bad ideas | Human-Centered Change and Innovation

3 Reasons Why Bad Business Thinking Exists

GUEST POST from Greg Satell

“The single most important message in this book is very simple,” reads the first line in John Kotter’s highly regarded The Heart of Change. “People change what they do less because they are given analysis that shifts their thinking than because they are shown a truth that influences their feelings.

Really? That’s the important message? That emotive arguments are more powerful than factual arguments? What about other reasons why people change their behavior, such as social proof, conformity, incentives or coercion? By setting up a binary and artificial choice between two communication alternatives, he eliminates important strategic and tactical options.

It’s not just Kotter either, who is a well respected professor at Harvard Business School. The truth is that a lot of management thinking is surprisingly shoddy, with arbitrary notions and cognitive biases dressed up as scholarly work. We need to be more skeptical about “research” that comes out of business schools and consultancies. Here are three things to look for:

1. WYSIATI And Confirmation Bias

Kotter’s point about emotive vs. analytic arguments is, of course, completely valid. The fundamental error he makes is that he focuses on that particular aspect to the exclusion of everything else. Daniel Kahneman calls this WYSIATI, or “what you see is all there is.” Once you get tunnel vision on a particular fact or idea, it’s hard to see anything else.

Consider this thought experiment: You go to a conference featuring a powerful, emotive presentation on the need to combat climate change. You see glaciers melting, polar bears losing their habitat and young children starving from drought. Then you go back to the office, fired up and ready to do something about it, but everyone else has a strong argument against acting on climate change.

What is likely to happen next? You convince you co-workers—including your bosses— about the urgency of the crisis? Or, surrounded by skeptics, your conviction begins to wane? When all we see is the poor polar bears and starving in an echo chamber of likeminded people, we forget about other considerations, but that doesn’t mean that’s all there is.

An issue related to WYSIATI is confirmation bias. Kotter proudly points out that he worked with Deloitte to conduct extensive research for his book. Amazingly, after analyzing over 200 interviews, he ended up with the same 8-step process he cited in his earlier work. So what was the purpose of the research, to gain actual insights or to confirm what he thought he already knew?

Perhaps not surprisingly, after decades of organizations applying Kotter’s ideas about change McKinsey still finds that more than two-thirds of transformational efforts fail. Maybe there is actually more to change than communication strategy.

2. Halo Effects And Confounding Variables

One of the most popular modes of analysis that business thinkers use is to examine successful companies and see what they do differently. A number of bestselling management books, such as In Search of Excellence, have used this method. Unfortunately, when doing so they often fall prey to a cognitive bias known as the halo effect.

For example, in 2000, before the dotcom crash, Cisco was flying high. A profile in Fortune reported it to have an unparalleled culture with highly motivated employees. But just one year later, when the market tanked, the very same publication described it as “cocksure” and “naive.” Did the “culture,” under the very same leadership, really change that much in a year? Or did the perceptions of its performance change?

Cisco had a highly motivated and, some would say, aggressive sales force. When the company was doing well, analysts assumed it was their aggressiveness that produced good results and when its fortunes changed, that same aggressive behavior was blamed for its failures. This is what’s known as a confounding error, the fact that an aggressive sales force correlated with specific results doesn’t mean that the aggressive sales force caused the results.

Every organization has things which it does differently, that are idiosyncratic to its management and culture. In some market contexts those traits will be advantageous, in other environments they may not be. It takes work—and some humility—to separate what’s truly a success factor, what’s merely fit for a narrow purpose and what’s not really relevant.

3. Survivorship Bias

Business school professors and consultants gain fame—not to mention large fees—when they are able to define a novel concept or success factor. If you are able to isolate one thing that organizations should do differently, you have a powerful product to sell. A single powerful insight can make an entire career, which is probably why so many cut corners.

For example, in their study of 108 companies, distinguished INSEAD professors W. Chan Kim and Renée Mauborgne found that “blue ocean” products, those in new categories without competition, far outperform those in the more competitive “red ocean” markets. Their book, Blue Ocean Strategy, was an immediate hit, selling over 3.5 million copies.

