In his new book, How the Mighty Fall, Jim Collins found something surprising: companies don't fail because they become complacent, set in their ways; they fail because they become over confident which leads them to reach for things beyond their grasp. "Overreaching much better explains how the once-invincible self-destruct."
Collins asks: "Why do we instinctively point to complacency and lack of innovation as the dominant pattern of decline, despite evidence to the contrary?"
The Psychology of Over Confidence
In the July 27, 2009 New Yorker, Malcolm Gladwell writes about problems with over confidence: "Most people are inclined to use moral terms to describe overconfidence—terms like arrogance or hubris. But psychologists tend to regard overconfidence as a state as much as a trait."
He quotes psychologist Ellen Langer: "because ability makes a difference in competitions of skill, we make the mistake of thinking that it must also make a difference in competitions of pure chance."
Over confidence can be useful when you need to bluff at a poker table, but it's a very different thing if you're running a business, especially a financial business like Bear Stearns.
Many people bought more house than they could afford during the market run up and then found themselves upside-down in a house they couldn't pay for because they'd lost their job. Over confidence.
Only the Paranoid Survive
Andy Grove coined this phrase some years back. Is this the answer? Can we be both confident and paranoid?
When I work with teams on improvement projects, I often find that everyone has their pet theory about why a certain problem occurs. When we look at the data and really analyze it, we often find a completely overlooked root cause of the problem. Often, because I'm not part of the culture, I challenge long held notions of what works and what doesn't. Team members are invariably surprised by what they find.
If you've worked in a business or industry for more than a few years, you've bought into the hubris of the culture.
The arrogant often fail to reexamine their perceptions. I'd like you to consider that if you think you know everything there is to know about something, maybe it's time to take a step back and challenge some of your assumptions. Maybe the world has changed around you; maybe the ground has shifted beneath your feet and you haven't noticed it.
Here's My Point
Arrogance, hubris and over confidence have a place in business, but you can't allow yourself to buy your own B.S. Challenge your assumptions. The future will not equal the past. Be prepared. Be a little bit paranoid.