CEOs Just Pretend They Know Everything - Future IQ

6,050 views Wait, is this logic right? • Nov 28, 2025

Slog Reference: CEOs Don't Understand Their Own Companies

Description

We often imagine CEOs as people who know exactly how their companies run. Every workflow, every decision, every system. But research on large companies shows something surprising! even top leaders don’t fully understand how their own organizations function. Big companies aren’t clean, perfectly planned structures. They’re messy, constantly changing systems with undocumented processes, hidden ways of getting things done, and decisions shaped by many people and not just the person at the top.
Studies in organizational theory, behavioral economics, and political science all point to the same conclusion. Large systems function through emergent behavior, informal routines, and negotiated power not clear top down control. Decisions often form through chaos, incentives, miscommunication, and politics, rather than rational planning.
This episode breaks the illusion of perfect leadership and explores why real institutions resemble “organized anarchies,” why confidence doesn’t equal clarity, and why no one no matter how high up has a complete map of what’s going on.
By the end, you’ll see companies, governments, and leadership in a very different way and you’ll understand why embracing uncertainty may be the most powerful strategy in a complex world.

💬 Join Our WhatsApp Community: http://tapthe.link/futureiqwa

Videos you may like / referenced in today’s episode:
You Can Only Have 150 Friends - Dunbar's Numbers Explained: https://youtu.be/ekAtODyfkyw
Why Your Boss is a Sociopath - Gervais Principle Explained: https://youtu.be/CZD2JGYPFSQ
Are You Living In The Wrong City? Best City To Live In: https://youtu.be/7O9EsIwKIWo

Books referenced in this video: https://taap.it/GarbageCanModel

Do hit us up on Twitter:
@ngkabra http://twitter.com/ngkabra
@shrikant https://twitter.com/shrikant

Listen it on the podcast provider of your choice: https://tapthe.link/FutureIQRSS
Follow FutureIQ on Instagram: https://www.instagram.com/thefutureiq/

Source / References:
https://fbaum.unc.edu/teaching/articles/Cohen_March_Olsen_1972.pdf
https://www.researchgate.net/publication/334063511_Moving_off_the_Map_How_Knowledge_of_Organizational_Operations_Empowers_and_Alienates
https://en.wikipedia.org/wiki/Essence_of_Decision
https://x.com/NGKabra/status/1904435766492852312
http://pages.ca.inter.net/~jhwalsh/snow.html
https://fee.org/ebooks/i-pencil/
https://en.wikipedia.org/wiki/Seeing_Like_a_State
https://www.economicshelp.org/blog/glossary/behavioural-theories/

00:00 CEOs Don't Understand Their Own Companies
02:12 The Illusion of Control
04:07 Why Companies Don't Fail
06:06 Decision-Making as Mysterious Consensus (CP Snow)
07:54 Graham Allison's Three Models of Organizational Behavior
16:26 Organized Anarchies
21:58 The Danger of "Seeing Like a State"
23:44 Conclusion?!

#futureiq #leadership

Related Slog Matches

CEOs Don't Understand Their Own Companies

Fuzzy Text

45.00

Transcript

- Shikhan, this will come as a surprise to you, but CEOs don't understand their own companies. What? Leaders don't understand their own parties and generals don't understand how their own army works. Okay. There is no grand plan. What do you mean CEOs don't understand their own companies? The companies would go bankrupt if that were the case. Okay, let me explain. There's a fascinating 2019 paper which did research and in that research they followed teams which were trying to understand how a company works. Okay. Uh the idea was that these were teams that were trying to do business process re-engineering. So the assumption was that okay company's working fine but we could drastically improve it by looking

0m 45s at which processes are messed up and so on. Fine. Fair. Yeah. Unfortunately, what happened as part of this business process re-engineering thing is that the people doing that, what they discovered was that there was a complete mess. Before doing this, they were under the impression that the company there is this grand plan. It's a well organized thing and it all works mostly efficiently except for a few issues here and there. Mhm. Afterwards they realized that most people have no clue what they're doing or how it connects to the overall company. There were and let me quote okay strange unplanned structure processes that were not documented outputs that nobody used semiofficial pathways to getting things done repeated

1m 38s duplication of efforts and on and on and on. Okay. And the people doing this you know trying to understand how the company works. These were not junior young people. Okay. These people were picked because they were considered the best and the brightest and those with experience and expertise. Okay. See when you were explaining all of that initially I began thinking what a bad company and then as you explained more I was like this is every company I have known. So every company essentially is working without a plan.

