Every so often businesses face shocks that have unknown and unpredictable implications for the future performance of their existing strategy and business model.

In an increasingly global world, the repercussions of a significant shock – such as the Covid-19 pandemic – simply cannot be imagined. When the virus first started circulating, nobody could begin to fathom all the ways in which it would impact their businesses and personal lives.

In such instances, managers face a set of known unknowns (risks they are aware of) and unknown unknowns – a phrase popularised by former United States Secretary of Defense Donald Rumsfeld to describe the things “we don’t know we don’t know”. When known unknowns arise, managers have a good idea what their alternative strategy options look like, but don’t know which one will afford them future competitive advantage. But when managers face unknown unknowns, future strategic options are unclear and unknowable.

In a recent research paper, my co-author Peter Williamson* and I propose a set of practical tools that managers can use to help their companies deal with unknown unknowns in the wake of external shocks.

Uncertainty in an emerging, global world

Many still consider globalisation to be a simple, linear and reversible connection of economies or aggregation of markets. According to conventional wisdom, as the world globalises, countries become more similar, borders disappear and the world becomes one market. But globalisation is no longer linear, nor predictable and it is certainly not reversible.

We are living in an emerging, global world. While the flow of goods has slowed with more pronounced patterns of deglobalisation, the flow of information, ideas and data across borders is increasing like never before. Living through this new phase of globalisation means also coping with extreme uncertainty.

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We have all been in situations where it is easier to follow the crowd than to go against it. We change our mind and succumb to group pressure just by being told that most people think about an issue in a certain way. By unconsciously internalising the opinions, feelings and moods of others, we can end up thinking these ideas are our own.

Even though we treasure our individuality and like to imagine that we are in control of our lives, we are hardwired to imitate others and follow the herd. And when stressful situations arise, we are even more likely to acquiesce to other people’s suggestions without taking much of a critical stand. Worryingly, our brains maintain the illusion that whatever we’re doing is based on our independent judgement.

Herd mentality or “sheeple” behaviour can be found everywhere from the financial sector to outbursts of mob violence, political movements, religious gatherings, sporting events, riots, strikes and even consumer preferences such as fashion trends. In each of these instances, individuals adopt opinions based on what other people say and do without considering the evidence for themselves.

Many threatening situations – real or imaginary – can provoke sheeple behaviour. These are not just circumstances of physical danger, but also the fear of being different, uncertain or the odd one out. For example, people will make irrational or non-optimal decisions and behave in a herd-like fashion when motivated by the desire to fit in, which can result in groupthink.

When following the crowd is dangerous

Without herd instinct, our ancestors would not have banded together to fight off animals or help each other collect food. While there are many benefits to be gained by living and working cooperatively in groups, sheeple behaviour also makes us easily susceptible to manipulation. This is particularly the case in the context of leadership, where neo-authoritarian leaders exploit herd mentality to rise to power.

The dark side of sheeple behaviour manifests when individual judgment and opinion-forming processes shut down. Essentially, a process of social contagion takes place, meaning a tendency to automatically mimic and synchronise expressions, words, postures and movements with other people, which contributes to behavioural convergence. Continue reading →