Why GM failed: 5. Managing in the bubble

Why did General Motors (GM) fail? The fifth reason is that GM was managing in the bubble. The current disaster in which GM finds itself makes one wonder, how could it have been so incredibly stupid? If you know about how people get to the top of a company like GM, it becomes clear that what looked stupid from the perspective of customers and competitors was in fact quite smart from the perspective of executives striving for the brass ring.

GM rewarded people who followed the old way of doing things and those who challenged that thinking found themselves on the outs -- causing them to lose opportunities for promotion. So the smart thing for those seeking promotion within GM was to praise the CEO's wisdom and carry out his orders.

At the core of this managing in the bubble is a syndrome called Confirmation Bias -- the tendency of managers to filter out information that does not match up with their pre-conceived notions. I wrote about this in When the Blind Lead.