Co-Opetition - Adam M. Brandenburger [105]
When banks, consultancies, and other professional firms set up operations in new cities, they often spend a lot of money on conspicuously lavish office space. Likewise, M.B.A. students often wear expensive attire to job interviews. In each case, spending big is a way to signal confidence. You don’t do it unless you really think people will find your services valuable and will hire you. Whether it’s paying for a lavish advertising campaign, lavish office space, or a lavish wardrobe, “burning” money in a highly visible fashion demonstrates your faith in your product.
Failing the Credibility Test
Intentional or not, everything you do sends a signal to others. For the same reason, everything you don’t do sends a signal, too.
In the story “Silver Blaze,” Sherlock Holmes is called in to investigate the mysterious disappearance of the Wessex Cup favorite just a few days before the big race. Evidently someone has crept into the stables and abducted the horse. But who? And how did he elude the dog guarding the stables?
Inspector Gregory: Is there any other point to which you would wish to draw my attention?
Sherlock Holmes: To the curious incident of the dog in the night-time.
Inspector Gregory: The dog did nothing in the night-time.
Sherlock Holmes: That was the curious incident.13
Holmes deduces that the villain must have been no stranger to the dog. In fact, the villain was the horse’s trainer.
Like Holmes, you can learn just as much from the things that don’t happen as from those that do. You have to learn to listen for what it is that you haven’t heard.
The Dog That Didn’t Bark A large manufacturing company was trying to locate a toxic waste recycling plant. It had picked a certain midwestern town for the site and presented its case to the local inhabitants. The company made three promises: to bring much-needed jobs to the community; to invest in improving the local schools; and to build a plant that would be completely safe.
Still, the locals were unconvinced. What if there was a health hazard, after all? That would be yet another blight on what was an already depressed town. Property values would fall even further, and if people wanted to leave, they’d be unable to. The mere perception that there could be a health hazard was a problem. In order to be in front of the queue, people might sell their houses right away, and that could start a downward spiral in property values. The risk of falling property values tomorrow could precipitate a fall today.
There was a solution. If the company’s word was good, there would be little danger of property values tumbling. In fact, the contrary would be true. With more employment opportunities and better schools, property values would almost surely rise. So the answer for the company was to indemnify residents against a fall in their property values. It could have hired independent appraisers to assess real-estate values, not taking into account the proposed plant. Then the company could have announced that it stood willing to buy anyone’s house in five years’ time at the current appraised value.
Five years would be long enough for any uncertainty over the safety issue to be resolved. In the meantime, the promised benefits from increased employment and investment in the community would become apparent. People would see their property values rise, not fall. No one would want to take up the company’s offer to buy them out at the previously appraised value, and the guarantee would end up costing the company nothing.
When this tactic was proposed to the company, management declined to go along. Their behind-the-scenes response was: “We couldn’t do that. It would cost us a fortune. Everyone would take