Overcoming Management Denial

As a strategy consultant, I come across management denial all the time.  Management denial is the inability of an organization to acknowledge a major problem or shift strategic direction despite clear and credible evidence in favor of change.    Most often, MD is problematic but not fatal to the health of the organization.  In some noteworthy cases, however, the impact of MD can be close to disastrous. For example, MD is one of main reasons why Toyota was unable to first accept and then deal with its serious quality, design and complexity issues.  This leadership failure resulted in a major decline in shareholder value, profitability and reputation.  On an industry basis, the inability of the Recording Industry to first comprehend and then deal with the Napster and iTunes threats resulted in a permanent drop in total industry value and revenues.

Management denial arises from many factors.  In general they all contribute to a “that’s the way we do things here” orthodoxy that few employees are able to challenge let alone overturn. For instance, the more successful or stable the company, the more likely their strategies, goals and culture will evolve to create a self-reinforcing “ideology” that is inculcated throughout the firm.  When this happens, management will often develop strategic hubris and choose to ignore contrary facts that do not fit the paradigm.  In other cases, high levels of MD can be found in overly political cultures that concentrate power, information and access.  Managers within this milieu often see change in zero-sum terms and will resist attempts to change the status quo.  MD also arises in firms that contain institutional biases which serve to filter out unpopular news or minimize strategic options that don’t fit the official ideology.  Institutional bias is often found in the strategic planning, account management and market research areas.

Many industries, such as education, publishing, and financial services, already display symptoms of MD.  Although they are poised for rapid change in the near future, the market leaders will probably be the last ones to transform themselves, even if they realize they must in order to survive. Virtually every executive in these firms are aware of game-changers like globalization, digitization, mobile communications, and sustainability. Yet, many managers remain in denial about their impact on their business, claiming that consumers don’t change quickly, that existing products are superior, that people won’t give up on familiar experiences, and so on.  

To minimize the effects of MD, companies should stop looking at threats and opportunities through traditional eyes and logic. Instead, the moment firms spot signs of change, they must figure out which strategies and capabilities to keep, enhance and discard. Executives can follow a number of practices to do this-

1. Utilize advanced analytical tools – Different analytical approaches can help stress-test conventional wisdom.  For example, management could regularly use external consultants for fresh thinking and to glean lessons from others.  As well, firms could employ war gaming and scenario planning to rigorously explore all opportunities and threats.
2. Challenge the “sacred cows”  – It is always prudent to challenge conventional wisdom within the planning and market research process, asking questions such as:  What is good performance? And, how well do customers like our products and experiences?
3. Track the data – Tracking key performance indicators across all functional groups will provide the data necessary to enable early and objective decision making.
4. Get on the “forgetting curve” – Senior management must rigorously identify and cull behaviors, practices, and beliefs that create strategic inertia or barriers to change.
5. Foster employee diversity – Companies must recruit beyond their industry to attract employees who can bring fresh skills, experiences and beliefs.

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