Moments of Delusion in Business– Can Both Build, Destroy Great Companies: Its the Madness Paradox in Business…

Delusions are a paradox in business– a delusion is a belief held with strong conviction despite superior evidence to the contrary… Delusions are false beliefs based on incorrect inference about reality that persist despite evidence to the contrary… As a pathology, its distinct from a belief based on false or incomplete information, dogma, illusion, confabulation, other effects of perception…

But moments of delusion can also be the basis for success of a business… According to Phil Rosenzweig; person’s thinking in business is shaped by a number of delusions… these delusions are promises that you can achieve success if you do one thing or another… typically they are  moments of inspiration based on shaky thinking…

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The business world is full of leaders who are– smart, clever, quick of mind, conversant in current management concepts… although business also has a short supply of leaders who are wise, in sense of– discerning, reflective, and able to judge what is correct and what is wrong. Much of business thinking is shaped by delusions, i.e.; errors of logic and flawed judgments that distort an understanding of real reasons for business success. According to Marc Stigter; many companies follow false dogmas and delusions that hold back their success in business, e.g.:

  • Change Delusion: Most businesses hold onto ingrained offerings and practices– sticking by what already has been built, seeking to maintain current position rather than innovate for new opportunities. They focus on incremental improvement of existing offerings with focus on new versions of old things rather than aggressively seeking disruptive change…
  • Customer Delusion: The business world is in the middle of a customer revolution that is changing not only the way companies produce, market, sell, deliver products, but the way they create and deliver customer value. Yet most propositions are still developed in isolation from customers. Customers are still too often perceived as targets and passive recipients…
  • Planning Delusion: Many businesses are deluded when it comes to the much-exploited term ‘strategic planning’. Somewhere along the line, strategy became little more than a box-ticking exercise, failing to take almost any business forward. Many businesses still hold onto conventional planning processes that are futile in today’s rapidly changing and competitive world. Businesses must break the old habits of useless periodic planning…
  • People Delusion: Two out of three workers feel overwhelmed and are disengaged. It shouldn’t be surprising that most strategic change efforts fail when a critical mass of workers can’t or don’t want to exert the required extra-energies. Companies must look to create an environment where workers are proficient (can), aligned (know), and are committed (want) to realising strategic change…
  • Leadership Delusion: The ultimate delusion relates to beliefs about ‘leadership’. Thousands of books are written on the topic, and there are dozens of academic philosophies or concepts. But leadership is ultimately about direction. Many leaders are besieged, snowed-under, inundated, and paralysed with trying to manage the daily demands of the business. Longer-term strategic leadership has lost out to short-term operational management…

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In the article Halo Effect and Managerial Delusions by Phil Rosenzweig writes: Many executives, despite their good intentions, look in the wrong places for the insights that can deliver a competitive edge. Too often executives reach for books and articles that promise a reliable path to success…

Over past decade, some of the most popular business books have claimed to reveal the blueprint for lasting success– how to go from good to great, or how to craft a fail safe strategy, or how to make competition irrelevant… And, many give rise to the especially grievous notion that business success follows predictably from implementing a few key steps (i.e., formula of success).

In promoting these ideas, authors obscure a more basic truth– namely, business success is the result of decisions made under conditions of uncertainty and shaped in part by factors outside the control of a business… and given the flux of competitive dynamics, even seemingly good choices do not always lead to favorable outcomes…

Further there is the notion of the ‘Halo Effect’, which describes the tendency to make specific inferences on the basis of a general impression, e.g.; imagine a company that is doing well, with rising sales, high profits, and a sharply increasing stock price… Hence, the tendency is to infer the company has a sound strategy, a visionary leader, motivated employees, an excellent customer orientation, a vibrant culture, and so on.

