Take a look at the following statistics and see if you can identify a troubling trend:
- 84% of Frenchmen estimate that they are above average lovers.
- 68% of University of Nebraska faculty rated themselves in the top 25% in teaching ability.
- 93% of US students estimate themselves to be “above average” drivers.
See a pattern here? Overconfidence isn’t just a phenomenon in the general public. It literally runs rampant in certain quarters of the business world.
- 81% of Entrepreneurs believe their businesses had at least a 70% chance of success.
- 33% of Business leaders assert a 0% chance of failure—they are unfaltering, 100% certain their business will succeed.
Overconfidence in business is driven by a combination of factors: innate personal confidence, previous history of success, lessons learned from previous failures, etc. Bottom-line: Research shows that for entrepreneurs and seasoned business leaders alike, overconfidence is so prevalent and so deeply grounded that it defies common sense and rationale incentive-driven behavior. It exists at an innate, raw, irrational level. It is not typically counterbalanced by companion leaders with an offsetting “under-confidence” or innate sense of self-preservation that leads to an equally irrational avoidance of risky behaviors or situations. Overconfident business leaders can easily find themselves and their companies in challenging situations without a clear voice of reason to guide their decisions.
What Makes Overconfidence Such a Challenge in Business Leadership?
Overconfidence is often accompanied by another disconcerting characteristic: Incompetence. Psychologists David Dunning and Justin Kruger spearheaded what has become a body of research exploring the stunning fact that people tend to hold overly favorable views of their abilities in many social and intellectual domains. The greater the disconnect with their actual capabilities, the greater the overconfidence impacts their decisions and performance. The combined result is that many highly-confident people are literally “self-blind”. Worse still, their confidence and drive will find reinforcement from random success mistakenly claimed as evidence of their capabilities. If combined with charisma and political skills, random success can result in rapid promotion to positions of high responsibility and influence.
Before jumping to conclusions and insisting that you now have proof of the stupidity of the people around and above you, give some thought to the fact that you might be the one that is self-blind!
When are Self-Blind Leaders at the Highest Risk to their Organizations?
If we are secure enough as individuals to accept that we might be self-blind and overconfident to one degree or another, then we are prepared to ask the question: “How bad is it, doc? How long do I have left?” If you work in a position that is relatively stable with a company in a relatively stable market, the prognosis is good! If the world around us is reasonably unchanging, we have most likely risen to the comfortable level of our own incompetence (the “Peter Principal”). If, however, our circumstances change unexpectedly or we have risen to a level of risk, challenge, and responsibility beyond our capacity, trouble will soon follow.
How Do We Protect Our Organizations When We Ourselves May Be Self-Blind?
The overconfidence of the leaders in a company can have a far-reaching impact on the lives of their executives, management, staff and their families, customers, etc. Luckily, most decisions made by leaders are routine. These decisions are low-risk. They are made to keep the organization progressing along lines deeply ingrained in the company’s DNA. Decisions that cut across that DNA are the ones that carry the greatest risk. They come from two sources: changes in the market which require a new course of action; or, changes inside the company that disrupts the status quo and require strategic attention.
Consider employing some or all of the following leadership techniques to insulate your company from the impact of self-blind leaders.
- Employ a policy of constructive debate when reviewing critical decisions
Don’t trust critical decisions to gut instincts of your business’ leadership. Important decisions deserve vigorous debate and input. Assign your leadership team to research and defend opposing positions of the issue. This is helpful even when a path seems clear-cut. If a decision will have a significant impact on a company, its employees or its customers, it warrants a period of vigorous debate. Teach yourself and your employees to regularly question the obvious.
- Solicit Objective, External, 3rd Party Perspectives
Business leaders often find themselves in an insulated information bubble. Critical trade-secrets, competitive strategies, etc. must be held closely. Unfortunately, the habit of close confidentiality can lead to an overprotective practice resembling the “cone of silence” typified in ‘Get Smart’. Confidentiality is important. But, the label of ‘Top Secret’ is often applied too widely and the resulting vacuum of perspective is lost. In actual practice, leaders need to accurately identify points of risk, vet trusted resources and create a network of trusted objective experts to provide vital perspective and insights. Confidentiality agreements exist for this reason. Learn to use them.
- Build Organizational Fluency in Data-Driven Decision Making
Like many disciplines, data-driven decision making can be taken too far. However, in this age of data overload, employees and executives should be highly literate in quickly identifying relevant points of data, assembling them into a meaningful order and drawing assumptions or validating conclusions. There really is no excuse for poorly informed leadership in today’s data-rich world.
- Utilize Internal and External Data to Benchmark Before, During and After Target Events
In years past, the practice of rigorous benchmarking was an exercise only the wealthiest of organizations could employ. Those days are over. The ability to gather rich, meaningful data from internal, as well as external, sources is open and affordable to organizations from startups to mature enterprises. Data-literacy across the executive and management teams ensures a savviness enabling the team in quickly identifying leading data events and bringing them to organizational awareness for debate, discussion, and action. Benchmarking is the key to building a proactive, resilient organization in quickly evolving marketscapes.
“Self-Blindness” is no excuse nor is “Organizational-Blindness”
Despite the downsides of overconfidence, it performs a necessary function in society. Mankind can be thankful for this ‘seeming’ character flaw. This trait has driven entrepreneurs from the inception of man to persist on idea’s no one else could or would see. It allows inventors, visionaries, and entrepreneurs to take the leaps of faith necessary to carry society into increasingly enlightened frontiers.
Like risk and reward, overconfidence and progress are two sides of the same coin. As business leaders, we can use this fact to the advantage of our organizations. The same concepts used by managers to optimize risk/reward in a financial portfolio can be used to mitigate the risks visionary leaders bring to a company. If leaders are willing to accept that their confidence comes with risks, they can surround themselves with team members and strategies that help leverage their vision while offsetting the dangers.