Ruthlessly Realistic: How CEOs Must Overcome Denial
eviewing a spectacular business failure, we often wonder why the CEO didn't see trouble coming. It was so obvious.
Why didn't Digital Equipment Corp. CEO Kenneth Olsen see the PC as a threat to minicomputers? Did Coca-Cola's Roberto Goizueta really think New Coke was a good idea? How long did Henry Ford think he could keep selling black-only Model Ts?
"Denial has always been a problem," writes Harvard Business School historian Richard S. Tedlow in a new book, Denial: Why Business Leaders Fail to Look Facts in the Face-and What to Do About It. "What is different today is that the cost of denial has become so high. We are living in a less forgiving world than we once did."
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Richard S. Tedlow, Professor of Business Administration at Harvard | |
We asked Tedlow to discuss how denial can cripple a company, and what can be done about it.
Martha Lagace: What is the meaning of denial as you conceptualize it in your book?
Richard Tedlow: Denial is the unwillingness to acknowledge and deal with reality. It is the choice—sometimes willful, sometimes unconscious, often semiconscious—to enter an "as if" world, to act "as if" facts are not facts because they are difficult to face.
Sigmund Freud referred to denial as a combination of "knowing with not knowing," a phrase that has been defined as a "state of rational apprehension that does not result in appropriate action." In her brilliant study of the disastrous decision to launch the space shuttle Challenger in 1986, sociologist Diane Vaughan used a similar phrase, "seeing but not seeing."
From the consulting couch to the launch pad, denial is ubiquitous. You find it in individuals, in teams, in companies, in industries. Indeed, you find it in entire nations and economies. Look at the invasion of Iraq, or the dot-com bubble of the 1990s, or the residential housing and commercial real-estate bubble of the past few years, or the fantasy that the market for derivatives could somehow regulate itself—the consequences of all we are dealing with this very day.
Denial is not merely being wrong. Everybody makes mistakes. Denial is falling into a cognitive Bermuda Triangle. Everything is clear, yet you lose your bearings.
Q: How pernicious a problem is denial in business today?
A: Denial has always been a problem. What is different today is that the cost of denial has become so high. We are living in a less forgiving world than we once did.
Here's an example. General Motors had a dysfunctional business model for decades. Shrewd observers knew it. The company did not transform itself because it could continue to coast along, living in the reflected aura of its past glory.
GM's leadership acted in 2008 as if it were 1998 or 1988. It wasn't. And the inconceivable happened—this once-great firm went bankrupt.
Q: Given that a CEO's role is often to keep the company energy high and to stoke optimism among employees, are CEOs by virtue of their position especially prone to denial? How could they better blend optimism and realism?
A: Accentuating the positive for employees or others is not denial, as long as you yourself are fully confronting reality. In fact, there may be times when it is prudent, even necessary, to put on a brave face.
On the other hand, convincing yourself that things are better than, or different from, what they really are is never prudent, and often disastrous. So the key is to be ruthlessly realistic with oneself. As I hope the book makes clear, this is one of the greatest challenges for any CEO.
Q: The Innovator's Dilemma by HBS professor Clayton Christensen illustrated how formerly successful incumbents can be blindsided by more nimble competitors. Do you see denial as a particular risk for large, established organizations as much as for young, entrepreneurial firms? Is denial a predictable downside to success?
A: Denial is more endemic to older firms because it so often results from stubborn adherence to a once-accurate perception of reality that has gradually become obsolete. In the words of John Kenneth Galbraith, one's view of the world "remains with the comfortable and the familiar, while the world moves on."
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