When in lived in Europe, I worked for a number of years as outplacement consultant, and inevitably spent most of my time with failing businesses.

What always fascinated me is how in many instances, even highly intelligent people at the top of companies, failed to take any substantial action to turn the business around before things got too far, and simply watched it die.

A problem of people

Corporations don’t have business problems, they have people problems.

Market conditions change all the time, and in the majority of cases I’ve seen, corporations unable to navigate those changes, had a top management that was visibly not equipped with the skills necessary to face the transition.

Nine times out of ten, it was a people problem, plain and simple. However here’s where I noticed a strange recurring pattern. Those struggling corporations kept reorganizing the business every year, repackaging business units in various ways, regrouping teams, making lots of cosmetic changes, or rotating the same top managers across different divisions.

No matter the country and industry, I noticed the same pattern, so I started to wonder about the mechanics behind it. All these failing businesses appeared to have some sort of magical expectation that by simply changing the order of the factors in a multiplication, the result would somehow turn out different.

This process reminds me a lot about what happened with my favorite soccer team a few years ago.

Due to limitations in the budget and poor choices in the transfer window, the starting eleven was clearly subpar. But the more the team struggled along the season, the more the coach desperately changed the line up and the positions of his players on the pitch each Sunday, shifting from 3–5–2, to 4–4–2, to 3–4–3 etc.

Not surprisingly none of these changes turned mediocre players into champions, but worse than that, it only reset their learning curve for the position each time, leading to poorer and poorer results along the season.

Organizations stuck in denial (or bargaining)

If the problem is obvious, why so many organizations fail to properly address it?

From my observation, it’s not about lack intelligence or understanding, but rather an issue of denial (or bargaining).

We can use a popular model that psychiatrist Kubler-Ross proposed for the terminally ill, called ‘5 stages of grieving’, and try to apply it to a business.

Akin to a patient who finds out about a life-threatening condition (or altogether incurable), organizations at some point are confronted with threats that put their very survival on the line and they collectively enter these same 5 stages.

Following is my revisitation of these 5 stages as I’ve observed them in the business landscape throughout my career.

• Denial: this is when the company refuses to acknowledge the magnitude of the threat. While being somehow aware of it, the organization tends to build a grandiose narrative around how they’ll overcome this challenge or it begins to hang on to the myth of salvation. The myth of salvation often takes the form of a patent or special project to be developed in the near feature which will save the whole company or take the market by storm. It is often a myth because the potential of this salvific item is usually unclear, exaggerated, delusional or nowhere near completion.

• Anger: this is when the organization speaks about the challenges more directly and openly. Internal conflict and debate may increase, often in unhealthy and unproductive ways. Things may get even more political as inadequate management shells itself and enters survival mode. The notion of replacing key people is even more adamantly rejected.

• Bargaining: this is the other stage, together with denial, where many organizations get stuck. They have finally reached the point where the need for dramatic change is undeniable, but then the change is only cosmetic. It doesn’t get to the root of the problem and it doesn’t involve replacing people in key positions with new players capable of shifting the internal culture. At this stage the organization goes back and forth, without seriously addressing the problems.

• Depression: this is a much healthier stage when reality is finally embraced in all of its gravity. Only with a proper reality check, painful decisions can be finally made. But how many of us like to enter a phase of depression? This explains why businesses (like individuals) often get stuck at the bargaining level. Because as long as you’re stuck at the bargaining level, you don’t have to enter depression!

• Acceptance: if they organization has fully accepted the situation and decided to do what it takes, then saner and healthier action can finally be taken. Depression is overcome by taking the hit and moving on. The earlier the business transitions to this stage, the higher the chance of a successful turnaround. Every day, week, month wasted in the previous stages during a critical situation can be a killer for you business.

Yanagi VS. Iwakura: the mechanics of collective delusion

Yanagi Ryuken is a highly respected Japanese master, described as Aikido and Qi Gong expert and ‘psychic’.