Bain consultants Chris Zook and James Allen’ book, Profit from the Core, boasted even more extensive research encompassing 200 case studies, a database of 1,854 companies, 100 interviews of senior executives and an “extensive review” of existing literature. They found that firms that focused on their ”core” far outperformed those who strayed.

It doesn’t take too much thinking to start seeing problems. How can you both “focus on your core” and seek out “blue oceans”? It betrays logic that both strategies could outperform one another. Also, how do you define “core?” Core markets? Core capabilities? Core customers? While it’s true that “blue ocean” markets lack competitors, they don’t have any customers either. Who do you sell to?

Yet there is an even bigger, more insidious problem called survivorship bias. Notice how “research” doesn’t include firms that went out of business because there were no customers in those “blue oceans” or because they failed to diversify outside of their “core.” The data only pertains to those that survived.

It’s hard to think of any other field where researchers could get away with such obviously careless work. Can you imagine medical research that didn’t include patients that died, or airplane research that didn’t include the flights that crashed? Suffice it to say that since the two books were published two decades ago, they’ve shown no capacity to predict whether a business will succeed or fail.

Don’t Believe Everything You Think

When I’m finishing up a book, I send out sections to be fact-checked by experts and those who have first-person knowledge of events. I’m always amazed at how much I get wrong. In some cases, I make truly egregious errors about facts I should have known (or did know, but failed to take into account). It can be an incredibly humbling process.

That’s why it’s so important to not to believe everything you think, there are simply too many ways to get things wrong. As Richard Feynman put it, “The first principle is that you must not fool yourself—and you are the easiest person to fool.” I would also add a second principle that just because you’ve managed to fool others, doesn’t mean you’ve gotten it right.

Unfortunately, so many of the popular management ideas today come from people who never actually operated a business, such as business school professors and consultants. These are often people who’ve never failed. They’ve been told that they’re smart all their lives and expect others to be impressed by their ideas, not to examine them thoroughly.

The problem with so much business thinking today is that there is an appalling lack of rigor. That’s the only way that obviously flawed ideas such as “blue oceans,” “profiting from the core” and John Kotter’s ideas about change management are able to gain traction. It’s hard to imagine any other field with such a complete lack of quality control.

That’s why I send out fact checks, because I know how likely I am to think foolish and inaccurate things. I’ve also noticed that I tend to be most wrong when I think I’ve come up with something brilliant. Much as Tolstoy wrote about families, there are infinitely more ways to get things wrong than to get things right.

— Article courtesy of the Digital Tonto blog
— Image credit: Pexels

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Stop Doubling Down On Bad Ideas

GUEST POST from Greg Satell

Over the course of my career, I’ve had the opportunity to lead a number of organizations and each one involved a series of steep learning curves. Even the most successful operations do some things poorly, so managing an enterprise involves constant improvement. You always want to figure out where you can do things better.

One way to do that is to identify other organizations that do something well and adopt best practices. Copying what others do won’t make you world class, but it will get you started on the right road. Over time, you can learn which practices are a good fit for your organization and which are not. As you progress, you can begin to develop your own capabilities.

What you don’t want to do is to take bad ideas that have failed try and force them through, yet it happens all the time. Business pundits and consultants don’t stop selling zombie ideas just because they don’t work and people don’t stop getting taken in by slick sales jobs. We need to be much more discerning about the ideas we adopt. Here are some to watch out for.

The War On Talent

When some McKinsey consultants came up with the idea of a war for talent in 1998, it made a lot of sense. In a knowledge economy, your people are your greatest resource. Creating a culture of excellence, rewarding top employees and pruning out the laggards just seemed like such an obvious formula for success that few questioned it.

However, even early on some began to see flaws. Just a few years after McKinsey launched the concept, Stanford’s Jeffrey Pfeffer explained how study after study refuted the “War for Talent” hypothesis. He found that firms who followed the “talent war mind set” ended up actually undermining their people and overemphasizing recruiting from outside.

Even worse, McKinsey’s approach often creates a corrosive culture. By valuing individual accomplishment over teamwork, leaders set up a competitive dynamic that discourages collaboration while sabotaging the knowledge transfer that promotes learning new skills and improves performance. In a New Yorker article, Malcolm Gladwell explained how that kind of competitive dynamic contributed to Enron’s downfall.

