Why do companies make so many big mistakes?

I am often asked by Kellogg students and executives during my leadership talks, “Why do companies make so many BIG mistakes?” Since it happens so often, it is a very fair question.

Simply look at the WSJ, NYT, or FT, and almost daily you will find a story about a company blunder and think to yourself: “The company did what?!?! How and why did that happen???”🤔

The usual quick guess as to why it happens is, “Well, it’s simple. The CEO just made a mistake.” However, take a minute to reflect on this issue. The answer is not that easy. First of all, remember, the CEO usually has an executive management team of at least 10-12 people. So how did they all let the mistake happen? Wasn’t there anyone on the team capable of stepping up and stopping the mistake from occurring?

Well, I believe there are two major contributors to the problem: One is the process by which the CEO makes decisions, and the other is how the senior team defines their roles.

Let’s look at an example. Assume I am the CEO, and I tell the senior leadership team, “This is what I want to do.” Hopefully, what I meant to say is, “This is what I want to do IF IT MAKES SENSE,” and encourage the team to challenge me if they think what I want to do doesn’t make sense. However, if as the leader I don’t make it clear that I want to be challenged, we run into the second problem: How does the team react to my statement?

Unfortunately, my observation is that if it appears the CEO does not want to be challenged, many on the team start to define their job as “make the boss happy.” They think to themselves, “I don’t really understand why he wants to make that decision, but I am certainly not going to challenge him. The CEO must know more than me.” And by the way, if the last three team members who challenged the CEO are no longer with the company, it should surprise nobody if the current team does not want to challenge the CEO.

So, what is the solution? Let’s keep it simple. If the CEO makes it really clear that they want to be challenged (and this statement is backed up by demonstrating that the people who challenge respectfully are rewarded for challenging), more team members will challenge. In fact, the team will realize that their role is not to make the boss happy, but rather to respectfully challenge so the company can minimize (one can never eliminate) really BIG mistakes.

One more thought regarding BALANCE. The leader definitely should encourage the team to challenge them in the process of making the decision. However, once the decision is made, the team needs to “get on the bus” and make it happen. The leader cannot afford to have team members wondering if getting on the bus is optional.

Okay, you may be thinking, “Isn’t this common sense?” Yes, but this is when I usually share a quote credited in its various versions to Voltaire and Mark Twain among others: “Yes. Everything is common sense; however, the problem is that common sense is not so common.”😎

Here’s wishing everyone a great week!!👍😁