While it might be human nature to change course, businesses shouldn't be so quick to abandon old strategies after a setback, new research shows.
Overreacting to a bad outcome can result in businesses abandoning a solid strategy, which could increase their chances of an even worse result the next time around, according to a new Brigham Young University study.
The findings are based on an analysis of two decades of data on basketball coaching decisions. The researchers focused on whether NBA coaches adjusted their personnel following games in which they won or lost by a small margin. The data shows that after narrow wins, coaches changed their starting lineup one-fourth of the time. But after narrow losses, they changed their starting lineup more frequently — one-third of the time.
Brennan Platt, a professor of economics at BYU and co-author on the study, said a blowout win is more informative about the team's future success than a close crushing defeat.
"But losing by a point versus winning by a point, most of that is just noise," Platt said in a statement. "To say 'a win is a win' ignores important information in the intensity of the win, causing narrow losers to overreact and narrow winners to be complacent."
The researchers found that hasty adjustments backfire, resulting in about one extra loss per season per team. Coaches also underreact to close wins, especially games the team was expected to win by large margins, the research showed.
Platt said the findings are particularly relevant to bosses' evaluations of employee performance. He said a lot of the goals businesses set are related to zero/one outcomes, such as, "Did you meet your sales quota?" or, "Did the patient recover?" or, "Did the plane arrive on time?"
Before rushing to a quick judgment on the situation, employers need to carefully process all of the information, Platt said.
"Things that are out of your control should be accounted for before you start evaluating staff," Platt said. "The intensity of the outcome — by how far they missed the goal — should give you an indication of whether it was just bad luck."
The study was published this month by the journal Management Science.
Originally published on Business News Daily