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When It Makes Sense to Pay Suppliers LateIn Business, Don’t Leave Well Enough Alone
Doing what’s always worked will, at some point, no longer work. A willingness to experiment is key.
- By
- August 28, 2020
- CBR - Strategy
The old saying “If it ain’t broke, don’t fix it” is one that the business world has adopted with zeal. Companies are notorious for finding what works and sticking with it.
There’s a lot of incentive to do so. If you find a formula that keeps your business running in the black, tinkering with it can feel foolish.
But there’s another saying that suggests there’s always room for improvement. The key is willingness to experiment. That’s often a scary proposition for businesses, but it’s something we do all the time in our personal lives.
Consider your grocery shopping habits. Maybe you’ve purchased for your children one box each week of a name-brand cereal at $4 per box. You could pay half that for a generic cereal, but you run the risk that the kids won’t like it.
One week you buy the generic and try it out. The worst-case scenario is that your children will outright reject it, you’ll have to throw away the box, purchase a name-brand variety to get through the week and you’re out the $2 it cost to run the experiment. But if they don’t notice a difference or actually prefer the generic, you can save $104 per year on cereal.
That’s not a lot of money, but if you find other generics that substitute well, you could save hundreds of dollars per year or more. These are risks worth taking.
Small risk, great reward
Companies can do the same sorts of things. There are many areas in which a company can risk a small loss for the potential of a much greater reward. If you experiment, you might find that slightly longer delivery routes could lower fuel costs by avoiding traffic congestion, or that you can save on customer service if you try an automated system. If these experiments fail, it’s not difficult to reverse course, and they likely don’t cost so much that you risk long-term damage to the bottom line.
Hiring is another great place to experiment. Maybe you normally bring in the top two candidates for in-person interviews. Expanding that to five candidates costs a little more but offers the chance to find a candidate who could be a much better fit. Or maybe you’ve always required candidates to have a certain type of degree. It’s possible someone with a different educational background could bring new skills to the table.
Why don’t companies experiment more? A great deal of research shows that people tend to be overconfident and suffer from confirmation bias—they interpret new information in a way that confirms what they already believed. So managers often believe that the current policies are best; corporate cultures that do not support people taking contrary views can exacerbate the problem.
That stifles innovation. Worse, it keeps managers thinking about decisions that work in the short term without regard for five or 10 years down the road.
Doing what’s always worked will, at some point, no longer work. But developing a system for constant incremental improvement is a risk worth taking.
Robert H. Gertner is the Joel F. Gemunder Professor of Strategy and Finance at Chicago Booth.
This column is part of the Chicago Booth Insights series, a partnership with Crain’s Chicago Business, in which Booth faculty offer advice for small businesses and entrepreneurs on the basis of their research.
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