Workshop on Cognitive Inertia Raj Echambadi

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Workshop on Cognitive InertiaRaj Echambadi
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Key Beliefs in Polaroid

• Success was attributable to long-term projects.
  See Lands writings in 1980.
• Customers wanted a physical print.
• Customers wanted photographic quality.
• The razor / blade model was the guiding business
  model.
• Instant digital camera with the printer and
  Helios.

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Polaroid (contd.,)

• Positioned to produce a digital camera in 1989,
  Polaroid came up with one in 1996.
• Clash between the old guard and the new guard.
• 1996. New CEO. Sold Helios. Shifted emphasis to
  marketing. Changed the dogma?
• Belief systems that they are central to the
  companys identity and reinforced by early
  experiences can become as strong as an ideology.
  Cognitive Inertia. Can stifle innovation and
  learning.

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Why are beliefs critical?

• Strategic problems are complex. There is limited
  processing capacity. Hence managers use
  simplified representations of their complex
  reality.
• Confirmation bias. Seeking evidence that confirms
  prior beliefs.
• In familiar situations, these representations are
  often accurate. When dealing with the
  unfamiliar, these can become problematic. Will
  the simplified representation work for highly
  dissimilar problems? Framing lock-in.

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(1) Framing lock-in in Polaroid?

• Framing Money is in the software. Plus
  technological capabilities way ahead of the
  competition. Allocated resources in products
  that were consistent with their beliefs.
• Confirmation bias Deeply ingrained
  representations are resistant to negative
  feedback. In the face of contradictory evidence,
  ignore or attribute to something else.
• Why did they fail? Core capabilities became core
  rigidities. Beware of framing lock-ins.

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(2) Analogical thinking in Polaroid?

• Established steel mills and upstart mini-mills.
  Rebars. Andy Grove read about this disruption
  and called cheap PCs as digital rebars. Created
  Celeron.
• Circuit City and Carmax. Called it an (analogous)
  market development strategy.
• Enron and broadband. Notion of fragmented
  markets, capital-intensive distribution systems,
  and rapid change. Beware of the deep
  dissimilarities between the source and the
  target. Similarity mapping is a likely carrier of
  cognitive inertia.

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(3) Emotional Traps

• Emotionally attached to the razor / blade model
  despite evidence to the contrary. Hence they were
  unwilling to make Polaroid a hardware company.
• Managers responses to emergent issues are
  emotionally charged. Information is viewed as
  threats.
• Escalation of commitment.
• Reduction in breadth of strategic alternatives
  considered.

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How to avoid cognitive inertia?

• What is the theory of the market? For Polaroid?
  Photography is about consumables. Technological
  prowess will deliver high margins /
  profitability. Technology will sell itself.
  Question mental models and assumptions.
• Generate alternatives by talking to multiple
  people inside and outside your industry. What
  alternative models are others suggesting?
• Analysis

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How to avoid cognitive inertia?

• Analysis
• While considering my model and other models
  assumptions, is there merit to the other model?
  If not, why not?
• While considering projections or speculative
  scenarios, have I always chosen parameters that
  favor my model? What happens when I change the
  parameters?

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Gunfire At Sea

• Pre-1898. Firing from ships on the sea during
  the Spanish-American War. 121 hits out of 9500
  shots at close range.
• Enter Admiral Scott for the British Navy. Changes
  the continuous aim firing. Gear ratio change. Use
  existing telescopic sites correctly. 3000
  increase in accuracy.
• Lieutenant Simms advocates this approach for the
  US Navy. Poor naval responses.

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Gunfire at Sea (contd.,)

• Finally the Bureau of Ordnance responded.
• It stated that there was no problem with the US
  Navys accuracy.
• It rationally walked through why it could not
  work the way Sims claimed it would. They
  conducted a test on dry ground and proved that
  his idea was impossible.
• Simms last act was to document the entire case
  and send it to the then President Theodore
  Roosevelt who made him Inspector of Practice.
• Today, Simms is widely acknowledged as the man
  who taught us how to shoot.

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"Whoever desires constant success must change his
conduct with the times."
"There is nothing more difficult to take in hand,
more perilous to conduct, or more uncertain in
its success, than to take the lead in the
introduction of a new order of things. Because
the innovator has for enemies all those who have
done well under the old conditions, and lukewarm
defenders in those who may do well under the new.
"
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Organizing for Innovation

• Thinking differently Willingness to cannibalize
• Organizing differently
• Future market focus through lead users and
  experimentation
• Product champions
• Internal markets

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Strategic Renewal

• Remember getting out of the inertial shackles is
  about a fundamental shift / renewal. It is not
  easy.
• Only 2 firms in the top 10 firms in market
  capitalization from 1987 2000. GE and Exxon.
  Typical top 10 firm spends 4 years on the list.

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Is being large better for innovation?

• In 1940s, Schumpeter argued that large firms
  would be more effective innovators
• Better able to obtain financing
• Better able to spread costs of RD over large
  volumes
• Large size may also enable
• Greater economies of scale and learning effects
• Taking on large scale or risky projects

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Does smallness spell doom?

• No. Large firms may be disadvantaged at
  innovation because
• Large firms have more bureaucratic inertia
• More strategic commitments tie firm to current
  technologies
• Small firms are often more flexible and
  entrepreneurial
• Many big firms have found ways of feeling small
• Break overall firm into several subunits
• Can utilize different culture and controls in
  different units