What Companies Really Optimize For But Won't Admit

Organizations want one thing, and it’s not excellence, innovation, or even results.

It’s variation reduction. Managers go out and find any person or process that’s deviating from the norm and initiates swift corrective action.

But deviation is the essence of innovation. It’s the core of new ideas, products, creativity, and differentiation.  

In many companies, a miss is many times more career costly than the benefit of a win of a similar magnitude, so the effort and focus become minimizing the downside. Rewards go to those who avoid being wrong, not being right.

However, capping the downside eliminates the upside. Innovation is impossible without failure or looking bad, both intolerable options for the average manager.  

“Is it conforming?” becomes the rallying call, rather than “Is it interesting?” Compliance replaces inspiration. Timidity replaces risk taking.

Failure is visible, missed potential is not. You’ll never be punished for that great hire you didn’t make or the great investment you didn’t fund, even if those would have led to 10x returns. But hire someone who rocks the boat a little too much or lose money on an investment, and you’ll immediately answer for it.

Psychologist Gerd Gigerenzer refers to this as “Defensive Decision-Making” – making a decision which is unconsciously designed not to maximize welfare overall but to minimize the damage to the decision maker in the event of a negative outcome.

What isn’t seen isn’t punished.

Defensive decision-making leads only to incremental improvement, toiling around at the edges, seeking that 5-10% improvement that’s safe and comfortable. You need to do something to justify your job, no matter how inconsequential it may be. Managers are glorified babysitters, maintaining the organization until they can pass their duties off.

Peter Diamandis says it best, “If you choose to make something 10 percent better, you are almost by definition signing up for the status quo—and trying to make it a little bit better. That means you start from the status quo, with all its existing assumptions, locked into the tools, technologies, and processes that you’re going to try to slightly improve. It means you’re putting yourself and your people into a smartness contest with everyone else in the world. Statistically, no matter the resources available, you’re not going to win.”

The pursuit of consensus acts as a shield against any one person taking the blame for a failure. Blame diffusion becomes the goal.

Rules and regulations grow as new variance is found. But corporate rules are like the tax code. Once a rule is introduced, it hardly ever goes away, leading to a complex maze of rules that strangles progress.

Variation reduction often stems from seeking “best practices.” You should roll your eyes anytime you hear the phrase “best practices.” Best at exactly what? At reducing variance. Doing what worked in the past, for an average company. Look at the outliers - what the very best do. Look at the high end of the variance range. That’s where the best practice are.

Reducing variation takes the form of vague goals. After all, how can anyone fail if no one ever knew the goal?

Variance reduction hinges on the corporate obsession with metrics. Metrics, however, that optimize for safety, not impact. It’s like Defense Secretary Robert McNamara’s obsession with the enemy “body count” during the Vietnam War. It had little effect on defeating the North Vietnamese, distorted tactical thinking, but looked impressive to the populace.

High variance behaviors, like experimentation, dissent, and challenging assumptions are the key to success. Look at the rules and policies of your organization: are they fostering or eliminating high variance behaviors?

The goal isn’t organizational chaos. It’s incentivizing long-term bets and experiments that come with failure. It’s only through failure and the resultant iteration that companies grow.

If you want to be great, you have to be different. As John Stuart Mill remarked, “That so few now dare to be eccentric, marks the chief danger of our time.”