M ore than 80% of restructuring efforts in firms fail. Most explanations focus on poor execution or bad strategy. Our research points to something more uncomfortable: Embarking on organizational transformation isn’t always a rational response to a business challenge but can be a defensive reaction to leaders’ own anxiety—a way of avoiding true self-reflection by making the organization the problem.

Although defensive organizing distracts leaders from uncomfortable feelings, it draws their attention away from real performance issues and creates additional problems. This is what we found during a four-year study of the transformation program at a professional services firm we call “Recco,” drawing on nearly 760 hours of observation and more than 300 interviews.  

Panic stations

At the outset of our study, Recco was falling behind its competitors. But there was no rational basis for panic. The firm was still growing at 17% a year. Yet, the CEO raised urgent concerns about the company’s performance. In a bid to “save” the firm, his response was to create a new leadership team with a mandate to dismantle the legacy structure and organize the business for greater collaboration.

Our analysis revealed that it was anxiety, more than evidence, that drove this response, overriding whatever rational business arguments existed. Senior managers looked at the underwhelming numbers, saw their competitors pulling ahead, and concluded, at some unconscious level, that they weren’t doing their job properly. Rather than confront that anxiety, they deflected it onto the organization, deciding that something inside the firm, not inside themselves, wasn’t working. Establishing a new leadership team to oversee the change was a defensive move, one that reinforced their own sense of importance and control. 

Escalating cycles

In the short term, the actions taken by Recco’s leadership team did lift morale and ease anxiety. That relief, however, was never reflected in the firm’s performance. As profits continued to fall, anxiety resurfaced. The drive for collaboration proved superficial: Individuals on the leadership team were reluctant to relinquish the control they’d always held, leaving the senior managers who were tasked with delivering change unable to do so. Each defensive move produced constraints of its own, and members of the leadership team retreated further from their colleagues and responsibilities, sinking deeper into embattlement and disillusionment. 

This wasn’t a single, linear decline. What we traced was a repeating pattern: a comforting vision, a search for someone else to blame, an empty ritual or reengagement, and finally, a reckoning. This recurred with mounting intensity each time. By its final iteration, members of the leadership team were blaming the CEO for the firm’s problems, making him the scapegoat so they might deflect their individual anxiety about their own competence.

Anxiety is rarely addressed directly. Yet, for better or worse, it drives the actions of the organization and the people within it.

Breaking the cycle

The difficulty at Recco was that each defensive step generated constraints that provoked further anxiety, which in turn ignited the next defensive step. Once underway, the process took on a life of its own and became difficult to stop.
The simplest way to break this cycle is for the firm’s fortunes to recover, often thanks to a happy coincidence of external circumstance rather than anything leaders have done.

That reprieve never came for Recco. Performance kept declining, the cycle continued, and anxiety escalated with it. By the end, collaboration among the senior management team had collapsed entirely, each executive retreating to their own fiefdom. Shortly afterward, the firm was acquired and its leaders lost their jobs.

Because our study ran for four years, we were able to observe these patterns recurring. Few executives have that vantage point. Some are hired mid-transformation and parachute into a situation without ever realizing that a cycle of defensive organizing is already underway. Recognizing these dynamics as they unfold is crucial to averting similar outcomes. But it’s genuinely difficult to do from inside the process, whether one is driving the change or caught up in it. Deliberate intervention from outside is often more effective at breaking the cycle and addressing the anxieties beneath it.

Tackling organizational anxiety

All organizations are shaped by emotion and anxiety to some degree, whatever particular form it takes for their industry. Anxiety is rarely addressed directly, yet it drives the actions of the organization and the people within it. 

For Recco’s leadership, the anxiety stemmed from their own failure to grow the firm as they believed they should. Rather than confront that anxiety directly, they deflected it through defensive organizational change.

Most firms treat emotion as something to be managed or worked around rather than as a helpful source of information. Left unexamined, it doesn’t disappear but simply moves out of sight, and firms lose the chance to learn what it’s telling them about what’s really happening within an organization. 

Too often, leaders act before taking the time to analyze and truly understand what the organization is feeling. Leaders who, like those at Recco, remain unaware of their own emotions, and of the wider emotional currents in their firm, risk consequences far greater than they anticipate. Recognizing, working with, and containing anxiety, both in ourselves and in our organizations, is core to leading change well.

Published Oct. 5, 2026, by Knowledge at INSEAD.