Informational Cascades in IT Adoption

Xiaotong Li, an assistant professor at the University of Alabama, writes about herd behavior in IT adoption and the decision making process involved. With new technologies continually emerging, businesses place great pressure on IT managers to adopt the latest and greatest to further streamline operations. IT managers often are in the situation where they have limited information in predicting the success of adopting a new technology and will look at the behavior of others in coming to a decision.

What makes IT adoption decisions in relation to information cascades interesting is the network externalities presented when joining the herd. Regardless of whether the herd is making a “good” decision” or not, benefits of joining the herd often include increased technological compatibility. For instance: Microsoft launches Microsoft Office 2007. A company might want to delay the adoption of the new Office suite in order to thoroughly evaluate the impact an upgrade would have on its operations, but by joining the herd of people eagerly upgrading to Office 2007, they benefit by the interoperability that two people using Office 2007 can take advantage of. To quote Li’s article, “IT adopters may find that following the majority is the best strategy if the benefits of joining the herd dominate the benefits of learning.” These “benefits of joining the herd” are these network externalities such as interoperability.

When you have adopters joining the herd to reap the benefits of network effects, information cascades are reinforced. Li warns that when adopting a “wait-and-see technology”, it is important to differentiate between blind signals from the cascade and actual informative signals.

 Check out the article for charts and more details about the decision making process that goes into IT adoption and the effects that others’ decisions has on your own. Understanding the dynamics of IT adoption will better enable you to make successful technology decisions and avoid investing in inferior products.