Brexit: What are the risks of groupthink sinking your business?

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Brexit: What are the risks of groupthink sinking your business?

09:00 05 May in Uncategorised
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If Theresa May, as predicted, wins the General Election on the 8th June and strengthens her majority and mandate in the House of Commons, then we can expect the official negotiations for Britain's exit from the EU to begin in earnest. 

In deciding its own goals for the forthcoming negotiations, the UK government have laid out the following priorities.

  • Ensuring free trade with European markets, whilst securing new trade agreements with other countries.
  • Securing rights for EU nationals in the United Kingdom, and UK nationals in the European Union.
  • Controlling immigration.
  • Ensuring the United Kingdom remains the best place for science and innovation.

There is little consensus over what the final outcome of the negotiations will be and this is creating a lot of uncertainty for British businesses as they attempt to strategise for the coming years. Much of the commentary surrounding the forthcoming negotiations has centred around biases which we would associate with “Leave” and “Remain” advocates in the run-up to the referendum last year.

Both the Leave and Remain sides made assumptions as to what would happen should the UK withdraw from the European market. Many of these assumptions were viewed from either a wholly positive or wholly negative perspective.

Many of these assumptions continue to dominate the commentary surrounding Brexit and, as the negotiations begin, there is a risk that some of these assumptions will lead to cases of groupthink amongst the various negotiating parties and this could potentially trickle down to British businesses. 

What is groupthink? 

​Groupthink was a term coined by the philosopher Irving Janis in the 1970s. Janis defined groupthink as “a phenomenon where people seek unanimous agreement in spite of contrary facts pointing to another conclusion”.

Much of Janis’s research was based on a series of foreign policy disasters across the 1960s and 1970s; for example, the first of these was the Bay of Pigs disaster in 1961. Over 1,400 Cuban exiles were landed at the Bay of Pigs on the coast of Cuba, with the intention they would overthrow the hostile Communist Cuban regime.

Whilst the invasion had US military and intelligence backing, within three days all the exiles were either dead or captured. The expert advice which led to President John F. Kennedy approving the invasion was flawed for a number of reasons. Firstly, it made the dangerous assumption that the invasion would in turn lead to a popular uprising by the Cuban people when this turned out to be untrue. Secondly, it assumed there would be no requirement to retreat from the Bay after the invasion, which also proved to be untrue. Overall, the advisers and experts who planned the Bay of Pigs campaign failed to take alternatives into account and worked too hard to achieve a consensus on the key assumptions. 

​Hoever groupthink is not limited to foreign policy. It can also be a major risk in any organisation. In the coming years, it will undoubtedly be a risk for many businesses, think tanks and government departments with a major stake in the Brexit process.

There are eight major symptoms of groupthink risk:

  • Illusions of invulnerability – creating excessive optimism and encouraging excessive risk taking.
  • Ignoring warnings that might challenge existing assumptions
  • Unquestioned belief in the morality of group - this has the side effect of group members ignoring the consequences of their own actions.
  • Stereotyping - painting opposition voices as weak, biased, spiteful, impotent or stupid.
  • Direct pressure to conform - often dissenting opinions within a decision-making groups are described as being fundamentally disloyal, or not demonstrating sufficient team spirit.
  • Self-censorship of ideas which deviates from group consensus.
  • Illusions of unanimity (silence is viewed as agreement)
  • Mindguards who shield the group from dissenting information

​What happens when groupthink goes unchallenged?

If groupthink goes unchallenged the following consequences are likely:

  • An incomplete survey of objectives
  • An incomplete assessment of alternatives
  • Failure to examine the risks of chosen courses
  • Failure to evaluate rejected alternatives
  • Poor/biased information gathering

There are some good historical examples of organisations or businesses which failed to prevent groupthink risk from derailing their management strategy and ultimately precipitated disaster. Two more major examples of groupthink risk are:

Case Study #1: The Challenger explosion

  • The Challenger space shuttle explosion in 1986 was a classic example of groupthink, allowing timescale and commercial pressures to get the better of logistical and safety concerns. 
  • Senior management ignored the warnings of individual engineers who said the launch of unsafe, because the 'O' rings on the rocket boosters were vulnerable to sudden temperature changes.
  • The management team overruled the advice of the engineers on the project, groupthink ultimately causing potential dissenters to keep quiet about their concerns. 

Case Study #2: The 2008 financial crisis: 

  • The various banking collapses (e.g. Lehman Brothers, Northern Rock) which precipitated the financial crisis, were classic examples of groupthink. 
  • Personnel trusted to the stability of the global banking system and failed to challenge existing consensus over the nature of the sub-prime mortgage market, which was leaving banks dangerously over-leveraged during potential downturns.
  • CEOs at big banks failed to undertake a suitable assumption analysis of the situation which led to the subsequent credit crunch. 

​Brexit and groupthink: managing strategic assumptions

The case studies outlined above are both arguably relevant to Brexit, as they illustrate how groupthink can muddle an organsation’s reaction to dangerous external forces, whilst also compromising internal strategic planning. The uncertainty surrounding the nature of the UK’s withdrawal from such a large political union will in turn have a trickle-down effect to many British businesses, particularly as they attempt to manage the risks posed by changes in their access to European markets and regulatory frameworks.

So whilst businesses have no ultimate control over the political groupthink exhibited at a national level, they must ensure they understand the impact on their own strategic assumptions and manage them. 

In light of the coming Brexit negotiations, the most resilient businesses will look at their business strategy anew, and break this strategy down into its constituent assumptions. These assumptions will then be examined in terms of the Sensitivity of the strategy to the assumption, and the Stability of each assumption

risky assumption

Focussing on strategic assumptions, as opposed to risks, allows for a culture of thinking positively within an organisation.

The uncertainty surrounding Brexit means that, more than usual, the strategic assumptions will be more vulnerable to external forces. These include:

      • Access to markets: the ability of a UK company to trade with the European single market is currently in doubt, and the nature of future access to the single market has yet to be determined. However, some businesses are already expressing optimism about their newfound ability to sell into markets outside the EU. 
      • Pricing: the fall in UK currency makes it easier for some UK companies to export (a potential opportunity to break into foreign markets outside the EU) but it may make foreign-sourced supplies more expensive.
      • Recruitment/human resources: changes to the UK's immigration laws may affect hiring policy, as companies could end up being less reliant on EU labour. However, this could simultaneously open up more opportunities further afield. 
      • Supply chain: access to the EU customs union means that companies can export into the EU with relative ease. Whether these companies will face costly customs and border checks after Brexit remains to be seen. 

    To ensure that groupthink risk is addressed, businesses will need to ensure they are constantly evaluating and re-evaluating their strategic assumptions. The uncertainty surrounding businesses in the coming years must not be allowed to coalesce into groupthink that is biased by individual’s political beliefs that then drive their assumptions. An external perspective of the impact of Brexit on a business strategy is also vital.

    With a Strategic Assumption Analysis the risks of Brexit can be effectively analysed, monitored and managed.

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