We deeply want to be led by people who know what they’re doing and who don’t have to think about it too much — but there’s one glitch in that: The amount of success it takes for leaders to become overconfident isn’t terribly large.
Some achieve a reputation for great successes when all they have done is take chances that happened to work.
The fierce personal confidence and sense of infallibility that characterizes many leaders serves as a breeding ground for mind-bugs (non-conscious flaws in the way humans think and make decisions).
As a result, leaders can fall into a trap of believing they are better informed than they really are. Then fact gathering, analysis, insights, judgments and decisions suffer — as you’ll see from the real world examples below.
A Penney can’t become an Apple
In the fall of 2011, Ron Johnson, the whiz behind Apple’s $50 million-per-store retail business, was appointed not just as CEO of J.C. Penney Co., but as the savior responsible for transforming one of the dowdiest dinosaurs in American retail.
Seventeen months — and many mistakes later, he’s out of a job. What happened? Johnson so desperately wanted J.C. Penney to become the Apple of department stores that he failed to understand his customers and ended up alienating them.
Johnson could have easily known better but refused to test his ideas in advance, reportedly shooting his critics with the pushback, “We didn’t test at Apple.”
Johnson was unknowingly a victim of a mind-bug called the “informed leader fallacy,” when a leader believes he is better informed and has better instincts than others simply because he is the leader.
Is Hewlett-Packard blind to that fact?
Hewlett-Packard Co.’s terrible track record of making and integrating acquisitions speaks for itself. After buying Palm for $1.2 billion in 2010 and announcing the TouchPad in early 2011, HP killed these products six months later with a record $3.3 billion write off.
In August 2011, HP announced the acquisition of Autonomy, which provided so-called intelligent search and data analysis. HP didn’t stress the price — $11.1 billion, or an eye-popping multiple of 12.6 times Autonomy’s 2010 revenue — but focused on Autonomy’s potential to transform HP from a low-margin producer of printers and PCs into a high-margin, cutting-edge software company.
HP stunned its still reeling investors when it said it was writing down $8.8 billion of its acquisition of Autonomy, in effect admitting that the company was worth an astonishing 380 percent less than HP had paid for it.
So what is HP’s CEO Meg Whitman planning to do now? Return to making acquisitions, of course: “We will be incredibly measured and disciplined. We are very mindful of the event that we just came off with Autonomy, so don’t worry about that.”
While only time will tell, Whitman would be wise to worry about the Informed Leader Fallacy mind-bug.
Be wary of transformative thinking
What these leaders have in common should serve as an enduring lesson.
Just as Johnson was going to transform J.C. Penney into America’s retailer, Autonomy was supposed to transform HP into a software powerhouse.
So-called transformative thinking that renders traditional valuations irrelevant and silences critics is a breeding ground for bugs in leadership thinking and decision-making. ●
Larry J. Bloom spent 30-plus years helping grow a small family business to over $700 million in revenue. He is the author of “The Cure for Corporate Stupidity: Avoid the Mind-Bugs that Cause Smart People to Make Bad Decisions,” consultant, board member, and owner of a startup media and software company that promotes better thinking. He was born and resides in Atlanta, Ga. For more information, visit www.curecorporatestupidity.com or email [email protected]
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