On the high cost of “protective stupidity” – Denial: Why Business Leaders Fail to Look Facts in the Face – and What to Do About it

March 15, 2010 at 1:43 am (Book review, books)

In this engaging work, Richard Tedlow examines a perverse, persistent syndrome from numerous angles. Sigmund Freud defined denial as “knowing with not knowing;” George Orwell called it “protective stupidity.” Whatever it’s called, it has caused individuals and entire organizations to assume a sort of willful blindness in the face of incontrovertible facts. Sometimes this blindness takes the form of smug complacency, as when the giants of the U.S tire industry were faced with the advent of radial tires, a clearly superior product made by the French company Michelin. I mentioned in a previous post that I was quite frankly amazed to be fascinated by the history of the tire industry. Well, it is fascinating, of course, because businesses are constituted of the people who work in them, and few subjects are as intriguing as human behavior, with all its vagaries, bizarre manifestations, and flashes of brilliance.

Denial in a business environment can take various forms. In the preceding paragraph, I mentioned a complacency that prevents – even supplants – the timely response to a challenge. Another of these forms is represented by the decision taken in sealed chambers, where awareness of the outside world – also known as the customer base – rarely penetrates. Think of Coca-Cola’s plan, unveiled in 1985, to reformulate its  signature beverage. Here was a product that commanded almost fanatical loyalty not just in this country but all over the world and had done so from the time of  the company’s founding in 1886. The result was a public relations disaster followed by frantic back-pedaling, not to mention gleeful piling-on by Coke’s chief competitor, Pepsi-Cola.

Other companies profiled in the first part of the book are Ford – whose founder and leader believed in the Model T forever and always – A&P, Sears, IBM, and Webvan, one of the more infamous internet start-ups that appeared on the scene during the dot.com madness of the late 1990s. (Webvan’s business plan was so pie-in-the-sky that I gasped out loud when I read it. Select your groceries online and have them delivered to your door in half an hour? The company planned to have warehouses in low rent districts throughout the country. But what if you live in choking-on-traffic regions like the Baltimore/Washington metro area, where at rush hour it can take half an hour to go half a mile? Yet analysts and investors alike were entranced by this company’s potential.)

I particularly enjoyed the chapter on A&P. Here Tedlow describes the genesis of the modern supermarket. And we are apprised of an ancillary event crucial to the growth of this enterprise. It involves an object so prosaic, so mundane that most of us take it completely for granted. I refer to the humble shopping cart, invented in 1937 by an Oklahoma grocer named Sylvan Goldman

In the second part of the book, Tedlow recounts stories of companies that got it right by fighting off the demon of denial. In the chapter entitled “‘Why Shouldn’t You and I Walk out the Door…?’ A new Perspective at Intel,” we get a first hand account of how Andy Grove and Gordon Moore came to the realization that they had to get out of the  memory chip business and focus exclusively on making microprocessors. Here was a decisive moment, if there ever was one. (Tedlow is well placed to write about Intel, having published a comprehensive biography of Andy Grove in 2006.)

There’s also a chapter on Johnson & Johnson’s masterful handling of the Tylenol poisonings in the 1980s. It is gratifying to see how this organization, led by visionary CEO James E. Burke, managed to do the right thing by leading with its heart as well as its head. This chapter, the penultimate one, reads like a thriller.

All told, Denial offers a lively account of the stumbling, fumbling, and occasionally inspired action that has characterized some of America’s most famous companies over the past hundred years. Richard Tedlow is well aware that  the history of business in America is, in fact, the history of America.

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Here’s Richard (I’m allowed to call him by his first name; he’s my brother) giving a presentation at Google headquarters in Mountain View, California, in November of 2006: