5 Biases That Lead to Bad Decisions (Part 4 of 4)

From the introduction: Each of us is susceptible to irrational behavior’s irresistible pull. Only when we gain insight into our irrationality can we see the extent to which it affects our work and personal lives. Fascinating patterns emerge, and we can master our behaviors and decisions when we connect the dots.

Too Much Information

Today’s 24/7 connectedness to information streams can prevent us from paying attention to what really matters. The brain’s prefrontal cortex can handle only limited facts and figures.

More information doesn’t always lead to better decisions, but gut feelings and emotions do. We must learn to sort out patterns in the most significant data.

Decision Effectiveness

Decisions are the lifeblood of action, and little gets done without them.

A recent Harvard Business Review article recommends a decision audit to identify key organizational needs:

“Ultimately, a company’s value is no more (and no less) than the sum of the decisions it makes and executes. Its assets, capabilities, and structure are useless unless executives and managers throughout the organization make the essential decisions and get those decisions right more often than not.” (Blenko, M., Mankins, M., & Rogers, P., “The Decision-Driven Organization,” Harvard Business Review, June, 2010)

Bain and Co. surveyed international executives from 760 companies with revenues exceeding $1 billion in 2008. Researchers found that decision effectiveness and financial results correlated at a 95% confidence level or higher for every country, industry and company size.

Companies that were most effective at decision-making and execution generated average total shareholder returns nearly six percentage points higher than others.

Rate Your Company

The HBR authors urge leaders to examine their own companies for decision effectiveness, using the following short survey:

How do your organization’s decision abilities stack up against the competition?

• Quality: When looking back on critical decisions, how often have you chosen the right course of action?
• Speed: How do you rate the speed of your critical decisions in comparison to your competitors’?
• Yield: How often do you execute critical decisions as intended?
• Effort: How much effort does your company put into making and executing critical decisions?

Leaders Can Improve

Decisions can be complex, and we are never going to get everything right. We can improve decision effectiveness by becoming more aware of traps, subconscious biases and logic flaws that lead to errors.

We must also improve our awareness of common judgment errors, which occur when we’re under the influence of the subconscious. These include our biases, commitment to the status quo and counterproductive personal agendas.

Leaders who continue to view strategic decisions as purely rational analyses should seek ways to better position themselves to meet core objectives.

The Certainty Bias

Leaders forget the mind’s fallacies. They believe in their people and senior team. They are generally confident that colleagues are well-intentioned, with the company’s best interests in mind.

After gathering as much information as possible and weighing all of the arguments, leaders must make decisions and embrace an attitude of certainty and confidence. Persuading others to execute the plans is the next step.

Certainty, however, can lead to other errors, such as failure to adjust plans, when required, and shutting out conflicting information. The only way to counteract the certainty bias is to encourage dissonance.

Perhaps Alfred P. Sloan, president of General Motors in its prime, said it best. After adjourning a meeting shortly after it began, he announced:

“Gentlemen, I take it we are all in complete agreement on the decision here … Then I propose we postpone further discussion of this matter until our next meeting to give ourselves time to develop disagreement and perhaps gain some understanding of what the decision is all about.”

 

This blog post was part 4 of 4.  If you would like to read from the beginning, click here.