Freek Vermeulen identifies and explains the three common mistakes that managers should avoid.

1. Three traps
managers should avoid
Freek Vermeulen’s research identifies
three systematic, common mistakes
that trip managers up.

2. 2
Managers make decisions today
that will influence their company’s
performance for years to come. But
they don’t know how those decisions
will pan out, or how their competitors
and customers will respond.
Why being a manager isn’t easy

3. 3
Having examined the impact of
various strategic decisions and
practices, and after interviewing
senior executives, I now fear that
managers make erroneous decisions
and, what’s worse, are unable to
correct their flawed courses of action.
The fear of flawed decision-making

4. 4
Choices often have different long-
term and short‑term effects, so
managers can find it difficult to
grasp what’s causing their troubles,
owing to the large time gap between
cause and effect. As a result, they
continue their faulty course of action.
Three traps
1 The short-term trap

5. 5
I observed clinics in the UK In‑Vitro
Fertilisation (IVF) industry, which are
obliged to publish the percentage
of successful births resulting from
treatment. To increase success
rates, many clinics prefer treating
‘easy patients’, seeing short-
term results shoot up, but long-
term performance flatten.
Case study
1 Case study

6. 6
LEARNING
DIFFICULT
EASY
The clinics with ‘difficult patients’
learn far more in the long-term,
seeing success rates rise. The
‘easy‑patient’ clinics deprive
themselves of such learning
opportunities and see lower success
rates than their more inclusive peers.
Case study
1 Case study

7. 7
Managers must grasp the
relationship between cause and
effect; by avoiding difficult patients,
performance results lagged
behind. If the effectiveness of a
particular strategy is measured
solely on its short-term effects, it
could be wrong in the long run.
Three traps
1 Learning

8. 8
A strategic decision, aimed at improving
one part of the organisation, its business
model or value chain, can have unexpected
consequences in another part of the firm.
Three traps
2 The knock-on effect trap

9. 9
Large, RD-intensive firms often have two separate
internal functions that deal with patents: one for patent
applications (filing) and another for patent enforcement.
Nowadays, firms choose to outsource the patent filing
to reduce costs and improve delivery. What happens?
Case study
2 Case study

10. 10
When patent filing is outsourced, the performance
of the enforcement function decreases substantially.
During filing, the firm learns about its competitors
and how to anticipate their actions, so how can
the enforcement function attack its competitors
proactively without this crucial information?
Case study
2 Case study

11. 11
Look out for the indirect effects that are difficult to
foresee. Remember that organisations are complex
systems with many parts: when problems materialise in
one part of the firm, it’s often difficult to understand that
the root of the trouble originates from another corner.
Three traps
2 Learning

12. 12
Managers often misjudge the
effectiveness of particular
strategies and practices.
Three traps
3 The observation error trap

13. 13
In the Chinese pharmaceutical
industry, there is a belief that
innovators – those engaged in new
drug development – outperform
non-innovators. This is not true.
Over 10 years, on average, non-
innovators outperformed innovators.
How come industry insiders
have such misconceptions?
Case study
3 Case study

14. 14
A few innovators performed really
well. However, much more often,
innovators were disastrously
unprofitable. By contrast, the
profitability of the non-innovators
was much more evenly distributed.
It’s easy to notice the very top
performers in any given industry
and only pay attention to them.
Case study
3 Case study

15. 15
The misconception that innovation
spurs on profitability is a common
observation error. If we do not
observe the entire spectrum of
firms in an industry, and we do not
pay attention to the variance in
performance figures, a strategy’s
benefits can be overestimated.
Three traps
3 Learning

16. 16
Traps like these can cause managers to seriously
misjudge the effectiveness of their strategies. As a
manager: what can you do about it?
■■ Pay explicit attention during the
decision‑making process
■■ Think through possible long-term effects, potential
indirect consequences, and differences in variability
■■ Do not rely on simple observations,
they will not suffice.
Summary
√ The trap fix

17. 17
The full article was published in
London Business School Review
Volume 26, Issue 2 2015.
Visit the website: www.london.edu/lbsr