In 1989, Warren Buffett wrote a letter to his stakeholders outlining his concerns over innovative leaders making misadvised decisions. He thought of it as a sheeplike reaction to what the senior leadership says. It not only reduced the probability of developing good ideas but also hampered a constructive thinking environment. Such a mindset is defined as an institutional imperative, and they tend to adversely affect your organization in numerous ways. In his article for Strategy+Business, Adam Bryant talks about institutional imperative and how to reduce its occurrence.
Understanding Institutional Imperative
To understand the concept of institutional imperative, experts have devised a similar analogy. Think of yourself placed in a tightly shut box, where you are making decisions. You are analyzing a situation based on the research you have undertaken. You are pretty sure and satisfied with your decision and plan to go ahead with it. The problem with your analysis and decision-making is the sheer isolation of your idea from your company’s workforce. You might make the right decision or think of it as the right one because you have not heard other people’s opinions. Leaders must discuss the pros and cons of a situation and facilitate a comfortable environment where people can freely share their views.
Replacing Reason with Respect
A beginner in the business world might think that organizations flourish based on reasonable and sensible decisions made by senior leaders. On the contrary, many organizations experience staff’s opinions being replaced by the respect they hold for senior management. Time Warner’s merger with AOL in 2000 is one of the examples where institutional imperative came into play. A $350-billion deal was signed as a spontaneous decision, where the top leaders of both the companies assumed that the agreement benefited both corporations. Even now, the Times Warner and AOL merger is studied and deemed the worst transaction in US history.
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