This last qualification in particular is what made him notorious. After decades of chanting and meditation, master Yanagi had developed a style of martial arts that allowed him to knock down opponents without even touching them, by using only his ‘qi’ or internal energy.

There were multiple accounts — and even videos — of him taking on several of his disciples at once, and throwing them to all corners of the room, only using his psychic powers.

In 2007, he decided to bet 5,000$ agains one of the top MMA fighters at the time, called Iwakura, claiming he could knock him down without touch. He further agreed that the event could be filmed.

The day of the fight came. The world was ready to finally see a man bend the laws of physics for the first time on tv. The fight started and… Iwakura beat the living crap out of Yanagi, knocking him down in less than two minutes!

A fraud was exposed. Master Yanagi — just like anyone else- was never able to bend the laws of physics.

But what about all those videos with his disciples? You might suggest they collectively orchestrated the fraud, but then why lend himself to this live experiment?

Because he probably never thought he was a fraud. The mechanics of collective delusion can be so powerful that the leader can become authentically convinced of unreasonable or miraculous things, especially when reinforced in his thinking by the followers.

On the other hand, it is entirely possible that his disciples didn’t fall down intentionally, but were so in awe and reverence of the master that, in attacking him, their brains tricked and deluded them into actually feeling a hit and fall to the ground.

This story shows us how collective delusion can indeed reach epic proportions. If it’s possible for a group of people to delude themselves about something as tangible as a fight and the possibility of a no-touch knock-out, then imagine how much room for delusion and denial there can be in business at large.

Consultants and bad advisors

To make matters worse, during a difficult transition, leaders often surround themselves with external or internal consultants and advisors of all sorts.

Unfortunately, for several reasons — either in the hope of being retained for longer or not to displease the leader — such close advisors frequently end up doing exactly the opposite of what their role would require.

After all, nobody likes the person who walks in and ruthlessly shatters their delusions. Hence, advisors often tend to further strengthen the delusional plans of the leader, without calling into questions his choices or giving him a rude awakening. Many times these people are part of the problem rather than the solution, particularly when they are both ‘advisors’ to the CEO (or up there) and fill key management positions at the same time.

This leads to the well-known problem of groupthink.

Firstly investigated by researcher Irving Janis in 1971, groupthink is a phenomenon where the group values internal harmony and conformity over a critical and objective evaluation of the situation.

Understandably, when groupthink takes over, it can lead to dysfunctional dynamics and disastrous decisions, as it’s been researched and revealed time and time again.

This is the great paradox of groupthink and why it’s hard to recognise and break out of it: due to its characteristic pressure to conform, the group can be headed towards self-distruction, while internal cohesion and consensus appear to be at an all-time high. Not surprisingly, this condition makes it even harder to replace people, in a self-fulfilling cycle of self-destruction and denial.

One simple, humble and honest way out

If we have established that the problem often sinks its roots in denial rather than in a lack of intelligence or expertise, then the type of advice we seek must come from realists rather than from experts.

And who are the biggest realists in your business? Those in the trenches every day. Usually people at the front line or even at the bottom of the pyramid.

The people in sales who get all the rejections, the CRM folks who hear thousands of complaints from customers, the operations people who get frustrated over inefficient processes and the list goes on.

If you’re a leader and want to bust right through denial and bargaining, this is the time to reach out to those folks you haven’t heard from in so long and ask them only one thing:

Please be brutally honest. That’s how you help me

They’ll often do a better job at getting you out of denial than your inner circle and provide more succinct actionable advise than your team of consultants with their deck of 2000 slides.

These folks are the best at reality check, simply because every day they’re just dealing with a lot of reality and little to no theory.

And then, once you hear the truth, muster the courage to make the difficult decisions. As fast as possible. They will be most likely people decisions. Because you cannot deny for too long the obvious fact that all problems and all solutions in this world, ultimately always come from people.