Have you ever had the impression that someone external to your team was able to discern, perhaps at a glance, details or problems in your business model or company that had eluded you? Have you ever found an effective answer to one of your business problems provided by someone who has had very little time to become familiar with the dynamics of your company?

A common perception shared by virtually all managers is that they need to refer to the outside world in order to accurately gauge the performance of their internal team. It is in reference to the context that the qualities and flaws of a project are highlighted to the fullest. Through this lens one is able to get a clear image of an internal organization and its people and processes, which may otherwise be indecipherable.

But how do we as entrepreneurs fail to see things that are right under our noses on a daily basis?

Everything, including the ability to analyze an internal problem, depends on how the entrepreneur perceives it: cognitive biases thus play a key role in the self-analysis of one’s business project. 

There are different types of biases and we do well to recognize them before they affect our ability to recognize other things.

One is known as the self-serving bias, whereby the entrepreneur tends to attribute good performance to internal factors and blame bad performance on external causes. This bias in assigning responsibility tends to pump up the entrepreneur’s self-esteem. Unfortunately, it has been proven that the more the entrepreneur is subject to this bias, the poorer their performance.

Another is the planning fallacy bias, where people imagine they can do more things in less time than they are actually capable of doing. Entrepreneurs prey to this bias will thus tend to have inaccurate expectations and incorrectly analyze what is happening, perhaps failing to recognize and thus valorize something that actually represents optimal performance because it fell short of their unrealistic expectations.

Another common bias is overconfidence, putting too much stock in one’s beliefs, driving the decision-making process based on inaccurate convictions instead of reliable data and insights.

Then there are self-justification and commitment escalation biases, which cause the entrepreneur obstinately pursue a project even when conditions objectively indicate that it is useless or even counterproductive. This may also be affected by a perception of perpetual control over the project and an exaggerated tendency to think positively, thus downplaying what might be reasonable concerns.

A related bias is the influence bias, where entrepreneur sees reality through the lens of their desires and not objectively, selectively excluding some inconvenient truths, which might instead be very clear to an outsider (e.g., a consultant). 

The point here is that the entrepreneur has all the tools they need to see the reality of their organization, many more than an outsider possesses, but their vision may be blurred by emotional overinvolvement. Emotional detachment from project and team performance, however, may be difficult to learn for an entrepreneur, especially if dispassionate rationalism is not already a strong personality trait.

Another bias concerns the inability of decision-makers to recognize small mistakes that can accumulate and lead to bigger problems. They make an extreme attempt to rationalize those choices already made in a sort of stare decisis approach, failing to recognize that some may be sub-optimal and in need of review.

There is also the gambler’s fallacy, whereby the entrepreneur thinks they are making correct decisions based on their (erroneous) understanding of statistical probability. An example of this fallacy is thinking that since you have not rolled a six on your last twenty throws of the dice you are more likely to roll a six now. Here, an irrational assumption mimics rational thinking to justify choices that may have been made a priori. In addition to having difficulty recognizing that there is no causal or statistical relationship between two or more events, the entrepreneur often struggles to accurately assign an order of magnitude and relevance to everything that happens in the company and has an influence on it.

Another layer in our conversation regards the ability to adequately involve the team in searching for solutions that effectively help achieve company objectives. These solutions may immediately appear very obvious to an external consultant, whose first step in getting to know the company is to listen to the team and to do so free of the biases and fallacies outlined above. Listening is critical: a team may be so tightly knit and used to a collective approach that much is left unsaid and unquestioned, failing to recognize the importance of truly open and honest discussion free of the effect of interpersonal issues. This is also one of the reasons why small teams, which are expected to be extremely well connected with their organizations, often paradoxically have much greater communication and solution-seeking problems than their counterparts in large organizations.

Management unable to activate a structured internal listening process may be blind to vulnerabilities that an outsider readily recognizes. Errors in decision-making can sometimes be traced to poor communication and low levels of information exchange with respect to team needs and the positive or negative outcomes of internal processes. 

If an external consultant seems to recognize a company’s problems at a glance, it is not because of some paranormal gift, but because they are free of pressure, passions, hopes, and expectations and able to gather more unbiased information. And every good consultant knows that the answers to internal problems almost always lie latent within the organization itself and can be derived from existing data and information, which, given the prevailing processes and biases at work within the organization, often cannot be applied in a systematic and effective manner. 

We often see this in the workplace especially when it comes to managing a generational transition, where very strong personal factors may drive divergent company visions and goals that require external conciliatory intervention to be guided onto a common and productive track.

This unwillingness or inability to recognize problems or have truly open conversations may also apply in relations with external stakeholders. While these stakeholders may bring benefits to the company, they may not share their objective point of view, perhaps because they do not feel a strong connection, do not fully trust the internal decision-makers, or are simply not interested. For this reason, a disinterested, super partes outsider, orbiting very close to the company but nonetheless independent, may contribute their familiarity with the interests and work of other stakeholders that may be of significant value to the company. 

Lastly, factors such as hierarchies, excessive control, a short-term or crisis focus, compartmentalized organization, a tendency to hoard know-how, or entrenched process superstructures can hinder those directly involved from correctly perceiving issues, which are often perfectly visible to the outside world.

Categories: strategymanagement