Fearing the Truth

Volkswagen, Wells Fargo, Nokia, and the New York Federal Reserve serve as some of the vivid examples of organizations with deep reservoirs of expertise, driven, intelligent leaders, and clearly articulated goals. None lacked capable employees in any of the relevant fields required for the organization to succeed in its industry. In short, they had the talent. What they lacked was the leadership needed to ensure that a climate of psychological safety permeated the workplace, allowing people to speak truth to power inside the company—and, in the case of the Fed, to their industry partners. As a result, they all wound up facing painful failures, or worse—headline-grabbing scandals.

None of these failures occurred overnight or out of the blue. Quite the opposite. The seeds of failure were

taking root for months or years while senior management remained blissfully unaware. In many organizations, like those discussed in this chapter, countless small problems routinely occur, presenting early warning signs that the company’s strategy may be falling short and needs to be revisited.

Yet these signals are often squandered. Preventing avoidable failure thus starts with encouraging people throughout a company to push back, share data, and actively report on what is really happening in the lab or in the market so as to create a continuous loop of learning and agile execution.

Each of the stories can be seen as a case of strategic failure. What started as small gaps in execution spiraled into dramatic, headline-making failures when new information created by actual experience—whether of engineers or salespeople—was not captured and put to good use in rethinking and redirecting company efforts.

For instance, Wells Fargo’s cross-selling strategy bumped up against customers’ real spending power, planting a seed of strategic failure. But what cemented the failure was the salespeople’s belief that senior managers would not tolerate underperformance. That they found it easier to fabricate false accounts than to report what they were learning in the field is as powerful a signal of low psychological safety as you can find.

In focusing on psychological safety, I do not mean to dismiss the ethical dimensions of any of these cases, for instance, Wells Fargo. Yet to view the customer-accounts fraud as the result of individually-corrupt salespeople does not square with the widespread nature of the behavior in the company, which points to a system set up to fail. Set up to fail by the pernicious combination of a top-down strategy and insufficient psychological safety to encourage sharing bad news up the hierarchy. A similar point can be made about the VW and Fed cases. As argued earlier in this chapter, any explanation that looks only for a corrupt or foolish individual or individuals will be incomplete, given the complex dynamics at play. What is interesting to consider, however, is the extent to which having information about shortcomings come to light earlier rather than later can nearly always mitigate the size and impact of failures and sometimes prevent them altogether.

Why Fear Fails

The root cause of VW’s Dieselgate scandal in 2015 is not found in the personality or leadership of any single person or department. It’s more accurate to say the failure was caused by holding fast to an outdated belief about what motivates workers. A scene in Charlie Chaplin’s classic film Modern Times parodies what old-fashioned motivation-by-fear can look like. Chaplin plays an assembly line worker who fails to keep pace tightening the widgets as they appear before him on the moving belt, only to be kicked by a coworker, chastised and hit by a manager, and ordered to increase speed by an executive.

Today, when simple tasks have increasingly become automated and knowledge workers do not tighten widgets but rather collaborate, synthesize, make decisions, and continually learn, such methods seem especially comedic. Given what research has shown about the relationship between psychological safety and learning, a leader who threatens to fire managers and engineers if they do not come up with world-class body fits in six weeks—a true story from VW’s history, occurring years before Dieselgate dominated business headlines—seems best cast in a silent film.

Like the noxious fumes emitted by VW’s diesel engines, low psychological safety affects everyone who breathes it in. Its insidious culture of fear makes it unsurprising that VW engineers, faced with a seemingly insurmountable technical obstacle—to produce a diesel engine that could pass U.S. environmental testing—and pressed for a solution that could meet the company’s target goals, decided to find a way. However clever and lucrative the idea may have seemed at the time, and however much VW’s sales and reputation soared in the short term, history showed that it was not, in the long run, a viable solution.

Perhaps most stunning thing about the VW emissions debacle is that it’s by no means a singular event. The same script—unreachable target goals, a command-and-control hierarchy that motivates by fear, and people afraid to lose their jobs if they fail—has been repeated again and again across industries and decades. In part that’s because management by fear was viable in an earlier era when goals were reachable, progress directly observable, and tasks individually executed. Under those conditions, people can be compelled to work hard and achieve targets through fear and intimidation. The problem is that, in today’s uncertain and complex world, this is no longer a script that works. Rather than success, it’s a playbook that invites avoidable, and often painfully public, failure.

Adopting an Agile Approach to Strategy

Taken together, these four cases suggest the necessity of adopting alternate perspectives on strategy that are more in tune with the nature of value creation in today’s environment. Solvay Business School Professor Paul Verdin and I developed a perspective that frames an organization’s strategy as a hypothesis rather than a plan.

Like all hypotheses, strategy formulation starts with situation assessment and analysis—strategy’s classic tools. Also, like all hypotheses, it must be tested through action. When strategy is seen as a hypothesis to be continually tested, encounters with customers provide valuable data of ongoing interest to senior executives. Imagine if Wells Fargo had adopted an agile approach to strategy: The company’s top management would then have taken repeated instances of missed targets or false accounts as useful data to help it assess the efficacy of the original cross-selling strategy. This learning would then have triggered much-needed strategic adaptation.

Of course, sometimes, poor performance is simply poor performance. People underperforming. Not trying hard enough. Sometimes, companies do in fact need to find ways to better motivate and manage employees to help them reach desired performance standards. However, facing uncertainty and complexity, this is not the only explanation for missing a desired target; it is not even the most likely explanation. Early signs of gaps between results and plans must be viewed first as data, triggering analysis, before concluding that the gaps are clear and obvious evidence of employee underperformance.

Cheating and covering up are natural by-products of a top-down culture that does not accept “no” or “it can’t be done” for an answer. But combining this culture with a belief that a brilliant strategy formulated in the past will hold indefinitely into the future becomes a certain recipe for failure. At both VW and Wells Fargo, signs that corners were being cut were repeatedly ignored. Thus, the illusion that the top-down strategies were working persisted—for a while.

Particularly poignant is that disconfirming data were available for a surprisingly long time, but they were not put to good use. Success in today’s world requires senior executives to engage thoughtfully and frequently with company operations across all levels and departments. The people on the front line who create and deliver products and services are privy to the most important strategic data the company has available.

They know what customers want, what competitors are doing, and what the latest technology allows. Organizational learning—championed by company leaders but enacted by everyone—requires actively seeking deviations that challenge the assumptions underpinning a current strategy. Then, of course, these deviations must be welcomed because of their informative value for adapting the original strategy. Ironically, pushing harder on “execution” in response to early signals of underperformance may only aggravate the problem if shortcomings reveal that prior market intelligence or assumptions about the business model were flawed.

Takeaways

◾ Leaders who welcome only good news create fear that blocks them from hearing the truth.

◾ Many managers confuse setting high standards with good management.

◾ A lack of psychological safety can create an illusion of success that eventually turns into serious business failures.

◾ Early information about shortcomings can nearly always mitigate the size and impact of future, large-scale failure.

ABOUT AUTHOR
Amy C. Edmondson, Ph.D., is the Novartis Professor of Leadership and Management at the Harvard Business School.