Fighting the bandwagon effect in your decisions
A look at how JPMorgan Chase is growing by opening more physical branches, why bandwagon ideas are seductive and 3 strategies to resist them in your decision-making.
Hello everyone 👋
This week we are looking at how the Bandwagon Effect can affect strategic decisions, often for the worse.
We will start with an unusual success story from JPMorgan Chase, one of the largest U.S. banks, and their quest to open more physical branches. This strategy comes across as anachronistic in our technology obsessed world but it’s actually quite clever once you dive into the details.
I. The Bandwagon Effect on Decisions
The WSJ recently reported that JPMorgan Chase was doubling down on a seemingly unusual strategy: opening more physical branches.
The bank announced in 2018 that it would focus on opening new branches, even after the entire industry was proclaiming the death of said branches due to the rise in online banking. Rivals like Bank of America have noticed and made their own plans to open more branches.
It’s important to note that the total number of branches has declined since the early 2010s, quite drastically for banks like Bank of America but JPMorgan has started to reverse this trend.
The important idea in this story is that the bank branch is being reinvented.
Online banking made it easier to handle simple tasks such as depositing money (even cheques), moving money between accounts and paying bills. Instead of building branches for these tasks of the past, JPMorgan sees branches as a way to drive growth in other needs such as loans, financial planning and wealth management. Basically, all the tasks that benefit from talking to a human.
The closure of bank branches are a great example of the Bandwagon Effect, the tendency for people to adopt certain behaviors simply because others are doing so.
Instead of just accepting the wisdom of the crowd, JPMorgan saw an opportunity to drive growth. Their bet has paid off with more than $2 trillion in deposits, double what they had a decade ago.
Let’s look at why the bandwagon effect is so seductive to our decision-making process.
II. The Seductive Appeal of Bandwagons
In the early stages of my career, I spent a lot of time in the startup tech world, an industry known for producing bandwagons at scale. If I ask you to think about the biggest bandwagon ideas of the last 10 years, you will likely mention many tech related ones. Crypto, web 3.0, AI and self-driving cars come to my mind.
Startups thrive on making big bets on bandwagons and hoping they pan out. There’s an abundance of fintech companies (financial tech) that have joined the online banking trend and committed to never opening a physical branch. I have even worked with a few of these companies!
Bandwagons were incredibly appealing to me when I was younger, like knowing a secret that the rest of the world doesn’t. You were “better” than stuffy organizations who were just dinosaurs about to be hit by an asteroid called crypto or AI or something else.
Looking back and looking at the present, I believe bandwagons are alluring for one of the following three reasons:
1. Shiny or exciting
It’s fun to think about the latest idea or object, like shopping for new clothes or new toys. It’s especially exciting to think about ideas that could reshape entire industries.
Many organizations hope to ride these waves into dominance. The problem is that the waves themselves may appear larger than what they really are.
2. Emotional answer
For some, bandwagons can provide an answer to high emotions. Some of the ideas in the climate change industry fall in this category, especially for individuals who have a high level of anxiety around this topic.
Electric cars, going vegan and even recycling have limited impact on carbon emissions and their warming effect on the planet.
3. Lack of depth
Some bandwagons only make sense if you don’t know the in-depth details of an industry. Hydrogen cars are interesting but the costs of setting up “hydrogen stations”, effectively building up an equivalent gasoline industry, are staggering. Once you go beyond the basic math, the idea loses its allure.
III. Making Bandwagon-Resistant Decisions
Bandwagons will continue to be all around us but every leader and organization needs to make decisions that are resistant to them.
Here are three ideas to push back against the bandwagons of your world.
1) Read opposing views
Make a note of your position on an important issue and then go look for opposing viewpoints in books, videos, interviews or conversations with other people.
For example, if you’re convinced that AI will take over the world, go read The Myth of Artificial Intelligence by Erik J. Larson. You may not agree with the book or change your mind but at least you explored the other side.
2) Think in ripples
If you throw a pebble into a lake, it will create ripples. The same thing happens with any decision or idea.
If you close down bank branches, what are the ripples of this decision? Can all services be handled through a mobile app? Do branches serve another purpose beyond banking, for example community through credit unions?
3) Advice for a friend
Have you noticed that the issues brought up by friends seem so easy and logical? There’s something about giving advice to someone else that feels more objective.
You can approach bandwagon ideas in the same way. Imagine they are affecting a friend or colleague of yours. What would you tell them to do or think about?
Bandwagons are fun and new but we cannot let them derail our decision-making process. We need to consider them in the appropriate context and ensure we aren’t missing any opportunities for growth.
IV. Eminem’s Note Taking, India’s Growth and More
wrote on how Eminem took notes and then found ideas to write songs such as the Grammy winning “Lose Yourself.” made a fascinating point on how technology can overwhelm instead of actually helping organizations make better decisions.wrote on the rise of India and their massive growth rates. It is incredible to put these numbers into context.
That’s all I have for this week!
Until next week,
Ruben
P.S. If you’re curious on how bandwagon ideas may be limiting your strategic decisions, consider exploring a workshop with myself to explore how your team makes decisions and how to improve them
A custom-designed workshop could help you do the following:
Identify “sticky” points in your planning
Push back against industry consensus and find the contrarian truth
Uncover opportunities missed by your competitors
Get in touch by clicking the button below.