Think Again: Reducing Bad Decisions

By Ellen Pearlman

Strategic Thinkers:
Sydney Finkelstein, Jo Whitehead, Andrew Campbell
Finklestein is the Steven Roth Professor of Management at Dartmouth's Tuck School of Business and Director of the Tuck Executive Program. He is also the author of more than ten books, serves as a consultant for global companies and is considered an expert on strategy and leadership. Whitehead is a director of the Ashridge Strategic Management Centre and has global experience as a consultant working with The Boston Consulting Group. Campbell is a director at Ashridge Strategic Management Centre, previously he was on the faculty of the London Business School and a consultant at McKinsey & Co. He is also the author of more than ten books and numerous articles on business strategy.
Big Idea:
Past experiences and the judgments and emotions attached to them can lead to poor decisions.
Think Again: Why Good Leaders Make Bad Decisions and How to Keep It From Happening to You, published by Harvard Business Press, February 2009.


How many of you have lost sleep over a decision you made that turned out to be wrong? I have. And I know I replayed that situation over and over again in my brain wondering how things might have worked out if I did X instead of Y.


A new book-Think Again: Why Good Leaders Make Bad Decisions and How to Keep It From Happening to You by Sydney Finkelstein, Jo Whitehead and Andrew Campbell-tackles the subject of flawed decisions by analyzing 83 situations that involved decisions that were flawed at the time they were made (not situations that just turned out badly). The findings and case studies from this research are very revealing and provide advice on how to anticipate and avoid making bad decisions.


The authors say two factors are involved in all flawed decisions: "an individual or a group of individuals who have made an error of judgment, and a decision process that fails to correct the error." First let's look at how errors in judgment occur.


Our brain plays a major role in how decisions get made. The brain uses pattern recognition to assess the inputs it receives. Sometimes the brain misinterprets unfamiliar incoming data-the authors call this "the problem of misleading experiences"-and makes us think our past experiences are a good match with the current situation. This can lead us to the wrong conclusion. Sometimes previous judgments get connected to the new problem we are solving-the authors call this "misleading prejudgments"-but are inappropriate to help us solve it. Emotions also get tied to our thoughts and memories-the authors call this emotional tagging-and get triggered when past situations seem similar to the current one. Emotional tags can disrupt our thinking due to "inappropriate attachments" to people, ideas, places, and projects or to "inappropriate self-interest" that colors our decision-making and is in conflict with our responsibilities for other stakeholders.


So while you and I think we are carefully analyzing a situation to come to the best conclusion, our brain is busy at work pulling up previous situations and the emotions attached to them to propel us to a result that may be inappropriately influenced by our attachments and self-interest. It's a wonder any decisions come out right! "Much of our mental processing is unconscious," the authors say, "which makes it hard to check."


Next: Increasing Our Ability to Make Good Decisions

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So how do we increase our ability to reach good decisions? The four emotional situations described before -misleading experiences, misleading prejudgments, inappropriate self-interest and inappropriate attachments-are dubbed "red flags" by the authors. These conditions need to be understood and identified. If they are spotted before a decision is made and the decision process can be modified to address them, then the risk of making a bad choice can be reduced.


However, there's another factor to consider. The authors note that people are prone to focusing on one plan at a time. They call this "one-plan-at-a-time decision making." This is how this process works: You assess a situation, come up with an action plan, imagine how the plan will work out, and consider another plan only if a problem with the first plan surfaces. This doesn't provide a lot of time to correct a problem. "If our brains naturally questioned and challenged our assessments and judgments or normally compared multiple options...we would be much better at spotting errors in our thinking and correcting them," the authors say. But this is not how our brains typically work.


In fact the authors' research showed that in over 80 percent of the cases they examined, where they had personal contact with the prime decision maker, he or she appeared to arrive at their course of action "without careful weighing of the options." They were following the one-plan-at-a-time model.


Another problem faced by decision makers is they are often influenced by the short-term results of their actions. That can doom many decisions in the long-term. "Short-term interests can be overly influential in our decisions-triumphing not only over the broader interests involved in the decision (shareholders, other members of the organization, etc.) but even over the long-term interests of the decision maker," say the authors.


The good news is that safeguards can be put into place to reduce the risk of a flawed decision. The authors identify four categories of safeguards:


1. Experience, data and analysis—Provide decision makers with new experiences, data or analysis to reduce the risk of a poor decision from the get-go.


2. Group debate and challenge—Form a group that can debate and challenge assumptions being made before a decision is reached. Identify alternate ways to frame the decision to challenge the group's thinking processes.


3. Governance—Approve proposals by a governance team. This is a vital step in spotting flawed judgments before they are implemented.


4. Monitoring—Track the progress of a decision once it is made to help spot a wrong decision before it does too much damage. Knowing that monitoring will take place can encourage decisions makers to be more careful about their recommendations.


Safeguards can be effective in reducing bad decisions. They can also slow down the decision-making process or bog it down in bureaucracy. So it is important to pick the safeguards that are most appropriate for your organization and the style of its leaders. The authors know that decision makers have biases that can negatively influence their judgment. You can't stop all bad decisions, but with the proper safeguards in place, you can reduce the risk.


Next: Ten Things That Can Go Wrong

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Ten Things That Can Go Wrong in Decision Making


By Ellen Pearlman


You might be surprised by some of the assumptions people make about decision making that are just plain wrong. Some of the statements the authors make in Think Again that I thought were particularly valuable in understanding the true nature of decision making are the following:


1. We are most at risk of making bad decisions when we have enough experience to believe that we are right.


2. Personal experiences are going to be more vivid and more specific than stories we have been told or material we have been taught.


3. Our emotional judgments come often before our rational judgments.


4. We need emotions to commit to a decision. We need commitment to act.


5. Our brains do not have strong processes for questioning our initial assessment of a situation, nor do they naturally juggle multiple options.


6. When we feel we have relevant experience, we normally make decisions without much analysis.


7. When we are dealing with unfamiliar issues, we are often overconfident in the judgments we make.


8. Many leaders form judgments about the situation without fully exploring the range of alternative explanations, and they select action plans without laying out all the options or clarifying the criteria needed to choose between options.


9. It is difficult for decision makers to be self-aware about how their personal interests are affecting their choices.


10. Attachments often act under disguise. They invoke a feeling that we are being objectively rational when, in fact, we are being swayed by potentially inappropriate feelings.


Reprinted by permission of Harvard Business Press. Excerpted from Think Again: Why Good Leaders Make Bad Decisions and How to Keep It From Happening to You, Copyright (c) 2008 Sydney Finkelstein, Jo Whitehead and Andrew Campbell; All Rights Reserved.


Also of interest:


How We Decide by Jonah Lehrer, published by Houghton Mifflin Co., February 2009. A look at how we make decisions.


Blunder: Why Smart People Make Bad Decisions by Zachary Shore, published by Bloomsbury USA, October 2008. Stories of famous blunders.


Nudge: Improving Decisions About Health, Wealth, and Happiness by Richard H. Thaler and Cass R. Sunstein, published by Yale University Press, April 2008. How to steer people towards making better decisions.

CIOZ Question: How does your company make major decisions?

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