What are the Consequences of Unbounded Optimism? 2040’s Ideas and Innovations Newsletter, Issue 94
Issue 94, February 9, 2023
All societies live by stated or perceived mantras. In the United States we reach for the stars, believe the sky is the limit, and if we build it, they will come. These sentiments permeate our culture, inspire our children, and guide our business leaders.
We love entrepreneurialism; we reward it, admire it, and aspire to it. The entrepreneurial spirit and manifest destiny represent the American can-do ingenuity and genius of overcoming adversity and risk. Agility and being nimble are standards of excellence.
Optimism on the Edge
But not so fast. Blind embrace of optimism can result in a misperception of true reality. Unbounded optimism can infuse organizational actions and decisions and make them out of step with current or emerging market conditions and customer needs.
We’ve seen the tech unicorns breakthrough with impressive solutions and influence. And we’ve also watched 90% of all startups fail. We’ve also witnessed organizations build expansive workforces, revise forecasts, and commit to goals with shareholders based on optimism that is out of context with the realities of the market and society.
Actions and decisions are often based on limited sets of information, isolated data points, unconnected inputs, or just out of context. We and our leaders often tell ourselves what we want to hear, convinced that hearing something different may challenge or dampen our optimism.
Personal Perspectives
Here are real-life scenarios of optimism run amuck. Our default to embrace the hype and promise of the overall economy improving. Our excitement about a newly published data point that aligns with our own perceptions of possibility takes precedence over facts. Our optimism that the market will quickly adopt a specific technological innovation makes us rush to support that solution. And our desire to believe in, and, be inspired to follow dynamic leaders who seem to break from the norm may result in consequences that we can’t see or simply overlook.
Unbounded optimism can catch us shorthanded. Recently our daily newsfeeds report that organizations across all sectors are reducing the size of their workforces and reviewing their management structures to remove or reduce the middle management layer. In fact, some organizations who fed off unbridled and even unrealistic optimism are taking a right turn to refocus on efficiency to improve the bottom line and please investors. A skeptic would argue that the communications spin on these changes is to rationalize or prepare for an upcoming recession. We’ve noticed though that there is no mea culpa for operating overly-optimistically without anticipating market swings … and now facing operational costs to compensate for lack of foresight.
There’s also a disconnect between leadership and their workforces. We see media reports of CEOs believing they are back in control making demands on their workforces to return to the office fulltime. We assume these leaders are optimistic that they can dismiss remote or hybrid work as something from times past. But the unintended consequences of a workforce quietly quitting or resigning across any industry is the scarcity of skills and legacy knowledge in the organization. An unrealistically optimistic CEO who believes he or she really is in charge is disconnected from losing valuable employees and the reality that recruitment and retention challenges are tough situations of the present.
We believe unbounded optimism is a double-edged sword. Consider media reports showing that unemployment is the lowest level since 1969 and that the professional services sector is still showing positive job growth percentages. And small and medium size businesses are struggling to fill their ranks. They simply cannot find the workers they need. Being out of touch with current employees and making top-down decisions about their work preferences can lead to serious workforce deficits.
What’s worse is a CEO with a misguided sense of optimism has a convenient rationale to explain recent layoffs. If you caught Meta’s recent earnings report, you may have noted Mark Zuckerberg used the word “efficiency” 32 times. Was he convincing himself, checking his unbounded optimism or did he need to convince the market?
Poor Foresight and Misaligned Hope
During the years of the pandemic, when the U.S. government flooded the market with money, demand in certain consumer sectors significantly increased. Hunkered down, individuals had new needs and wants. But when everyone came out of their caves, their needs and wants changed. However, so many organizations lacked the foresight to anticipate these new behaviors. They built up their organizations and business models based on the optimistic assumption that pandemic-level demand would continue indefinitely. The economy was going strong, therefore, opportunity to continue high growth would remain. But just look at what happened with retail drowning in post-pandemic inventory that they couldn’t sell.
Then many organizations took advantage of increasing inflation and forced consumers to adjust to paying higher prices for what they wanted and needed by raising their own prices to maximize their profit. Organizations were opportunistic matched with unbounded optimism. But reality bites and misinterpretation of trends and market indicators can be fatal. Especially for a CEO.