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Decisions, Decisions….

Optimize Blog - January 16, 2017 - 0 comments

Few corporate strategists making important decisions consciously take into account the cognitive biases that exists i.e. the systematic tendencies to deviate from rational calculations. It’s easy to see why. Unlike in fields such as finance and marketing, where executives can use psychology to make the most of the biases residing in others, in strategic decision making leaders need to recognize their own biases. So despite growing awareness, most executives continue to make strategic decisions based on their biases.
Executives rightly feel a need to take action. However, the actions we take are often prompted by excessive optimism about the future and especially about our own ability to influence that future – omnipotence in action! Frequently here at Optimize we see many strategic business plans that are based on overly optimistic forecasts of market potential or underestimated competitive responses. When you or your people need to take action and an attractive plan presents itself, chances are good that some elements of overconfidence have tainted it.
To make matters worse, the culture of many organizations suppresses uncertainty and rewards behavior that ignores it. For instance, in most organizations, an executive who projects great confidence in a plan is more likely to get it approved than one who lays out all the risks and uncertainties surrounding it. Seldom is confidence recognized as a warning sign. This is a concern as overconfidence, over optimism, and other action-oriented biases may be at work.
Superior decision-making processes counteract action-oriented biases by promoting the recognition of uncertainty. For example, it often helps to make a clear and explicit distinction between decision meetings, where leaders should embrace uncertainty while encouraging dissent, and implementation meetings, where it’s time for the organization to accept the decisions that have been made already and to move forward together. Also valuable are tools such as scenario planning, decision trees, and the “pre-mortem” championed by research psychologist Gary Klein that force consideration of many potential outcomes. Equally, at the time of a major decision, it’s critical to discuss which metrics need to be monitored to highlight necessary course corrections quickly.
We also recognize that misaligned incentives are a major source of bias. Silo thinking, in which organizational units defend their own interests, is its most easily detectable manifestation. Furthermore, senior executives sometimes honestly view the goals of a company differently because of their different roles or functional expertise.
Leaders who want to shape the decision-making style of their companies must commit themselves to a new path. This new path requires the use of suitable techniques and processes to deliver great decisions and decisions that can be implemented effectively.
One reason why it’s important to develop and embed good decision making processes is that everything we know about the tendency toward overconfidence suggests that it is unwise to rely on one’s own instincts to decide when to rely on one’s own instincts! Another is that good decision making requires practice. As a leadership team, without regular opportunities to practice, the team will agree in principle on the techniques it should use but will lack the experience (and the mutual trust) to use them effectively.
Ultimately poor strategic decision making can cost you the company……..

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