The truth is that you don’t need the best people, you need the best teams and that requires a very different approach. Fostering collaboration requires an environment of psychological safety, not a series of performance review cage matches. Talent isn’t something you attract and bid for, it is something you build.

The Cult Of Disruption

It’s become fashionable to say that we live in a VUCA world (Volatile, Uncertain, Complex and Ambiguous). The term first arose in the aftermath of the Cold War, when a relatively stable conflict between two global superpowers fragmented into a multipolar multiethnic clash of civilizations. Today, however, it has become so firmly entrenched in the business lexicon that nobody even thinks to question it. Change has become gospel.

If you see the world in turmoil, the only sensible strategy is to constantly change and adapt. Perhaps just as importantly, in a corporate setting you need to be seen as changing and adapting. In this environment, managers have significant incentives to launch multiple initiatives aimed at transforming every aspect of the enterprise.

Yet do businesses really face a VUCA environment? The evidence seems to point in the opposite direction. A Brookings report showed that business has become less dynamic, with less churn among industry leaders and fewer new entrants. Research from the National Bureau of Economic Research found decreased competitive environments. A report from the IMF also suggests that these trends have worsened during the pandemic.

Make no mistake, all of the happy talk about change has a real cost. A study undertaken by PwC found that 65% of executives surveyed complained about change fatigue, and only about half felt their organization could deliver change successfully. 44% said that they don’t understand the change they’re being asked to make, and 38% say they don’t agree with it.

Perhaps not surprisingly, it found that most people have come to view new transformation initiatives suspiciously, taking a “wait and see” attitude undermining the momentum and leading to a”boomerang effect” in which early progress is reversed when leadership moves on to focus other priorities. In other words, we’re basically talking change to death.

Marching On Washington

The March on Washington remains one of the most iconic moments in American history. Martin Luther King Jr.’s “I Have A Dream” speech continues to inspire people around the world. The events of that day surely contributed to the successful passage of the Civil Rights Act of 1965 and made the world a better place.

So it’s no wonder that it seems like every time someone has an idea for change they plan a march. Yet the most salient aspect of over 100 years of marches on Washington is that none, except that one in 1963, have really accomplished much. In fact the very first one, in support of women’s suffrage in 1913, was a full blown disaster.

It’s not just social revolutionaries that make this mistake. Corporate change advocates have their own version of marching on Washington. They set up a big kickoff event to “create a sense of urgency” around change and use stark language like “innovate or die” and “burning platform” to make change seem inevitable.

The problem is that if a change is important and has real potential to impact what people believe and what they do, there will always be those who will hate it and they will work to undermine it in ways that are dishonest, underhanded and deceptive. Creating a lot of noise at the beginning of an initiative, before any real progress has been made, just gives your opposition a head start in their efforts to kill it off.

Closing The Knowing-Doing Gap

Business today moves fast. So we like simple statements that speak to larger truths. It always seems that if we can find a simple rule of thumb—or maybe 3 to 5 bullet points for the really big picture stuff—managing a business would be much easier. Whenever a decision needs to be made, we could simply refer to the rule and go on with our day.

Unfortunately, that often leads to cartoonish slogans rather than genuine managerial wisdom. Catchy ideas like “the war for talent,” “a VUCA world” and “creating a sense of urgency around change” end up taking the place of thorough analysis and good sense. When that happens, we’re in big trouble.

The problem is, as Ludwig Wittgenstein pointed out, “no course of action can be determined by a rule, because any course of action can be made out to accord with the rule.” Rules often appear to make sense on the surface, but when we try to apply them in the real world we run into trouble. We live in a complex universe and oversimplifying it leads us astray.

We need to stop worshiping the cult of ideas and start focusing on the problems we need to solve. The truth is that the real world is a confusing place. We have little choice but to walk the earth, pick things up along the way and make the best judgments we can. The decisions we make are highly situational and defy hard and fast rules. There is no algorithm for life. You have to actually live it, see what happens and learn from your mistakes.

— Article courtesy of the Digital Tonto blog
— Image credits: Unsplash