2m 12s Yeah. Again here you might get the impression that sure I mean you know the managers mid managers they understand their domain a little bit and they don't understand the rest of the company but surely the people at the top they know they understand what is going on right? Nope. Because at the end of this process when they mapped everything and they found all of these problems when they went and showed this to the CEO and CXOs the CEOs were surprised. Okay. And this is a direct quote from the paper. One CEO said this is even more [ __ ] up than I imagined. Okay.

2m 48s Okay. Language but yes one more quote from the paper. Okay. The CEO revealed that not only was the operation of his organization out of his control but his grasp on it was imaginary. Right? I mean until now the CEO used to think he understands how things work. He just can't control it. Now he realized that he doesn't even understand it. Okay. Right. So I can clearly imagine that absolutely no progress was happening at this company. The company was going nowhere at all. Yeah. So you know this I mean this should not in some sense come as a surprise to people who watch future IQ right we said the map is not the territory okay and that's what it is you have a map in

3m 30s your head of how the company works but in reality it is very different because reality has a surprising amount of detail right yeah the illusion of explanatory depth is what I was thinking about that uh the co kind of knows what is happening but the more you go into the depth of explanations you realize that you know absolutely nothing A third explanation uh viewers of future IQ might come up with is you know the Peter principle that CEO and everybody is incompetent. Yeah. But no not really. Okay.

4m 00s So what explains this? Okay. So first of all I want to go back to a question you raised earlier right? If it is so messed up why did the company not go bankrupt? Okay so for that we have to go to ants. Okay. Ants. I mean any anytime somebody is talking about industrious and working together, they give the example of ants, right? I mean there is like this huge cockroach dead and you see ants like a group of ants working together to take it back to their nest to their antill, right?

4m 34s Okay. Yes. Yes. So you know the great scientist Mark Twain, I mean I know he's pulling my leg but even then I have to believe him. Yeah, the great scientist Mark Twin Mark Twin is a humorous author. He's written a very humorous little note on this, but the science in that is perfect. Okay, so look at this image here. We see ants all working together, right? This is our image of how ants work, right? They're all pushing in the same direction except for these two ants which are also helping in a different way, right? Uh we think that there is this plan. Everybody knows this is what needs to be done and everybody is contributing to that.

5m 15s Correct? But that is not actually what happens. If you do a very detailed study, you find that the second picture is what is really happening. They're just all randomly pulling in random directions and most of them are cancelelling out each other's efforts. It's just that overall net is that it is going kind of in the right direction because when it goes in the right completely wrong direction at least some of them adjust a little bit until it is going in the right direction but it is just a small net. Okay. So if they're putting in 100 worth of effort probably the net only 10 of it is going towards the correct direction. Okay. And the same thing is

6m 00s true of these large companies, right? Like lots of research has shown that this is how it works. Yeah. But humans are not ants. Humans have hopefully brains and thinking processes and intelligence. They will they will know a direction they want to go into. They can communicate that direction. Ah yes, communication. Yes. Well, that's not how the real world works. Okay. Let me take another quote from CP Snow. Uh this is from the 1940s. Okay. He said, "Look deeply in any large company and you can't figure out the decision-m process." Okay, you can't even find out who's in charge because decisions seem to be made only by some mysterious consensus that even the highest echelons of management cannot explain.

6m 45s Okay. Okay. But you know this is just I'm repeating what the earlier research said, right? Yeah. Let me point out again from CP Snow what is the real problem. Okay. The real problem is that not everybody is aligned. Okay. Not everybody wants to do what the CEO wants done. Okay. Because there are politics, there are vested interests. Right. Right. Um basically again CP Snow says that usually decisions are built from a thousand small arrangements, ideas, compromises, bits of give and take is arises from a sort of Brownian motion of colonals and majors and captains and the most the general can do is rationalize it afterwards. Okay.

7m 30s Okay. And the reasons given were not always close to the true reasons. Okay. I kind of I kind of understand where CP Snow is coming from. There is of course every person has some individual motivations, political interests and jockeying and all of that is happening. It sounds very very plausible but I'm I'm sorry but I'm still not convinced. Correct. So let's look at more research. Okay. Okay. Uh and this time we are I mean CPO alluded to generals and colonels and all that. Right. So now we're going to take war uh and military as a model.

