Overconfidence, Optimism, and Planning Traps

When discussing leadership, it doesn’t take long to realize that confidence is an important leadership trait. In fact, leaders of all types, whether they are founders of startups, c-level executives of legacy corporations, or even directors, managers, or front line supervisors, must display confidence. This means they believe in their abilities to plan, get work done, and guide their team actions towards mission accomplishment. So, confidence is a key leadership attribute. But is it possible to be overconfident in one’s ability to succeed?

I recently read an interesting post about this subject in the Farnam Street Blog and I believe if we think hard enough many of us will remember a boss or two who exhibited the overconfidence bias at least at one point in time. While confidence is helpful, overconfidence can be disastrous. Overconfidence oftentimes creates a decreased awareness of potential failure points and what could go wrong. This is especially dangerous with new or untested ventures, such as areas where there is little data to help determine the likelihood of success, and where the consequences of failure are unacceptable. In these cases the risk exposure may be higher than realized and requires that certain controls be built into the process to help protect the organization and people if the plans start going down the wrong path. For example, building in redundancy or a defense-in-depth may help so that if one part of an operation or process fails during execution the teams can redirect their efforts in another area, fail gracefully, and recover rather than become brittle and experience a total collapse of the operation, which can have significant consequences.

Unfortunately, overconfident bosses may place all of their hopes and plans on a single solution and fail to build in redundancy. They may allow Single Points of Failure to exist rather than building in other options. Sometimes these are Human Single Points of Failure, such as the one "hero" who does everything and who everyone else relies on to get the job done. These workers are excellent, but it may not be the best option to place too many responsibilities on one person without building in cross-functional and redundant capacity. I wrote a detailed post about Single Points of Failure and the Human Element to address these issues. Particularly when we are faced with uncertainty we need to leave ourselves an “out” or several “outs.” We need options in case the primary path fails. According to a Fast Company article Nassim Taleb states "Any strategy with optionality is like a highway with multiple exits." I think options are important, but overconfidence biases may make us think that the one and only option we have selected will work. Single option planning may work when we have big data on our side, but many organizations, particularly startups, may be trying new things on a regular basis and the best data available may be from a different industry, a different venture, or a different time, and even small nuances in the data may affect planning, which could in-turn lead to major changes in the outcomes. So should leaders be pessimistic about their plans?

Overconfidence vs. Optimism

Optimism is important for all organizations, but particularly in new businesses where the likelihood of failure is high. In fact, according to point # 10 in this Forbes article, some believe the reasons many startups fail is because founders quit too early. I think overconfidence and optimism are different. Overconfidence means shutting out disconfirming information. Overconfidence is dangerous. Blind optimism is dangerous. However, some optimism is necessary to inspire action in others and to help a venture succeed. After all, what team members want to follow their leader into a venture or operation if he or she exhibits pessimism? So, I think a healthy dose of optimism is important. Perhaps we should refer to it as “cautious optimism.”

How to Make it Work

What is a leader or manager to do to avoid the overconfidence or blind optimism biases? There are several strategies and by using a combination of approaches teams may be structured in such a way that integrates a combination of technical, functional, and social skills that enable teams to plan a bit more thoughtfully by creating a primary plan and setting boundaries and decision points with optionality along the path. Here are some general guidelines:

  1. Pay attention to weak signals. Sometimes the signs of impending failure may be very faint, but they may grow over time. If teams wait to act until the signals are so obvious, the opportunity for successful change may be too late in many cases. Karl Weick and Kathleen Sutcliffe described the use of weak signals in their work Managing the Unexpected: Resilient Performance in an Age of Uncertainty.
  2. Staff teams with a diverse group of people with varying skill-sets. A broad group of individuals can help create a climate where multiple ideas are brought to the table and multiple viewpoints contribute to the planning and execution processes. This may help avoid the single-mindedness that can cloud judgment and contribute to overconfidence. 
  3. Create an environment where mutual support and backup is embedded in the culture and where employees are expected to use a questioning attitude and exercise assertiveness when something appears to be going wrong. This may be in hazardous situations where there is danger to people or equipment, or could be in situations where the danger is more directed towards operational/business processes or organizational reputation. I wrote an entire chapter called “Mutual Support and Backup” to describe actionable strategies in these areas in my book Team Leadership in High-Hazard Environments: Performance, Safety and Risk Management Strategies for Operational Teams.

There are many other strategies available, but I think the first step is recognizing the potential for overconfidence bias and then examining whether or not (or perhaps to what extent) it exists in our organizations and within our leaders, managers, planners, and workers. By recognizing the potential pitfalls of overconfidence we may then be able to work towards a more cautiously optimistic approach that includes exit strategies, options, or other methods to redirect activities when the primary plan is signaling failure.