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Learning from Past Mistakes like Groupthink

People who cannot learn from the past are doomed to repeat it.

This popular adage rings true for your business too. As such, business owners must take deliberate measures to avoid repeating past mistakes to secure success in the future. After due reflection on previous investment blunders, one must review them and come up with a report detailing specific steps of avoiding such oversights in future. A 2010 study by the Ivey Faculty detailed the leadership mistakes that led to the global financial meltdown of 2008. Here are some of the lessons you can learn from these epic business failures:

Avoigroupthinkding Groupthink

Many great investment ideas fail because of groupthink.

Groupthink is: The practice of making decisions as a group in a way that discourages creativity or individual responsibility. A classic example of groupthink from the 1960’s was the Kennedy administration’s effort to overthrow Fidel Castro through the Bay of Pigs invasion. In this case, Kennedy made the decision, and despite the rest of the team having private concerns they continued to support his decision.

Another example is Nixon’s Watergate disaster. In his classic book, Groupthink: Psychological Studies of Policy Decisions and Fiascoes Irving Janis discusses these type of disasters and what causes them.

Janis has documented eight symptoms of groupthink:

  1. Illusion of invulnerability –Creates excessive optimism that encourages taking extreme risks.
  2. Collective rationalization – Members discount warnings and do not reconsider their assumptions.
  3. Belief in inherent morality – Members believe in the rightness of their cause and therefore ignore the ethical or moral consequences of their decisions.
  4. Stereotyped views of out-groups – Negative views of “enemy” make effective responses to conflict seem unnecessary.
  5. Direct pressure on dissenters – Members are under pressure not to express arguments against any of the group’s views.
  6. Self-censorship – Doubts and deviations from the perceived group consensus are not expressed.
  7. Illusion of unanimity – The majority view and judgments are assumed to be unanimous.
  8. Self-appointed ‘mindguards’ – Members protect the group and the leader from information that is problematic or contradictory to the group’s cohesiveness, view, and/or decisions.

Failure of Commitment

Many leaders at the epicenter of the global financial crisis failed to demonstrate sufficient commitment despite the scope of their work. Likewise, your investment idea is equally bound to fail if you do not commit to it fully. As an entrepreneur, you are a business leader. Therefore, you must display leadership qualities for your investment to grow. In other words, you must show commitment and sacrifice to the success of the idea in order to instill the same principles in your team members. A relentless determination to the success of the venture through customer satisfaction and best practice will lead to triumph and growth of your investment. Other causes of commitment failure are when individulas or organizations commit to timelines that are either “overly optimistic” or downright impossible. These can result from failure to account for contingencies or dependencies i.e. things that have to be done before another event can start.

Avoiding Incompetence

Projects are more likely to fail without competent leadership. Therefore, you must work together with capable and intelligent professionals to foster success. Of course, it would be nearly impossible to run a business without understanding its core risks and challenges. For that reason, you must have in-depth knowledge of the organization and its industry that will enable you to predict future trends, and spot budding developments on the market. Thus, you can position your business to tackle challenges, and welcome opportunities in future. Paradoxically, one major cause of incompetence is a fear of looking incompetent. Many leaders want to appear superior and so they surround themselves with people who are less competent than themselves. On the other hand, good self-confident leaders look for the best people they can find even (especially?) if they are are even smarter than the boss. A good boss recognizes his weaknesses and hires people with those strengths to fill the gap.

Building Positive Character

Many of the failures leading to the global economic recession were as a direct consequence of leaders with questionable character. Amidst the financial turmoil that affected millions of investors, executive bankers were earning hefty salaries and benefits without regard to their customer’s plight.

Similarly, your project can also fail because of your character. Your character traits, values, and virtues definitely influence your business circles. Negative traits such as selfishness and lack of integrity and even insecurity will replicate in your sphere of influence leading to problems. Conversely, positive values such as integrity, compassion, and courage will steer fellow partners towards success and growth of the venture.

The Past is Prologue

In Shakespeare’s famous quote “What’s Past is Prologue” we learn that history influences, and sets the context for, the present. The phrase is also commonly used by the military when discussing the similarities between war throughout history. The same is true for business, the past is a significant part of any business. According to research from the Financial Times, about 20% of FTSE 100 companies maintain their own archives for analysis and marketing purposes. Similarly, business analysts and scholars now have answers to the numerous mistakes business and investment leaders made during the last global economic crunch.

Today, both powerful business leaders and small entrepreneurs alike can learn important lessons from the achievements of the investment executives who came out unscathed from past challenges. Your planned investment ideas are bound to face certain challenges. However, you should use hindsight to plan and avoid past mistakes.

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Joshua Turner is a writer who creates informative articles relating to business. In this article, he describes how looking at the past can help businesses stay successful and aims to encourage further study with a Masters in History.

Image courtesy of Stock Images / FreeDigitalPhotos.net

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