Why do businesses often do nothing when quick, definitive action is most vital? Consider these shifts in the business landscape:
- Over 50% of companies left the FTSE 250 in the 15-year period between 2000 and 2015.
- Just a decade ago, it was banks and energy companies that dominated The Economist’s list of the world’s top ten businesses by market capitalisation whereas now, it’s technology companies.
These statistics do not represent changes that have taken place over many centuries or even decades: they have happened in a small number of years, demonstrating the speed of disruption today and the importance of being able to adapt fast.
But many businesses can’t – or don’t – move quickly enough. Blackberry is a famous example. Received wisdom has it that the firm simply failed to anticipate the Bring Your Own Device trend and so lost out to Apple. This is only partly true. Blackberry had also made a big bet on its security protocols and simply kept hanging on in the belief that, in the end, the world would wake up to its genius. Its inaction in the face of evidence did as much to damage the firm as its action.
Wherever such failure occurs, failures of leadership are often evident. What causes our leaders to fiddle while Rome burns? In their book The Blunders of Our Governments, political scientists Anthony King and Ivor Crewe discuss the reasons behind a wide range of public sector mishaps and missteps. A major issue they point to is that ministers do not expect to be in their jobs for long. This acts as a disincentive for future-proofed decision-making. Instead, ministers naturally tend to focus on the next day’s headlines, which have a far more direct bearing on their career. Could it be that similar dynamics are work in the private sector if we substitute “the media” for “market analysts”? Even with a well-designed LTIP (itself a rarity), does the design of our markets incentivise failure?
The recent saga of Neil Woodford illustrates this. His business recently suspended trading in its key fund as its short-term (two-three year) results were not what the market expected. Of course, this same individual was famous for having avoided both the dotcom bubble in 2001 and the global financial crisis in 2008 – both events that made sense only in retrospect, when a longer-term view on his decision-making could be taken.
The human condition
The reality is that most of us go through life believing our worlds and livelihoods are more secure than they are. Dr Simon Moore, CEO of business psychology practice Innovationbubble, argues there are good reasons for this: “The truth is that the brain is prone to bias. One of the biases we suffer from is ego protection which buffers us against loss, inconsistency and failure. So we inflate our perceptions of our own infallibility and success. In doing so, the brain is trying to be protective of us, saving our egos, self-respect and confidence and fireproofing us against depression.”
In other words, we might rationally anticipate failure but in deeper emotional terms, we can exist in denial, doing nothing when it counts. It’s a paradox but in trying to prevent us feeling like a failure, our brains can lead us directly to that outcome. Dr Moore agrees: “We have seen ego protection bias being responsible for a complete reliance on assumption, longevity and misplaced customer relevance – all leading to organisational decline and disconnect.”
How to take action before it’s too late
- Start by staring failure straight in the face, no matter how uncomfortable it is.
- Look to the long-term. One way of doing this is to run a pre-mortem. Anticipate your business, product, or team being a total failure in 24 months. Then ask, what killed it? Why? And what could we have done to prevent it?
- Get the scalpels out and go deep.