These companies failed because leaders did not want to hear bad news: The Ostrich Effect
Have you ever worked for a manager or boss who did not want to hear bad news?
They might say things like “Don’t come to me with problems, come to me with solutions!”
Or they might get aggressive if they find out performance is not what they want it to be.
I once had a manager who I was working with on a money-raising program. We had a target to hit, and I was responsible for producing the reporting for the rest of the leadership team (of which he was one), but as time went on it became clearer and clearer that it would be impossible to hit the target, which would have an impact on the overall team budget. However, my manager instructed me to continue showing predictions that it was perfectly possible that we would meet the targets, something I argued with him about often. When one of the other leaders then once asked me about the likelihood of the target not being met, and I told him this was a possibility, my manager called me with a very aggressive phone call telling me that “You should not have told him that, it makes me look bad”.
While it is often the case that there are individuals who do not want to hear bad news about their business, in some cases entire management and leadership teams may instil a culture where this is the case.
These organisations might then suffer from the Ostrich Effect.
The ostrich effect is a cognitive bias (in this case amongst several people) to prefer to “stick their head in the sand” (like the myth of what an ostrich does) rather than facing unpleasant and negative information. The ostrich (incorrectly) reasons that not seeing danger makes it go away. It is related to confirmation bias, where people seek to find information which confirms what they already believe to be true.
In essence, ignore problems instead of acknowledging them.
This can be especially dangerous when the problem they are avoiding is that they are being disrupted, other companies are out-innovating them, an important project is off-target or performance KPIs are falling behind.
In organsiations which suffer from the ostrich effect, it is not just that bad news is ignored.
It can result in a culture of fear where people do not feel comfortable reporting bad news at all, and so employees who find bad news may actively try to hide it and lie about progress.
Two examples where leadership failed to take on board bad news are Volkswagen and Nokia.
In an CNBC article, the culture at Volkswagen under CEO Martin Winterkorn was one based on fear.
In 2015, it became clear that instead of being able to develop a diesel car which met emmissions standards (a huge engineering challenge), something had allowed a situation to develop where the chosen course of action was to lie and pretend like they had achieved the standards. This signalled a culture where performance mattered more than anything, headed by Winterkorn and ruled by fear.
One executive at the time:
“There was always a distance, a fear and a respect… If he would come and visit or you had to go to him, your pulse would go up,” the former VW executive told Reuters. “If you presented bad news, those were the moments that it could become quite unpleasant and loud and quite demeaning.”
Following the Dieselgate scandal, questions abounded about how such a culture could have grown, and what needed to change.
Bernd Osterloh, a member of VW’s supervisory board, sent the following in a letter to staff a week after the scandal had been revealed.
“We need in future a climate in which problems aren’t hidden but can be openly communicated to superiors. We need a culture in which it’s possible and permissible to argue with your superior about the best way to go.”
Once the world’s dominant mobile phone manufacturer, Nokia quickly lost market share following the release of the iPhone, unable to innovate and adapt to the new needs of the market.
In an investigation into the fall of Nokia by INSEAD, who interviewed 76 interviews with former Top and Middle-Managers, they determined that the reason Nokia failed was not due to inferior phone hardware, but instead an organisational fear, grounded in a culture of temperamental leaders and frightened middle managers, scared of telling the truth.
The fear that froze the company came from two places. First, the company’s top managers had a terrifying reputation, which was widely shared by middle managers—individuals who typically had titles of Vice President or Director in Nokia. We were struck by the descriptions of some members of Nokia’s board and top management as “extremely temperamental” who regularly shouted at people “at the top of their lungs”. One consultant told us it was thus very difficult to tell them things they didn’t want to hear. Threats of firings or demotions were commonplace.
Secondly, top managers were afraid of the external environment and not meeting their quarterly targets, given Nokia’s high task and performance focus, which also impacted how they treated middle managers. Although they realised that Nokia needed a better operating system for its phones to match Apple’s iOS, they knew it would take several years to develop, but were afraid to publicly acknowledge the inferiority of Symbian, their operating system at the time, for fear of appearing defeatist to external investors, suppliers, and customers and thus losing them quickly. “It takes years to make a new operating system. That’s why we had to keep the faith with Symbian,” said one top manager. Nobody wanted to be the bearer of bad news.
Top managers thus made middle managers afraid of disappointing them—by intimating that they were not ambitious enough to meet top managers’ stretched goals. One middle manager suggested to a colleague that he challenged a top manager’s decision, but his colleague said “that he didn’t have the courage; he had a family and small children”.
Fearing the reactions of top managers, middle managers remained silent or provided optimistic, filtered information. One middle manager told us “the information did not flow upwards. Top management was directly lied to…I remember examples when you had a chart and the supervisor told you to move the data points to the right [to give a better impression].
All of this resulted in a culture where innovation was focused on things which could be promised to be delivered quickly, instead of a long-term vision to improve the operating system required for phones in the future.
Additionally, business units would often have to lie and make up business cases which looked good in order to get the resources they needed to continue working, even if they knew they could not deliver what was in the business case.
This short-sightedness resulted in Nokia quickly being out-innovated by companies which not only had a better view on which innovations would drive value in the future, but a culture which enabled their teams to actually execute on these ideas and plans and deliver the promised innovations.
Fixing the Ostrich Effect in your organisation
In order to counteract the ostrich effect, one of the most effective things to do is to build up psychological safety.
Psychological Safety builds an environment where people trust each other enough to not only speak up when they see a problem, but discuss it together and find ways to fix it and grow from it.
A culture based on fear is one where your teams cannot fly.
After all, the ostrich may be the biggest bird in the world. But it is also one of the few that cannot fly.