Thanks to good old human optimism, the gambling and wedding industries rack up billions of dollars in annual revenues. It’s reassuring to know that a positive outlook can create so much ka-ching.
But unfortunately, within organizations, unrestrained optimism creates planning nightmares that can drive executives bonkers. Fittingly, we’ve assigned a cheery-sounding name for this phenomenon, The Sunshine Pump.
Sunshine Pump optimism starts its organizational meander benignly, often snaking its way from Sales through Human Resources, over to Operations Planning, gurgling into the C-Suite, then back out, flowing through other departments until finally reaching its terminus, Shareholder Relations. When the pump completes its cycle, the effluent oozes out, making a barely audible noise. It’s hard to duplicate the sound, but here’s my best impression: “earnings were below analyst expectations.”
Let’s trace the Sunshine Pump’s circuitous path from one of its many origins, the District Sales Manager’s opening remarks at the annual sales kickoff: “The Regional Sales VP will be visiting our office this week, and we really want to show her how we’re going to blow out our number. We’ll need to provide her a spreadsheet of the hottest opportunities we’re working on, and you’ll need to book some sales calls so she can accompany you.” The requested spreadsheet has many populated rows, but the booked calls are few. That is the Sunshine Pump—primed, plugged in, and ready to work!
The Regional Sales VP excitedly reviews aggregated numbers on the spreadsheet, while the District Sales Manager rationalizes the paucity of appointments. “A lot of people are still catching up after the winter break.” It’s January 15th. “Thanks,” she says without looking up. “I’ll let Corporate know what you’re working on. Should we go with these numbers for cash planning and procurement?” “Sure!” says the District Sales Manager, “I feel really good about our pipeline.” You probably know the rest of the story.
Along with Sales, other departments operate their own Sunshine Pumps. Product Development’s Quarterly Product Release Roadmap, Marketing’s Market Share Forecast, and the CEO’s Revenue and Profit Projections, to name just a few.
Sunshine Pumps use social networks and personal biases within their machinery. Daniel Kahneman wrote about the first five in his book, Thinking Fast and Slow:
1. Confirmation Bias: I see what I already believe.
2. Anchoring and Adjustment Heuristic: I am influenced by the first piece of information I receive.
3. Ambiguity Effect: I avoid options with unknown probabilities.
4. Bandwagon Effect: I follow the crowd.
5. Availability Heuristic: The story I remember overrides other information I have.
6. Cheerleading bias: I want this outcome. Therefore, I will forecast it.
7. False surety. A roll-up of all of these. “Mike just clicked on the link I sent him, and we had a good conversation. This lead is solid.”
Not every management forecast suffers from being bloated with sunshine. Some people just forecast better than others. In Nate Silver’s new book, The Signal and the Noise, forecasters are divided into two archetypes, Foxes and Hedgehogs. Foxes are “tolerant of complexity,” he writes, able to “see the universe as complicated, perhaps to the point of many fundamental problems being irresolvable or inherently unpredictable. They express their predictions in probabilistic terms and qualify their opinions.” Hedgehogs, on the other hand, are “order seeking,” and “expect that the world will be found to abide by relatively simple governing relationships once the signal is identified through the noise . . . They take a prejudicial view toward the evidence, seeing what they want to see and not what is really there.”
Most Sunshine Pumpers are Hedgehogs. They search for articles containing the words “the answer is simple . . .” Ironically, it’s the Foxes who are often called out for not being “team players.” “Don’t tell me what you might sell, I want to know what you will sell!” Go figure.
“Wherever there is human judgment there is the potential for bias,” according to Silver. “The way to become more objective is to recognize the influence that our assumptions play in our forecasts and to question ourselves about them . . . You will need to update your forecast as facts and circumstances change. You will need to recognize that there is wisdom in seeing the world from a different viewpoint. The more you are willing to do these things, the more capable you will be of evaluating a wide variety of information without abusing it.”
Every company can benefit from pumping a steady trickle of sunshine. It’s essential for morale. But watch out. When you’re pumping sunshine, a trickle of optimism can quickly become a torrent.