But when that same company suffers a decline– when sales fall and profits shrink– many people are quick to conclude the company’s strategy went wrong, its people became complacent, it neglected its customers, its culture became stodgy… Hence, a company’s performance, good or bad, creates an overall impression– a ‘Halo’– that shapes how people perceive its strategy, leaders, employees, culture…

Further, there is ‘delusion of lasting success’, which is a notion of building an enduringly successful company as an achievable objective. Yet companies that are of lasting success are not just rare but statistical anomalies whose apparent greatness is observable only in retrospect. More accurately, companies that enjoy ‘lasting success’ have probably done so by stringing together many short-term success, and not because they followed a predictable prescribed formula, or unlocked secrets of sustained greatness…

However, clear-thinking executives know that in an uncertain world, actions and outcomes are imperfectly linked. It’s easy to infer that good outcomes result from good decisions and that bad outcomes must mean someone blundered. Yet the fact that a given choice didn’t turn out well doesn’t always mean it was a mistake… Hence, it’s important to examine the decision process itself and not just the outcome…

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In the article Delusions of Success by Dan Lovallo and Daniel Kahneman write: Debacles are all too common in business, and it’s not necessarily true that high number of business failures is best explained as the result of rational choices gone wrong. Rather, it can result as a consequence of flawed decision-making. When forecasting the outcomes of risky projects, executives all too easily fall victim to what psychologists call– ‘planning fallacy’. In its grip, managers make decisions based on ‘delusional optimism’ rather than on a rational weighting of gains, losses, probabilities…

They overestimate benefits and underestimate costs. They spin scenarios of success while overlooking the potential for mistakes and miscalculations. As a result, managers pursue initiatives that are unlikely to ever deliver the expected returns…

Most business people are highly optimistic, and they have the tendency to exaggerate their own talents– to believe they are above average in their endowment of positive traits and abilities… The inclination to exaggerate one’s talent is amplified by tendency to misperceive the causes of certain events… Managers are also prone to illusion that they are in complete control.

Sometimes, in fact, they will explicitly deny the role of chance in the outcome of their plans. They see risk as a challenge to be met by the exercise of skill, and believe that results are determined purely by their own actions and those of the organizations… In their idealized (or delusional) self-image, these executives rationalize that they are not gamblers but prudent and determined agents, who are in control of both people and events…

In the article Leadership Moments Of Delusion by Glenn Stevens writes: Most successful leaders are inflicted with the lighter side of delusion– often they suspend and ignore what is generally referred to as ‘reality’ while they explore new ideas, new opportunities… This self-induced, self-inflicted, intentional ‘moment of delusion’ is designed to take them right-up to an edge of madness, which is both scary and exhilarating… these moments of delusion are sparked by an imaginary boundary-less of– ‘what if’…

However, without these ‘moments of delusion’ many businesses would never succeed… Many leaders are forced frequently to suspend reality to immerse themselves in a moment of delusion to fully imagine and see what is possible. This delusional imagining allows a leader to see not what is incrementally possible– but experience what is ‘delusionally possible’…

A more socially correct term for ‘delusional leader’ is a ‘dreamer’.. these are leaders who judiciously use their ‘delusions’ to positively affect change in business, society… Hence, it’s time to embrace and appreciate healthy delusions… the world does not need another reasonable and realistic leader… it needs people who from time-to-time have moments of delusion, and who are dreamers and architects of disruptive innovations…

Whereas, many business leaders like to believe that if they simply incorporate certain key business practices, then their organizations will enjoy perpetual success. The reality is that very few internal and external factors remain constant through business lifespan. This is why companies tend to– ‘succeed for a season’, or ‘fail for a season’, or ‘regress to the ‘mean’ probability of success’, or ‘even fail permanently’…

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According to Daniel Kahneman; business leaders are prone to overestimate how much they understand world and to underestimate the role of chance in events… leaders tend to make snap decisions and rationalize them after the fact. Many business leaders tend to think fate is entirely in their own hands and believe that skill and hard work… will invariably lead to success…

Many leaders fail to see the difference between ‘passionately pursuing a dream’ and ‘delusion of pursuing a dream’… According to Clate Mask; passion is the thing that is required for a business to be successful, but it’s also happens to be the very thing that plants and nourishes the seeds of delusion…