Institutional Imperative

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"The institutional imperative, the tendency of executives to mindlessly imitate the behavior of their peers, no matter how foolish it maybe to do so...One of its main tenets is a copycat mechanism that decrees that any craving of a leader, however foolish, will be quickly supported by detailed rate-of-return and strategic studies prepared by his troops. For example, every time it becomes fashionable to expand into some new line of business, some companies will expand into it. Then they get out of it about five years later, licking their wounds. 

I did not intuitively understand it when I entered the business world, I thought that decent, intelligent, and experienced managers would automatically make rational business decisions. But I learned over time that isn't so. Instead, rationally frequently wilts when the institutional imperative comes into play. 

For example...As if governed by Newton's First Law of Motion, an institution will resist any change in its current direction...Just as work expands to fill available time, corporate projects or acquisitions will materialize to soak up available funds. 

Institutional dynamics, not venality or stupidity, set businesses on these courses, which are often too misguided." 


-Warren Buffett 

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