Errors of Omission or Commission : A Hobson’s Choice?

10 07 2009

Jeff Bezos, the founder of Amazon.com has recently commented:

“We’ve made many errors. People over-focus on errors of commission. Companies over-emphasize how expensive failure’s going to be. Failure’s not that expensive….The big cost that most companies incur is much harder to notice, and those are errors of omission.”

 

The above quote from Jeff Bezos has set me thinking. Are the errors of omission always more costly than the errors of commission? Is it only applicable to high-technology businesses like Amazon’s or is it applicable for all businesses? In high-technology businesses like Internet, the business life-cycle is very short. It is important that the business leaders look for new opportunities constantly. Also, with barriers to entry being low in such businesses, there is always a competitor who can offer a better proposition to the end-customer. Microsoft’s delayed entry in the Internet space has been an error of omission, which it has not been able to make up in spite of all the efforts and investments. It is clear that the high-tech companies can ill-afford errors of omission. The cost of experimentation in Internet based businesses is not very high. Companies like Google are always keeping several products in beta stage, trying to learn about user-preferences and also learning from their own errors of commission. In other businesses, it may not be always true. The pace of change is slow, hence even if you miss being the first mover through an error of omission, there is a chance to catch up. There is lumpiness of investments, which can make errors of commission very costly, sometimes even leading to survival questions.

 

Ratan Tata has openly admitted that Corus and JLR acquisitions are errors of commission, in terms of timing and valuations. Now, both Tata Steel and Tata Motors have to really struggle hard for several years, to correct these errors. Business conservatism is about minimizing errors of commission. Infosys is a shining example of a conservative business in a high-tech business. It evaluates hundreds of acquisition proposals and just lets them go, if they find there is an iota of possibility of an error of commission. Even in the recent case of Axon acquisition, it chose not to compete with HCL Technologies. Only time will tell, it was an error of omission on the part of Infosys or an error of commission for HCL. In most old, large companies, the managers are obsessed with avoiding errors of commission, rather than avoiding errors of omission. Because, errors of commission can be attributable to an individual or a team and responsibility can be fixed. Nobody gets punished for errors of omission.

 

Stretching this discussion to another walk of life - in test cricket, – the captain or the batsman is focused in avoiding errors of commission. A batsman can leave several scoring opportunities but should not play a wrong shot, because he can get out. A captain can avoid an aggressive declaration thereby making an error of omission, because draw is an option. In T20, both errors of omission and errors of commission are punished immediately. In the recent World Cup T20, MS Dhoni by sending Ravinder Jadeja ahead of Yuvraj Singh , made an error of commission. By scoring at just 50 % strike rate in another match, Dhoni made an error of omission. Both got punished by Indian team losing the matches.

 

In career moves, several professionals commit errors of omission when they are either deeply absorbed in their routine work or they are in a cozy comfort zone, by being oblivious to opportunities for change. A few commit errors of commission by landing up into wrong roles or wrong organizations, when they are too desperate for change. In the case of a career, errors of commission are usually costlier than errors of omission.

 

 Warren Buffet while explaining his investing style explained that he normally invests in a business forever. He mentioned that he may let go of several investment opportunities, but the business that he selects he wants to be sure. In other words, he is open to several errors of omission even when he is sitting with huge piles of cash but wants to avoid errors of commission at any cost. He is the second richest man in the world, surely he knows what he is saying. Yet, I wonder can you really avoid making errors of commission, if you do not make errors of commission early on by burning your fingers and learning. Can we generalize that one should not make errors of omission in a growing stage and one should not make errors of commission when you have wealth or reputation to preserve. In the Indian housing market, if someone had not invested in a house or a property before the boom started in 2003, it would have been an error of omission. But if somebody booked a house that too an incomplete project in late 2007 or 2008 it would have been an error of commission. What can you take, an opportunity loss or a real loss? If you do not build physical exercise in your daily routine, it is an error of omission. If you acquire a unhealthy habit like smoking, it is an error of commission. Both can prove costly to a person’s health in the long run.

 

In selection of one’s spouse, which error is more distressing of omission or commission? 

 - G. Mohan

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3 responses

20 03 2012
What on Earth IS a “self limiting belief”? « Andy Ferguson Net

[...] always people will, usually unknowingly, apply the errors of commission and errors of omission principals to “look after themselves”. And who can blame them. [...]

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