Study shows why innovation takes a nosedive

Mar 18, 2014
Marc-David L. Seidel is an associate professor and chair of the Organizational Behavior and Human Resources Division at the Sauder School of Business. Credit: Brian Howell

A new UBC study reveals that corporate leaders are victims of herd mentality when adopting new innovations, sometimes with deadly consequences.

The paper, by Sauder School of Business Associate Professor Marc-David L. Seidel and INSEAD Professor Henrich R. Greve, shows leaders tend to pursue innovations, even as complex as airplanes, based on early adoption by competitors not close scrutiny of the technical merits.

"Business leaders tend to panic when new innovations are about to hit the market. They scramble to buy an apparent early leader," says Seidel. "Sometimes this results in inferior products, but as we show in our study, in the airline industry there was loss of life."

Among a series of , the authors focused on two almost identical aircraft produced in the 1970s – the McDonnell Douglas DC-10 and Lockheed L-1011. Dubbed "The Twins," their manufacturers were locked in bitter rivalry.

Component delays slowed the L-1011's entry into the market by a year. Lack of sales characterized it as a failed innovation with only 250 sold compared to 486 DC-10s.

But the DC-10 suffered design flaws that proved deadly, killing over 600 people in a number of crashes. In 1979, it was temporarily grounded by the Federal Aviation Administration but this did not stop its advance.

In the paper, Seidel and Greve warn there is potential for history to repeat itself as Boeing's 787 Dreamliner and its rival the Airbus A350 head to market.

Early groundings and production delays of the Dreamliner resulted in airlines snapping up more of the rival Airbus before it had completed flight testing or carried passengers.

"We can't say the bias to purchase the Airbus will result in negative events," says Seidel. "We won't know if mistakes are being made for some time. But I can say the lesson of history should be guiding current practice."

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More information: To arrive at the conclusions of the study, Seidel and Greve analysed the complete manufacturing history of both the DC-10 and L-1011 airplanes, their sales patterns, abandonments and data on airline customers.

The study The Thin Red Line between Success and Failure: Path Dependence in the Diffusion of Innovative Production Technologies, was co-authored by Sauder School of Business Associate Professor Marc-David L. Seidel and Professor Henrich R. Greve of INSEAD. It was published on January 15 in the Strategic Management Journal.

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orti
1.9 / 5 (9) Mar 18, 2014
"Herd mentality" among corporate leaders. How about herd mentality in science journalism and in environmentalism? Nobody has a thought to question the IPCC models that have over predicted the amount of warming by a factor of three or more. It's a "pause", not a problem with the models. And any skeptic is a "denier" (aka holocaust denier). Physician, heal thyself.
ryggesogn2
1 / 5 (5) Mar 18, 2014
Innovation was rampant in the airplane business until govt regulations and risk aversion set in, mostly due to ridiculous lawsuits that drove the small airline business to Brazil and Canada.
Why do these 'studies' always ignore the govt regulations involved?

Innovation IS rampant in the UAV industry, but not in the US where the govt owns the air.
alfie_null
5 / 5 (3) Mar 19, 2014
Innovation was rampant in the airplane business until govt regulations and risk aversion set in, mostly due to ridiculous lawsuits that drove the small airline business to Brazil and Canada.
Why do these 'studies' always ignore the govt regulations involved?

Many of the electorate have this silly little hangup about being killed, maimed, injured, etc. The government merely echoes those concerns. You may find it satisfying to place the blame on "the gummit", an amorphous, faceless entity, but it really is just the people you share a country with.
Innovation IS rampant in the UAV industry, but not in the US where the govt owns the air.

Same issue. How to safely share the NAS. I'd dispute there isn't innovation in this field, in the U.S., though.
antialias_physorg
5 / 5 (1) Mar 19, 2014
A new UBC study reveals that corporate leaders are victims of herd mentality when adopting new innovations

Not really surprising. Think about what a manager gets: Tons of money.
If he plays it safe and just reacts he will continue to get tons of money.
If he goes full tilt for some new innovation then there are two outcomes
Success: (in which case he gets maybe a marginal raise)
Failure: in which case he's out of a job - forever.

Putting cash cows at risk is not a sensible business strategy: Not for the entire business nor for the individual business man.

That this kills innvoation if the number of competitors is small (i.e. can be kept an eye on) is a rather unfortunate side effect.
But in the end one has to remember: Business is not (and never has been) about innovation or making a better product. It's about profit.
If the two meet...fine. But that is only ever a 'happy accident'.