8m 08s Fair enough. It's a very interesting uh way to represent a structured organization. Structured as in people when orders are given, people have to follow orders, right? You would expect a military to have much more alignment, right? So um a person called Graham Allison, he wrote a paper analyzing the Cuban missile crisis. Okay, this is in the 1960s when Russia and US actually came close to nuclear war and only the almost by luck it was avoided. Okay, I remember that there is a very interesting story of one soldier or one person who actually averted it just by being stubborn in a way.

8m 50s One Russian officer. Yeah. Uh but let's not get deep into that particular instance. Right. Basically Allison wondered how did things get so messed up? We got close to nuclear war over misunderstandings. There was no real problem, right? And so he analyzed how everything worked, right? He looked at lots of detail, lots of logs and so on. And then he came up with this theory. Okay? He said that first when you ask people how things like this work, the first understanding of people is that they think of the whole military or any big organization as a rational actor, right? that I mean you know together the decision making process is such that you make sensible decisions and you make

9m 41s decisions that maximize what you're trying to achieve and then most people follow that those decisions correct there are a few who are like unaligned and all that but mostly that's how it goes right correct simple that's the model I had before I encountered this research most of you think of it this way yeah and comparing to the ants this would be the first image where all ants are pulling and pushing in the same direction with a couple of ants just sort of little misaligned but there are also still helping in the overall direction and that's how history is told that's how all you know things that happened in the past are explained but then you

10m 17s start digging deeper and you realize that whatever happens a smart person can explain it in a way that it seems like the best choice under the circumstances right I mean basically it is not falsifiable okay uh So then when you dig deeper and then you try to understand why did these things happen then you come to the second slightly more complicated explanation where you say that there are these organizations and these organizations have processes and rules that are built up and every person at any level is given a certain set of powers and a certain set of responsibilities and that they are told this is how you are supposed to work this is what you are supposed to do and

11m 02s And then they follow that blindly without really understanding what the big picture is. Right? This sounds familiar to all of you. Yeah. The Nuremberg trials is one place where this came up again and again where soldiers kept saying but I was just following orders. Yeah. Right? I mean any government office you see it's like you know but so the point is that the this explanation says that there are standard operating procedures and processes that are created and then people just follow them without understanding the big picture or without wanting to even if they understand the big picture they feel they don't have the power to change anything and that's how dumb things get done.

11m 43s Okay but I'm guessing this is not the extent of the depth we are going in. This is not the extent of the duck because the more he analyzed he realized that even this is not enough of an explanation because truly dumb things happen which are against even those okay and that's how we come to his model three which is the real model which is that politics okay basically everybody has their own vested interest okay they are more interested in me what do I get out of it okay and Each person has different vested interests and then they're fighting each other. There is bargaining going on.

12m 22s There is negotiation going on and then based again now this is because all different vested interests are pointing in different directions. You get the second picture of the ants. Everybody's pulling in different directions and then there is some small net movement that goes in a certain direction. Right? So this is the model he explained and he came up with a list of characteristics of how this works. Okay. So one is that everything happens with politics and negotiation and this not just at the top every level second third level leaders also have their own agendas and own politics and negotiation. Right?

13m 03s Even if goals are shared and goals are usually not shared. Right. Correct. Even if goals are shared, different managers have different ideas on how to achieve them. Right? So even they want to do the same thing but this guy thinks we should do it this way, the other guy thinks we should do it that way. So that causes more problems, right? Even if there is a leader at the top who has absolute power, right? Again, we can think of examples. Yeah. But that still doesn't work. That leader still has to get consensus of the people below him and people around him. The reason is that otherwise one what he wants done can be misunderstood by

13m 41s people if he doesn't explain it properly to them. Even if they don't misunderstand it they might ignore it if they're not completely in line on board with it. Yeah. And even the or they might just decide to go slow on this, right? Do the minimum necessary. Not just that, right? Basically what is needed is that if everybody the leader doesn't work on consensus, opposition can use that to reduce his power to attack him. Right? So that's how his power reduces if he doesn't get consensus. Just an absolute leader who just pushes decisions down everyone's throats can't survive for too long.

