Friday, December 14, 2018

Falling in Love with Rosy Scenarios

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Optimism can be a powerful force in an organization.   Certainly, leaders need to be optimistic if they wish for the firm to accomplish ambitious goals and objectives.   We won't get anywhere if people are always saying, "We can't do that.  It's not realistic.  That won't work here."   Having said that, leaders sometimes fall in love with rosy scenarios.  They fail to question assumptions, and they don't look closely enough at worst-case scenarios.  David Breashears, the great mountaineer and accomplished filmmaker, once told me that some leaders are not really leaders; they are cheerleaders.  He said that they never talk about failure.   Breashears pointed out that you have to express confidence in your team, but you have to consider and prepare for failure scenarios.  If you don't, you could die on a mountain.  

My experience suggests that many leaders don't want to talk about failure.  They enjoy setting very ambitious targets and celebrate the notion of achieving the impossible.   However, the best leaders understand precisely the nature of the challenge that they are setting forth for the organization.  They might be setting aggressive targets, but they understand the risks.  They have probed each assumption, and they recognize where things can go wrong.  Researcher Gary Klein advocates the use of the pre-mortem, an exercise designed to imagine what failure might look like before you embark on a project, so that you can either build contingency plans or alter your initial strategy so as to enhance the odds of success.   Many leaders do not utilize pre-mortems, though they are highly effective in institutions such as the military.  

In today's Wall Street Journal, Thomas Gryta and Ted Mann have penned an in-depth look at the fall of GE, based upon extensive interviews with current and former employees.  At point, they describe former CEO Jeff Immelt's penchant for unbridled optimism.   They offer this anecdote:

Already the chief of GE’s largest business by sales, Bolze, 52 years old and square-jawed, was in the race to succeed Immelt, and he was about to add a huge new global portfolio of power plants and thousands of workers to his fiefdom.  Moving through the slides, Bolze came to the proposed annual sales growth rate of the power business: 5%.

There was ample reason for skepticism. Power had been struggling to meet targets, and its sales hadn’t grown that quickly in years. Global investment in new gas-fired power plants was slowing. Energy efficiency was on the rise. That meant future revenue from the highly profitable service contracts GE had signed was likely to fall, or at least to grow less quickly. Global gross domestic product, a reliable proxy for the power market, was below 4%.  It was a rosy assumption that cried out for interrogation, the very point of the formal review. As the room watched, Immelt gave the desk in front of him a confident slap.  

“Great, next page,” he said.

Immelt could be tough on executives in his own way in these briefings, but it wasn’t usually for being too optimistic. “Where’s the guy I used to know?” he would ask an underling who told him Immelt’s targets couldn’t be hit. When the mood soured, the tone changed. “Your people,” Immelt would say, “don’t want it bad enough.”

The story is rather disconcerting, but don't think that GE and Immelt are unique.  This story plays out in many organizations each day.  The most successful leaders become comfortable with managing a delicate balancing act.  They aim high, but they critically examine how failure might occur.  They uncover hidden risks, and they probe for faulty assumptions and problematic strategies.   They are healthy skeptics.  

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