Information cascade works like this:
- Somebody says: "Let's outsource this, it will reduce our costs by 30%".
- Inadequate investigations are made, but the conclusion doesn't leave a doubt: It's a good idea.
- The information starts to get spread in the organization, and all doubtful employees get the message "We investigated this, and it's a good idea". This makes the doubtful switch towards believing that it is a good idea.
- Any doubtfuls, that still think that it may not be a good idea, have big problems providing documentation why it is a good idea, whereas their manages have "documentation" that it is a good idea.
- The organization ends up outsourcing, saves 20% but loses 30% of their customers, and doesn't understand why, even though some employees predicted that.
One of the remedies against this is to introduce a corporate prediction market, but that isn't failsafe, either.
Another remedy is to apply psychological knowledge using QA to the decision making process. This eliminates some of the mechanisms behind information cascades. It is my preferred method, because it makes it possible to make good decisions, fast, without involving too many people, and without using more resources. |
