Pretend you're a Hollywood studio executive. Teams of directors, writers, and actors come to you with their movie concepts, and you pick a few to support. And your support is important. You provide the budget to make a movie. You can deliver a wide release (lots of screens) or a limited one. You control the release date. But your power comes with some terribly difficult choices. As in venture capital, when you bet on a movie, it's just a team and a concept. So why say yes to one movie and no to another?
Every industry has conventional wisdom— ideas that are widely accepted and seldom debated. In Hollywood, the conventional wisdom is: Bet on relationships. You can't know how a movie will turn out when you green-light it. So you're better off trusting people you've worked with before.
But a recent study shows that this seemingly reasonable idea leads some of the biggest names in Hollywood to make mistakes that cost millions of dollars. And you may be making the same kind of mistake at your workplace.
Two researchers, Olav Sorenson and David M. Waguespack, in a paper in Administrative Science Quarterly, studied the movie distributor's dilemma. They found that, as the conventional wisdom predicts, movies made by past collaborators—distributors and production teams who've worked together before—do make more money. The duo studied more than 5,000 films and counted the number of "ties" between the distributor and the production team (in other words, how many times an actor, director, or writer had worked with the distributor before). On average, there was about one tie between the production team and the distributor.
But it turned out that attributing the success to those ties is wrong. "When distributors have prior relations with the principals involved in a film, they authorize larger budgets, promote these films more intensely, and release them during periods of higher demand (e.g., Memorial Day)," write Sorenson and Waguespack. "All three increase sales." They ran the statistics and found that doubling the number of ties (roughly two relationships) was associated with a 12% larger budget. (The more a distributor has worked with a team in the past, the more money he or she is willing to give it.) Doubling the ties also increased the number of screens a movie opened on by 18%.
The bottom line: Because you, as the distributor, are confident in your partners, you're putting more marketing muscle behind them, and it's your muscle that's creating the successes, not the quality of their movies. It's you, studio executive! You're doing it. You're so money, and you don't even know it.
Note that the distributor could have bestowed these marketing favors—a big budget, more opening screens, and a promising release date—on any movie. And here's the zinger: If you subtract the effect of these marketing decisions, doubling the number of ties reduced expected box office by 42%. It's a crazy outcome: As the distributor, if you're deciding between a production team with one past tie and a team with two past ties, you can expect to lose about $8 million by betting on the latter (assuming you keep your marketing investment the same). Betting on relationships turns out to be expensive.
Social scientists have a name for the cycle that reinforces this bad idea in Hollywood: a self-fulfilling prophecy. Self-fulfilling means we make an idea or prediction true by our own actions. The distributors have the idea that relationships matter. So they put more resources behind those films, which leads to success, which reinforces their wrong idea.
Self-fulfilling prophecies are not limited to Hollywood, of course. Silicon Valley venture capitalists have the idea that experience matters. So experienced entrepreneurs get more venture capital on better terms, predisposing them to success. In a mature organization, followers of the Boston Consulting Group Growth-Share Matrix agree that a "star" division with high growth and high market share should receive more resources. Pity the "cash cow" division operating in a sleepy market niche. No one asks the contrarian question: Could we have been more successful by funding a different entrepreneur? A different division? A different movie?
HR is another hotbed of self-fulfilling prophecies. The researcher Albert King told a welding instructor at a vocational training center that five of his incoming students had unusually high aptitude. In fact, the students had been picked randomly. And yet random yielded reality. The "high potentials" were absent less often than other trainees, learned the basics in about half the usual time, and scored 10 points higher than others on a welding test. Even the other trainees noticed. They chose the five high potentials as their most preferred coworkers.
Is it possible high-potential workers across America perform better solely because, like movies, they have been given more attention and resources than they truly merit?
If there's a moral in this story, it's this: Question success. Success propagates backward in our minds and bestows the glow of wisdom on our every decision. The irony of self-fulfilling prophecies is that even bad ideas end up looking right in the end, because we've salvaged them with good execution. And when bad ideas get reinforced, there are consequences: The wrong movies get pushed. The wrong deals get funded. The wrong employees get advanced.
But look at the bright side: No one questions self-fulfilling prophecies (except for a couple of academic researchers—but they'll never have enough data to prove you wrong in your field). Success looks great, and we don't typically wonder whether it could have been successier.
So, yeah, you knew that guy on your team was a "hi-po." And his performance proved it! You were right! Sort of.
Studios that back filmmaking teams they've worked with before earn lower-than-expected box office—once you subtract the impact of unequal marketing effort.
- The Underdog
Double Jeopardy (starring Ashley Judd and Tommy Lee Jones) had weak ties to its studio and was released in late September, a relatively sleepy period. It overperformed, eventually grossing $116 million.
- The Laggard
Arnold Schwarzenegger's paean to holiday greed Jingle All the Way had everything going for it—well-connected principals, favorable marketing, and a prime Thanksgiving-weekend release. It dramatically underperformed, grossing just $60 million.
- The Secret Bomb
Scary Movie 2 looks like a hit with a $71 million gross. But when you factor in its heavy ties (it is a sequel), promotion, and July release on 3,220 screens, it slightly underperformed.
Read more Made to Stick columns
Chip Heath and Dan Heath are the best-selling authors of Made to Stick: Why Some Ideas Survive and Others Die. Is your organization or industry plagued by "conventional wisdom" that may be wrong? Email us at firstname.lastname@example.org about your favorite bad idea—and why you think it sticks.
A version of this article appeared in the May 2007 issue of Fast Company magazine.