second "pain point" for companies in crisis is environmental analysis services and market research.
This is a case where, prompted by the business and market conditions themselves, company management is tempted to prioritize the "operational" over the "strategic." This is when the widespread "firefighter mode" appears, where the management of the organization is monopolized by the immediate situation and devotes itself to putting out problems (fighting fires). The situation then drifts toward "fewer studies and advisory services" and "more work." And that is when the strategic dimension of the organization begins to be affected.
By reducing investment in environmental analysis services, the company begins to "lose its compass," reducing its capacity to define strategic directives in a more volatile environment and finding itself immersed in significantly greater uncertainty. Here is when imprecision begins to intensify in projecting costs, demand, investments, among others.
As for cuts to market research, the consequences are much more obvious. Given that it is the "crisis" that has influenced the decision to discontinue ongoing market studies or halt the launch of previously scheduled studies, it is counterintuitive that the company would then stop knowing which new market attributes its end customer, also affected by the same "crisis," now values more. In other words, I stop knowing my customer's needs, reducing the chances of closing new sales, in order to protect cash or to prioritize "more urgent things."
And as if that were not enough, some companies add advertising cuts to the list. Imagining that, despite the company having been fortunate that 1. Changes in the economic environment did not particularly affect its business; and 2. Its customer continued to value the same attributes that you address with your value proposition, it is decided that telling your customer how you will "keep supporting them" through this process called "crisis" is not a priority.
So, having analyzed the "magic recipe" in a crisis:
Eliminate membership in business chambers or guilds.
Suspend environmental analysis and market research services.
Reduce advertising.
The question arises... If we understand as "stupid" those people who cause harm to society without gaining anything in return, what do we call the executives and senior managers who harm their organization or customers by misunderstanding their priorities?
The three laws... of corporate stupidity?
[1] A bandit is a person who causes harm to another person, or to groups of people, while obtaining some gain in return.