Why Smart Companies Do Dumb Things

Not a day goes by when I don’t ask myself, “Why do smart companies do such dumb things?” We all know companies that cook the books and throw outrageous parties at one end of the spectrum to sell lousy products at the other. A sweeping answer is that companies are run by smart people, and smart people do dumb things as we’ve learned.

However, when smart people assemble in companies, they are still capable of doing dumb, if not even dumber, things. Wouldn’t you think that groups would provide checks and balances? Let’s tap into Why Smart People Do Dumb Things again because it’s a cornucopia of ideas, recommendations, and provocations that can explain why smart companies do dumb things.

• Consensus. When it comes to doing dumb things, the sum of the parts is less than the whole. Throwing more minds at the problem means more data, more perspectives, more possible solutions, more critiques of these solutions, and more minds (and hands) implementing the solution, right?

  Possibly, but there’s also the downside of more people: once consensus starts to build, it’s harder to alter a decision. It’s one thing to argue against a few people; it’s much more difficult to argue against the wisdom of a crowd. Individuals who hold out, question, or disagree are labeled as clueless, uncooperative, and not team players.

• Conviction. Consensus rears its ugly head during the decision-making process. The situation can get worse once implementation occurs because the organization marches along with a firm belief in what it’s doing. At that point, a decision takes on a sacred life of its own, and a company cannot see flaws.

  Conviction is not inherently bad, and truthfully, it’s an important component of success. The trick is to combine conviction with open eyes and open minds to reduce the likelihood of having a conviction in the wrong thing.

• CEOs. There is one kind of consensus that is particularly powerful and dangerous: a CEO (or any top executive) who provides cues about what she likes. (CEO=Consensus Executive Officer?) Then, disagreeing takes on the gravity of career risk; however, smart people don’t necessarily turn into thumb-sucking dweebs just because the CEO likes something, so what gives?

  It could be that people, no matter how smart, rearrange reality. They do not simply follow the dumb cues of the CEO. Instead, there’s an intermediate step: they see the cues, rearrange the facts in their mind, and then conclude that the CEO is right. The result is the same, though.

• Experts. If there’s anything smart people worship it’s other smart people. For example, you don’t know much about geography, so you hire an consultant who’s an expert in geography, and he tells you that the earth is flat. It’s touch to be strong enough to not defer to an expert.

  Most experts have a tough time accepting surprises that are outside of their comfort zone. For example, if you come to me with a marketing problem, I will usually tell you that evangelism is the answer. :-)

• Good news. A company, any company, is constantly assaulted by its competition, customers, governments, and schmexperts (schmucks + experts). Faced with this onslaught, good news is an addictive, illegal, and dangerous drug. It makes you crave more good news, and you refuse to communicate bad news up the chain of command. Ultimately, it may even make you refuse to hear bad news at all. How many commanders-in-chief of armies has this phenomenon probably brought down over the course of history?

• Lofty ends. Lofty ends can justify all sorts of weird and inappropriate means. Look no further than the quests for peace that produce mayhem and violence. Or, the desire to make a profit (something that is genuinely good for shareholders and customers) that warps a company’s code of ethics even though the company is made up of smart, honest people. Companies trying to achieve a lofty goal can start believing that any means to achieve it is okay.

In addition to what the book discusses, I’ve noticed three additional factors that make smart companies do dumb things.

• Budgets. Ideas take on a life of their own in the form of convictions. That’s bad enough, but then the implementation of ideas can also take on a life of its own. This is called a budget. It is a holy document that takes the place of management, observation, decision-making, and analysis for an entire year. Then the flawed thinking of the budget serves as the basis for the next year’s implementations. You’ve heard of stem cells. You can think of many budgets as stupid cells.

• Greed. You’ve heard of concept of “good to great” by Jim Collins. There’s also “good to greedy,” and greed usually trumps intelligence. When a company wants it all, it usually doesn’t let rules, regulations, and common sense get in the way.

• Arrogance. This is greed’s twin brother. Arrogance sets in when a company claims success as if it’s a God-given right. Arrogance also means that a company believes it’s above the law—that no one and nothing has claims against it.

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Here are my thoughts on ways to prevent or minimize doing dumb things:

1. Say, believe, and act in a way that convinces employees that differences of opinion and diversity of thoughts are good things. Frankly, a couple of curmudgeons is a good thing for a company.

