The cobra effect on the bottom line

MAKING good decisions is hard work. According to bestselling author Mark Manson, there is no such thing as a “perfect decision”; every choice we make comes with its own set of pros and cons. Similarly, I’m certain many of us have been dealt a blow when seemingly good intentions have had unintended negative consequences, whether in business or personal life. This phenomenon has been described as ‘”the cobra effect”, a term coined by German economist Horst Siebert.

The business world is no stranger to the cobra effect, with countless instances of good intentions resulting in unforeseen negative repercussions. For instance, a company may introduce a new policy aimed at reducing costs, but this could lead to reduced employee morale and engagement, resulting in lower productivity and higher turnover. Similarly, open office spaces may be created in an effort to improve collaboration, but this could lead to distractions and reduced privacy, negatively impacting productivity.

In many organisations, sales teams are often prey to the cobra effect when it comes to compensation programmes, which are important to drive revenue. Given how quickly things change, well-intentioned decisions are hastily made to keep teams incentivised to increase sales and competitive edge. However, if not properly planned or managed, the efforts can make a situation worse, when motivation to sell is not quite aligned with what customers really need.