butterfly-effect

Butterfly Effect And Why It Matters In Business

In business, the butterfly effect describes the phenomenon where the simplest actions yield the largest rewards. The butterfly effect was coined by meteorologist Edward Lorenz in 1960 and as a result, it is most often associated with weather in pop culture. Lorenz noted that the small action of a butterfly fluttering its wings had the potential to cause progressively larger actions resulting in a typhoon.

Understanding the butterfly effect

Businesses can leverage the butterfly effect by incorporating small positive actions that have significant positive consequences. These changes have the potential to bring benefits that far exceed the large sums of money a business spends attracting customers.

How is this achieved? Where should a business focus its efforts?

Using the butterfly effect to nurture relationships

Businesses are about people and success is reliant on strong relationships between employees, customers, and other stakeholders.

Let’s take a look at each group in more detail.

Employees

Richard Branson once said that employees come first, not clients. If employees are taken care of first, then they will naturally take care of the clients.

Common sense says that treating employees badly leads to an ineffective workforce. What’s more, employees are more likely to treat consumers badly who are then encouraged to take their business elsewhere.

Businesses should take the time to compliment their staff while also encouraging them to compliment each other. Indeed, the small action of complimenting one person has the potential to spread good vibes across the organization very quickly. In turn, a positive culture develops which is passed on to the consumer.

Customers

Customers are the lifeblood of a business, but countless organizations have frustrating customer service centers where it is difficult to talk to a real person.

Customer complaints are inevitable. While many complaints are perhaps illegitimate, many others provide valuable insights on how a company can raise their standards. The small action of responding to each complaint with grace and empathy leaves a lasting impression on the customer and ensures they walk away with a positive experience.

Stakeholders

Publicly listed companies make the mistake of treating their shareholders with disdain. Announcements are vague, infrequent, or deliberately worded to conceal bad results.

These companies must remember that many stakeholders are part owners in the company and treat them accordingly with open and transparent communication. Other stakeholders such as suppliers, distributors, and the community should also be subject to small, positive actions that strengthen relationships.

Butterfly effect best practices

Small actions are the foundation of the butterfly effect. Most are related to having a positive attitude, including:

  • Being a good role model. Leaders are the most obvious candidates, as their words and actions rub off on subordinates. However, every employee can be a good role model by treating others with appreciation, positivity, and gratitude.
  • Leaving personal issues at home. Personal issues that cause stress should never be brought into a work environment. When stressed individuals treat others with contempt, the butterfly effect can take effect but with negative consequences.
  • Paying it forward. Some argue that this is vital to the butterfly effect in business, and for good reason. Small acts of kindness – without the expectation of reciprocity – can create a chain of small actions that lead to something substantial.

Key takeaways

  • The butterfly effect in business describes the potential for small actions over time to yield much larger positive results.
  • People are the most important aspect of the butterfly effect in business. Employees, customers, and other stakeholders must be appreciated for their respective roles in maintaining operational viability.
  • To embrace the butterfly effect mentality, a positive attitude is key. Managers and employees alike must become role models for positivity by leaving personal issues at home and paying good vibes forward.

Connected Business Concepts

Heuristics

heuristic
As highlighted by German psychologist Gerd Gigerenzer in the paper “Heuristic Decision Making,” the term heuristic is of Greek origin, meaning “serving to find out or discover.” More precisely, a heuristic is a fast and accurate way to make decisions in the real world, which is driven by uncertainty.

Bounded Rationality

bounded-rationality
Bounded rationality is a concept attributed to Herbert Simon, an economist and political scientist interested in decision-making and how we make decisions in the real world. In fact, he believed that rather than optimizing (which was the mainstream view in the past decades) humans follow what he called satisficing.

Second-Order Thinking

second-order-thinking
Second-order thinking is a means of assessing the implications of our decisions by considering future consequences. Second-order thinking is a mental model that considers all future possibilities. It encourages individuals to think outside of the box so that they can prepare for every and eventuality. It also discourages the tendency for individuals to default to the most obvious choice.

Lateral Thinking

lateral-thinking
Lateral thinking is a business strategy that involves approaching a problem from a different direction. The strategy attempts to remove traditionally formulaic and routine approaches to problem-solving by advocating creative thinking, therefore finding unconventional ways to solve a known problem. This sort of non-linear approach to problem-solving, can at times, create a big impact.

Moonshot Thinking

moonshot-thinking
Moonshot thinking is an approach to innovation, and it can be applied to business or any other discipline where you target at least 10X goals. That shifts the mindset, and it empowers a team of people to look for unconventional solutions, thus starting from first principles, by leveraging on fast-paced experimentation.

Biases

biases
The concept of cognitive biases was introduced and popularized by the work of Amos Tversky and Daniel Kahneman in 1972. Biases are seen as systematic errors and flaws that make humans deviate from the standards of rationality, thus making us inept at making good decisions under uncertainty.

Dunning-Kruger Effect

dunning-kruger-effect
The Dunning-Kruger effect describes a cognitive bias where people with low ability in a task overestimate their ability to perform that task well. Consumers or businesses that do not possess the requisite knowledge make bad decisions. What’s more, knowledge gaps prevent the person or business from seeing their mistakes.

Occam’s Razor

occams-razor
Occam’s Razor states that one should not increase (beyond reason) the number of entities required to explain anything. All things being equal, the simplest solution is often the best one. The principle is attributed to 14th-century English theologian William of Ockham.

Mandela Effect

mandela-effect
The Mandela effect is a phenomenon where a large group of people remembers an event differently from how it occurred. The Mandela effect was first described in relation to Fiona Broome, who believed that former South African President Nelson Mandela died in prison during the 1980s. While Mandela was released from prison in 1990 and died 23 years later, Broome remembered news coverage of his death in prison and even a speech from his widow. Of course, neither event occurred in reality. But Broome was later to discover that she was not the only one with the same recollection of events.

Crowding-Out Effect

crowding-out-effect
The crowding-out effect occurs when public sector spending reduces spending in the private sector.

Bandwagon Effect

bandwagon-effect
The bandwagon effect tells us that the more a belief or idea has been adopted by more people within a group, the more the individual adoption of that idea might increase within the same group. This is the psychological effect that leads to herd mentality. What is marketing can be associated with social proof.

Read Next: BiasesBounded RationalityMandela EffectDunning-Kruger

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