Herd mentality in business is perhaps a natural extension of human behaviour. BW spoke to Madhukar Shukla, professor of organisational behaviour and strategic management at XLRI, Jamshedpur, and author of Competing Through Knowledge, Building a Learning Organisation, to understand the behaviour of herds. Excerpts.
Why do businesses display a herd mentality? A lot of opportunities spring up when a new sector is opened. Many try to exploit this. Since the sector is new, there are no benchmarks. Capability issues arise only later.
Do they have clear strategies for new opportunities? They would have, but they would not be tested. They rely on previous experience, what they already know from other sectors and other countries. But that may not work for a new segment and local markets.
What are the risks they face? When huge markets such as India open up, the picture is always incomplete. The retail sector, for example. More than 95 per cent of the sector is unorganised. The organised players think that even if they capture 5-10 per cent of the unorganised market, it would be great business. But there are too many unknowns. The strategy that worked in other developed markets may not apply in India.
Some businessmen don’t quit even though they do badly... Sometimes, they stick on the hope that the sector would mature sooner or later. There could be an element of ego at play sometimes that clouds decision making.