It recalled the defective phones and returned it after replacing the ‘faulty’ batteries. But its problem deepened when even the phones with replaced batteries continued to burst into flames.
Result: Samsung witnessed its Market Cap get eroded by over $17 billion in a matter of weeks.
Inadvertently, Samsung had become a victim of the Cobra effect, which occurs when the solution to the problem gives birth to a problem bigger than the original problem it sought to solve!
The Cobra Effect traces its origin to the British colonial rule in India. The British Government was concerned about a large number of poisonous cobra snakes inhabiting Delhi. To solve the problem, it decided to offer a reward to any person who brought a dead cobra. Result – people took to killing cobras in large numbers to win the reward! Indeed the population of cobras started declining!
But many enterprising people started looking upon this scheme as a business - they started breeding cobras to earn money.
In due course, the Government became wiser and decided to stop the reward program.
Now these professional breeders were left with worthless cobras in their backyard. To get rid of them they decided to release them in the open! Result: The population of Cobras once again increased and now, there were even more cobras roaming the streets of Delhi than before! Unfortunately, the solution had resulted in making the problem even bigger!
Bottom Line: Do make an effort to follow System Thinking – it will involve evaluation of a proposed solution - end to end, to ensure that it does not have any unintended consequences!
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About the Author:
In this series, Rajesh Srivastava, Business Strategist and Visiting Faculty at IIM Indore gives you a regular dose of strategy case studies to help you think and keep you one step ahead as a professional as compared to your peers. Rajesh is an alumnus of IIM Bangalore and IIT Kanpur and has over 2 decades of experience in the FMCG industry. All previous Strategy with RS posts can be found here.
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