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Have you heard about The Cobra Effect?
The term is used to illustrate how incorrect stimulation in economics, business, and politics can cause unintended consequences and is an example of the proverb “the road to hell is paved with good intentions.”
The term cobra effect was coined by economist Horst Siebert based on an anecdote of an occurrence in India during British rule.
During the time when Britishers ruled India, there was a problem of venomous snakes (Cobras) slithering around and scaring the people of Delhi. The snake population and the problem were increasing day by day, and to curb the problem, the British Government came up with an interesting incentive!
The British government offered a handsome bounty to people for every dead Cobra brought to the administration! This incentive scheme became a super-hit, and the government witnessed a huge fall in the population of venomous snakes.
You might be wondering how brilliant the idea was, BUT it was short-lived.
The policy initially appeared successful, intrepid snake catchers claiming their bounties and fewer cobras being seen in the city. Yet, instead of tapering off over time, there was a steady increase in the number of dead cobras being presented for bounty payment each month. Nobody knew why.
It was later discovered that entrepreneurial citizens started actively breeding them! And killing them!
Cause and effect
The new policy converted the snakes into a valuable commodity, and it provided a rather stable source of income. Additionally, it was much easier to kill captive cobras than to hunt them. So the snake catchers started concentrating on their breeding programs and abandoned their search for wild cobras. When the government discovered this “jhol”, it immediately abandoned the policy.
The real trouble began now! Thousands of breeders, now stuck with nests of worthless cobras, simply released them into the streets, making the original problem worse!
An entrepreneurship lesson
In entrepreneurship, we see the concept of the “cobra effect” all the time. Business leaders make well-intended decisions to fix a problem or drive a result. However, if it is not well thought out, it can actually make a situation worse.
We have witnessed companies over-incentivizing sales reps for selling products or services that do not benefit their customers or even their own business. Sales reps, in turn, often shift their focus to selling bogus solutions. This creates a negative experience for the customer and can be detrimental to the business. If everyone is focused on short-term gain, they only create a larger problem.
This blog is dedicated to all the KYJUS, BlackHats, and Kedantus of the world. When the bubble bursts, all your cobras (read tablets) will become a piece of junk!
An incident similar to the one in India occurred in Hanoi, Vietnam, under French colonial rule. In 1902, the colonial government created a bounty program that paid a reward for each rat killed. To collect the bounty, people would need to provide the severed tail of a rat. Colonial officials, however, began noticing rats in Hanoi with no tails. The Vietnamese rat catchers would capture rats, sever their tails, and then release them back into the sewers so that they could procreate and produce more rats, thereby increasing the rat catchers’ revenue.
We live in a highly connected world where management actions have multiple outcomes. When action is taken, the intended outcome might occur, but a number of unexpected outcomes will always occur. While an unexpected outcome can be beneficial, such serendipitous events are extremely rare. What is more likely is that the unexpected outcomes will be unwanted — these outcomes can be thought of as counter-intuitive ‘policy surprises.’
Developing methods to help us visualize and understand cause-and-effect relations in complex systems is of great importance. In particular, we need to understand the concept of feedback and appreciate the dominant role it plays in determining system responses to management initiatives.
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