14m 22s Correct. Okay. As in the case of many dictatorships which eventually end horribly. Plus another thing that affects things even absolute leader we're talking about now depends on what kind of people he's surrounded by. If it is yesmen, he gets wrong information, takes wrong decisions as happened with chairman Mao. Yeah. During the, you know, great leap forward and the nasty nasty uh famine which killed like you know tens of millions of people, right? Correct. Um so all of this right on top of this now you bring in the point that possibility of miscommunication misunderstanding downright disagreements and different leaders take action that as a whole the group wouldn't approve of but it makes sense to that leader right

15m 13s so this is the model of how a sufficiently complex organization works right we're not talking about small companies of 50 people right in fact can Can you guess what would be the cutoff at which the leader knows everything that's going on in a company? uh should be higher than 50% I'm guessing 150 people we have done an episode on this the dunar number right so 150 people company one person can keep everything in his head and drive alignment but anything larger than that and model 3 of Allison comes into play right wow okay I didn't expect that Dunbar number to feature here but what I'm also seeing is that the the thing that CP Snow described about Brownian motion and

16m 00s kind of sort of random behaviors. Here these behaviors are not random. There is motive that can be ascribed to each brownian movement. Yeah. See the point is that when the number becomes large enough and there are sufficiently uh enough number of people with different motives, it can be modeled as Brownian motion. Right? From a big picture point of view, it still looks like a random collection. Right? In fact, another celebrated paper in this space actually calls it the garbage can model. Right? Garbage can. Right? Basically, there are all these people with their own motivations and with their own directions and they just come and dump problems like it's a garbage can. And then there is a

16m 46s different set of people who look at the garbage can and see how to solve this problem. And it's an unorganized mess. It is chaotic. And what happens is that the problems the potential solutions and the decision makers are like in three different independent streams okay which are not very closely connected you assume that these three are you know there's a problem then there is a suggested solution and then there is the person who is going to do it but that's not how it works right so a it's called a suggestion box naven not a garbage can that both companies institute and b are you stating Are you giving an example or are you stating a fact?

17m 29s Right. So this paper, it's a 1972 paper which first went and observed a lot of universities how they worked. Okay. And then based by looking at individual like you know minutes of meetings and things like that. Okay. And after that they came up with a theoretical model called the garbage can model of how things work. They ran a computer simulation and that simulation matched their actual observations. Okay, so far it doesn't seem very convincing. There is some little bit of empirical evidence but it is not that convincing.

18m 05s Then they went back and verified the simulation over the next four years. They tried it on a lot of educational institutions and it seemed to match. So 1976 they wrote an entire book on this right and the book is called I don't know the name of the book but the point is that this research became fairly uh popular right we'll figure out the name of the book and we'll put a link in the description yeah affiliate link yeah so the point is that a lot of researchers this is 1976 after that there have pretty much been you know 50ish years and a lot of researchers have verified the garbage can model in many other settings, IT companies,

18m 46s government projects at the national level, government projects at the municipal level, health care systems, mega projects like building dams and uh highways. I mean anybody who's seen a highway being built in India will not find this surprising, right? Absolutely no. And so I mean in their model uh this is just a rephrasing of what Allison had said, but let me just list what they said in their model, right? that organizations are messy. They're organized anarchies. Okay. Oh, that's a very interesting way to put it. Nice. Go on.

19m 22s First, they have ambiguous goals, right? Because if you go and ask different people in that organization what the goals are, you will get different answers. The people at the top give a different answer, the people in the middle give a different answer, people at the bottom give a different answer. How there's a very vague overall goal that the organization claims to aim towards. But if you try and go into specifics, you do get very different answers. And part of it is because the understanding of people at different levels is different.

19m 51s Correct. And part of it is because the people at the top are sociopaths who hide the real goals. Right. Yeah. We have an episode on this. Check it out. But yes, so org is a loose collection of ideas and the principles don't derive drive actions. Principles emerge from the action. Right? So they're retconing it. Oh, they're retconing it. Absolutely. Right. So I mean there is like this famous line, you know, has right. So what you think is going to happen doesn't actually happen and what happens? You start thinking about it and you retcon. Right.