2. Don’t be in a rush to meet consensus. In particular CEOs should not rush into a decision even though the image of decisiveness is so seductive.

3. Spell things out. It’s not enough to say, "Plug this leak in our company" and assume that it will be done legally. You should say, "Plug this leak in our company by using only legal, ethical, and reasonable methods." That’s when you’re done.

4. Move the crowns. When employees go around saying, "We need to do it this way because Bill/Steve/Carly/Larry wants it this way,” you’re in trouble. It means that employees are making decisions based on what they think will make kings and queens happy—as opposed to what’s right for the customer, employees, or shareholders. Good CEOs put the crown on the heads of customers, not themselves.

5. Restrict the use of experts to narrow areas. Never use experts to create your product roadmap or marketing plans unless you want MBAs who have never run anything larger than a school snack bar to decide your fate.

6. Ask for bad news. Don’t assume it will find you—you have to find it. You should allocate a time that’s specifically for communicating bad news.

7. Don’t shoot the messenger who brings the bad news unless he caused it.

8. Don’t reward the messenger who brings good news unless he caused it.

9. Approach budgets as working guidelines, not policies set in stone. If your budget doesn’t change for the whole year, you’re either clairvoyant (there are probably easier ways to make money if you are) or clueless.

10. Squash arrogance and greed. I’ll be honest: I don’t know how to do this. If I figure it out, it will be the topic of an upcoming blog.

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Comments

[Doug Karr]

Glad to see arrogance on your list. I believe it should lead all other items, though. Arrogance used to be only a retention issue because great sales, marketing and PR could overcome churn by replacing old customers with new. With the advent of the Internet as a research vehicle for consumers and corporations, arrogance does much more harm to companies because it outweighs sales, marketing and PR.

Corporate Arrogance

[Harry]

Regarding group consensus, the Abilene paradox is a good lesson to learn. Our group did the course and it recently solved a few internal problems for us.

[Paul Gallagher]

In fact, there's no "rallying against consultants" here.
There is, however, a view that consultants should not determine or decide anything for their clients. They should only help find and synthesize information for decisionmakers, and they can do that because they have the information or know where to get it.
Disclaimer - I are one.

[DwarfHam]

Guy,

Ever consider being a "mentor" to people, especially students, launching startups?

[Marilee Veniegas]

I agree with Kenton - This post is especially appropriate now that Patricia Dunn's gotten pinged for her bad decision to spy on fellow board members and news reporters.

She'd do whatever she needed to do despite bloggers, her fellow HP'ers You think Enron would've tempered anyone in the corporate environment who wanted to turn their companies into terrible spectacles.

[Chris]

I especially like that you are rallying against consultants. How is someone with no actual experience going to help my company? What's worse, those firms recruit from the same schools, which kind of lowers their diversity. I knew I was in the wrong room when, after I nailed a mock case interview, McKinsey asked me what my SAT score was. I'm finishing a PhD from Oxford; I believe my high school credentials are sufficient.

[Kempton]

Hi Guy,

Thanks for starting this blog about dumb companies in view of the current HP mess. I think HP was a really smart company. And it has done enough dumb things lately for me to use "was" in my last sentence.

Yes, trying to get a "consensus" probably get the HP board to "kinda fire" Ms. Dunn, the chair of HP board, but let her stay on as Chair for four more months. I am pretty sure that the chair has full "conviction" that she didn't do anything wrong. I just love the "CEO=Consensus Executive Officer?" bit.

Here is one lofty "save-the-world" end -- quoting Ms. Dunn, "These leaks had the potential to affect not only the stock price of HP but also that of other publicly traded companies."

I am just another "nobody" but, like in an "election", I will darn sure make my own voice/vote heard. So I have posted a total of six blog entries about this HP mess since Sept 6, with the latest entry entitled,

"HP’s leak scandal is kinda, sorta, almost but not really forcing chair Patricia Dunn to step down"

But I am being very realistic as I don't think the HP board, especially Ms. Patricia Dunn personally will give a Shiitake of what the bloggers are saying.

Just my 2 cents (+/- 2 cents),
Kempton

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Kempton,

I think it's way too early to decide who to hang in the HP case. The dust needs to settle before people start getting lynched.

Guy