Eighteen: Risk Tolerance and Fear of Failure
In a sense, the drive to achieve success may be motivated by fear of failure - while an individual may not be interested in the goal itself, he may be fearful of the consequences of failure. Conversely, fear of failure can also undermine the desire to achieve a goal, as when a person recognizes the value of an outcome, but fears the loss he will bear if he fails to achieve it. In such instances, stress is caused by the opposing motivations.
(EN: I would add to this the assessment of the status quo. If a person believes the status quo to be acceptable and that it will remain so if he takes no action, he is discouraged from taking action. If a person believe the status quo to be unacceptable or believes that it will degenerate, he is encouraged to take action.)
Failure has three basic costs:
- Loss of the benefits of achieving the goal
- Waste of resources consumed in its pursuit
- Cost of collateral damage
The author relates this to management, specifically the management of brands, in that there are rewards to taking action that will increase the power of a brand and punishments for taking action that will decrease it. Their confidence in the reliability of their plans and their assessment of the potential for things to go wrong either drives or undermines their willingness to act.
There's then a consideration of the competitive market and the degree to which some people assess success in a comparative manner. A company may be profitable and stable, but because it does not have as great a market share as others, it feels the need to take action to outperform others. When multiple parties behave in a competitive manner, they have lost sight of what matters and are constantly struggling to be at the top of the heap.
From there, another odd lurch to the topic of power. To achieve goals, an individual must have the ability to influence others to cooperate. They may cooperate because they feel a personal stake in the outcome or its achievement. They may cooperate because they believe they will be rewarded for doing so or punished for failing to do so (directly or indirectly). Or they may cooperate out of deference to the leader, whether it's because of his character, his charisma, or his expertise.
In all instances, having power depends on the impression that other people have of a leader: when they lose confidence in his power, they cease to cooperate with him. This adds to the executive's fear of failure - in addition to the three basic costs mentioned before, he also loses power with his followers, which diminishes his ability to pursue other goals in the future.
Fear as an Internal Crisis
Fear is often expressed in terms of external phenomena - but in reality it is an entirely internal crisis. A person may be reluctant to make outdoor plans because they fear it will rain, even without checking the weather report or performing a rational assessment of the probability that rain will occur. It is not the climate's fault that a person is inhibited by their fear.
Likewise, many business plans are scuttled because of irrational fear: it is feared that the market will not react as expected, that competitors will outmaneuver the firm, that regulators will interfere, that suppliers and partners will not cooperate, and so on. When this is based on a careful and rational analysis of the probability of misfortune and the degree of impact, it is risk management - and risk management typically results in contingency plans in case obstacles arise. When it is an emotional reaction without any research, it is fear - and fear merely causes paralysis and abandonment.
Very often, the fear that prevents action from being taken in a timely manner has nothing to do with practical matters, but is more psychological in nature: an individual fears social embarrassment for failure. In organizations, a manager fears the disappointment of his superiors, the derision of his rivals, and the loss of esteem of his followers that result from failure.
Concerns that are logical and rational may be addressed, but those that are psychological and irrational often cannot - no amount of evidence will convince a person that they should not be afraid. Their tendency is to cling to their fear, disputing or even denying the very existence of evidence that their fear is unfounded.
The immediate consequence of fear is stress: an individual is driven for their desire for achievement, but this desire is at odds with the fear that the outcome will not be achieved and that additional damage will be incurred in its pursuit.
A secondary consequence of fear is paralysis, very often "paralysis by analysis" in which an individual refuses to take action until they can do further research, which they then either delay or avoid which causes further delays in hopes that the plans will be forgotten or become obsolete.
And the final consequence of fear is to achieve the very failure that was feared in the first place. That is, the fearful man feared that his goals will not be achieved - and by failing to take any action, he ensures that they are not.
Thus considered, any planning effort must consider the reaction of fear, first in the planning staff, and then in the stakeholders whose support must be enlisted to act upon the plan. Failure to do so will practically guarantee the failure of the plan - if not as a consequence of misfortune, then as a consequence of inaction for fear of misfortune.
The author then shifts to fear among stakeholders, which can also serve to undermine plans because it influences the manner in which they are willing to engage. Supporters who are fearful of the potential failure of a plan and the possible damage they may incur for supporting it will not lend their full support. Customers who are fearful of a new product will not purchase the product.
He extends this fear to the general public, telling the case story of BP's public relations nightmare resulting from the 2010 Deepwater Horizon indecent in which a malfunction on an oil rig vented about 5 million barrels of crude oil into the Gulf of Mexico. The environmental disaster of the Exxon Valdez incident some 20 years prior, which involved a significantly larger spill and did considerable environmental damage, fueled a level of panic far greater than the Deepwater incident would merit, causing calamity in the consumer and financial markets.
On the bright side, the fear from the previous incident caused the reaction to the incident to be accelerated, by both commercial and governmental sectors rushed to contain the spill and minimize environmental damage - and in that sense fear provided motivating to act (and was likely to credit for there being a plan of action to mitigate the risk), but it also caused the incident to be far more aggrandized than it would rationally warrant.
Mass Panic and Scapegoating
A rational individual can often recognize that his fears are unfounded, but people acting in groups are incapable of reasoning - they react immediately based on superficial impressions and very little logic. People in crowds are little different than cattle in a stampede, reacting to one another's reactions and amplifying one another's emotional states.
Crowd psychology is very much a part of executive decision-making, as the idea that an executive acts as an individual is a gross misunderstanding. Every executive is surrounded by a crowd of peers, subordinates, and superiors, and his every decision is guided by groups. The author cites a time-study that indicates that the average executive spends less than 10% of their time working alone, and the vast majority working in groups. They are beholden to boards, committees, and task forces, all of which behave very much like crowds.
He further notes the widespread incidence of executive depression, which often arises from the frustration of being compelled to do things against their better judgment by those who hold authority over them, and are often held personally accountable for the failure that was forced upon them. So while their public image is as masters and commanders of large organizations, their role is more along the lines of scapegoats for group decisions that are based on fear and panic rather than sound reasoning.