20m 35s Okay. Second problem is that processes are poorly understood. Okay. M nobody understands how the full organization works not even the leaders. So everything is trial and error you know try something it might have the intended effect it might have a slightly effect and you see what happens and then you adjust right. Yeah. So and third problem is unpredictable involvement of the decision makers. Right. Because different stakeholders have different levels of commitment. Correct. somebody is like really really wants to do this, the other person is like this is not important, this is more important. And then but if they're forced to work on it, they might just work very slowly and all of this the commitment levels that

21m 25s changes over time that changes with vested interest. So even if somebody understands everything today, tomorrow it could be different. You're making me re re-evaluate all of my previous jobs from a completely different lens right now. And suddenly a lot of things are falling into place about what actually happened at each one of my previous jobs wherever I worked. Yes. And yeah, a lot of it uh seemed like the fog of war situation, but the fog of war is applicable in a very different context here. We'll talk more about this probably off camera, but yeah, go on please.

22m 01s Yeah. So now one more thing that you have to understand is that you know the CEO is just another ant who doesn't understand how the arc works but that's not the real problem. That's okay. What is the real problem? The real problem is when the CEO does not realize that he doesn't understand how the everything works, right? Okay. Yeah. And that is the problem. I mean this could be at the level of a CEO or the leader of a country, right? And that leads to a problem called seeing like a state. Okay. Okay, we have mentioned that a couple of times in previous episodes, but people at the top who think they understand everything and

22m 39s who think they can control everything, they try to create things with a grand plan top down, right? That's when you get an entire city like Brazilia, planned city, which completely fails, right? And uh there's a whole bunch of examples. just check out the book seeing like a state but uh we talked about some of it in are you living in the wrong city right we did but yeah so the point is that when people at the top don't understand that they don't understand it causes worse problems yeah yeah I can imagine and um see you being just another ant is a perspective that a is very very interesting when you start thinking about it deeper and deeper and

23m 26s B also going to piss off a lot of CEOs and leaders because they don't want to be compared themselves to just another ant. And if they do come to the realization that they're just another ant, they are going to be incredibly depressed and pissed off at us. No. Right. Actually, the ones who understand this well are the best. Okay? because they realize that in spite of all the anarchy, in spite of the thing being so inefficient, it still kind of works, right? So there is hope. One of the great things about modern economy is that all these people with selfish interests and you know vested interests just their selfish interest somehow can result in amazing progress, right? So uh

24m 18s I mean just we have linked to a very short note called eye pencil which talks about how a large number of people doing really really selfish things result in the manufacturer of a pencil right and just I mean that explains the entire modern uh economy we sort of talked about it in our episode on our connected world but I think that's the important takeaway I would like people to get from this right first don't live with a simplistic view of your company or your country or your world. Just because somebody states something doesn't really happen that you just announce tomorrow that you know we are going to build an app that everybody will use doesn't

25m 00s work. It fails in two years. Okay. Don't assume that somebody else I mean you don't understand but somebody else understands what is going on like the CEO or the leader they don't know either right? They are blustering. They claim to know but they also don't know. Right? Important thing is to embrace the uncertainty. Right? Embrace the UDA loop as in I mean don't assume that there is going to be a plan and there is a plan and you have to understand the plan then stick to it. Instead you look observe which direction things are going and then kind of go with the flow right and most importantly try to I mean this observation needs to happen from

25m 44s reliable sources right otherwise you will get led by people who are trying to trick you or trying to get you outraged trying to get you angry so curate your consumption a little bit right follow the right people get a better understanding of what's going on in the world by following smart people. Smart people like him. Basically, everything is being made up as we go along. Everybody is making things up as they go along and whether they know it or not, they are indulging in that udaloop. Uh observe, orient, decide and act. That is the udaloop. We still have an episode pending on it. Some of one of these days we should make an episode on that. But

26m 26s in that chaos, in that anarchy, somewhere is the hint of a direction that you know is going to yield something much bigger. And that is the direction you should probably keep looking at progressing towards. And hopefully all of us find that direction for ourselves and for the communities that we are involved in. Whether it is the family, whether it is a professional community, whether it is a social community or whether it is the entire world as a community. But uh very interesting lens to think about humans as ants pulling in all different directions and yet progressing in a certain direction. Um, but if you want another perspective on how organizations behave, there's an episode on the Jervis

27m 14s principle that you should definitely check out, which is what he also alluded to when he said your boss might be a sociopath. We'll line that up for you next. And while you're here, also scan this QR code and join the WhatsApp community. We have a lot of discussions beyond the episode there as well. And uh, those of you who have already joined, thank you so much. Um, we hope to see you there. Shriant Naven, Future IQ.