- August 27, 2020
- Posted by: financenorth
- Category: Media
People tend to overestimate the extent to which others share their views, beliefs, and experiences – the false-consensus effect. False consensus often leads strategists to overlook important threats to their companies and to persist with flawed strategies. Some of the causes include:
- Confirmation bias – the tendency to seek out opinions that support our own beliefs and hypothesis.
- Selective recall – the habit of remembering only facts and experiences that reinforce our assumptions.
- Biased evaluation – the quick acceptance of evidence that supports our hypothesis, while contradictory evidence is subject to rigorous evaluation and almost certain rejection, an example of which being to impute hostile motives to critics or question their competence.
- Groupthink – the pressure to agree with others in a team-based culture.
Consider how many times you have heard a CEO say one of the following:
“the executive team is 100% behind our new strategy” (groupthink)
“the chairman and the board are fully supportive, and they all agree with our strategy” (false consensus)
“I’ve heard only good things from dealers and customers about our new product range” (selective recall)
“Ok, so some analysts are still negative, but those ‘jokers’ don’t understand our business – their last report was superficial and full of errors” (biased evaluation)
This hypothetical CEO might be right, but more likely is headed for trouble. The role of any strategic advisor should be to provide a counterbalance to this tendency toward false consensus, and CEO’s should welcome the challenge.
It can be extremely difficult to uncover these problems, especially if the one proposing the strategy is a strong personality or role model. People can be easily influenced by dominant personalities and often seek to emulate them. This can be a force for good if the role models are positive, but negative ones can prove an irresistible source of strategic error.
How to reduce or eliminate the risks of false consensus in your organization:
- Create a culture of challenge. As part of the strategic debate, management teams should value open and constructive criticism. Criticizing (or challenging) a fellow director’s (or team member’s) strategy should be viewed as a helpful, not a hostile act. CEO’s and strategic advisors should understand criticism of their strategies, seek contrary views on industry trends, and if in doubt, take steps to assure themselves that opposing views have been well researched.
- Ensure that strong checks and balances control the dominant role models within an organization or advisory committee.
For important strategic or financial decisions, establish a “challenge team” to identify the flaws in the strategy being proposed by the strategy team. When setting up hypothesis at the start of a strategic analysis exercise, impose contrarian hypothesis or require the team to set up equal and opposite hypothesis for each key analysis. Instead of asking for validation of your strategy, ask for a detailed refutation.