As business leaders, we like to think of ourselves as thoughtful, rational creatures that carefully weigh all the evidence and then make logical, informed decisions.
If only it were that simple.
Far too often, our “rational” decision-making processes fall victim to our own preconceived notions about how the world should work, as well as a myriad of largely unconscious behavior patterns.
For years I’ve been talking about how our “thought bubbles” — the attitudes, beliefs and assumptions through which we view the world — negatively impact the planning process. But thought bubbles aren’t the only human trait to impact our leadership abilities. We also have a bundle of behavioral biases to deal with.
Earlier this year, the McKinsey Quarterly Journal (March 2010) published an article entitled “The Case for Behavioral Strategy.” In it, the authors identified five categories of behavioral biases that have the same negative effects on the planning process as our thought bubbles.
Action-oriented biases drive us to take action without considering all the potential ramifications of those actions. These biases cause us to overestimate the odds of positive outcomes while underestimating the chances of negative ones. We put too much faith in our ability to produce the desired outcomes, while taking too much credit for past successes. And we discount or ignore possible competitive responses during the planning process.
Interest biases stem from conflicting incentives, including non-monetary and emotional ones. They show up as misaligned incentives that reward individual effort at the expense of team, unit or organizational outcomes; inappropriate emotional attachments to certain elements of the business, such as “legacy” employees, products or brands; and disagreements (often unspoken) concerning the relative importance of key corporate objectives.
Pattern recognition biases lead us to recognize patterns where none exist. They include behaviors like putting too much stock in evidence that supports favored beliefs. Minimizing or ignoring evidence that contradicts them. Using comparisons with situations that are not directly comparable. And supporting plans based on the status of the person presenting them rather than on factual evidence.
Stability biases create a tendency toward inertia in the face of uncertainty. We lock on so hard to a treasured value that we refuse to make necessary adjustments. We allow the pain of unrecoverable historical costs to guide future courses of action. Or we fight to maintain the status quo in the absence of pressure to change it.
Social biases arise from the preference for harmony over conflict. They manifest themselves in things like the desire to quickly reach consensus rather than explore alternative courses of action, and the tendency for groups to align with the leader’s viewpoint.
Recognize any of these biases in your organization?
If not, make a list and distribute it to each member of your team prior to your next management meeting. Ask team members to put a red checkmark next to each bias that comes up during the meeting. Don’t be surprised if those lists come back with a lot of red on them!
To counter these biases, the article recommends strategies such as getting comfortable with uncertainty, and populating teams and meetings with diverse participants who bring different ways of thinking and perspectives to the table. It also recommends changing people’s “angle of vision” by learning to look at the data in new and different ways. And to deliberately shake up the status quo by challenging long-standing beliefs and assumptions, including the notion that the way we have always done things will continue to make us successful.
In the past, perhaps the most important leadership skill (from a planning standpoint) was the ability to gather information, analyze it, and then project what the future would look like three to five years out. But in today’s world, we can never have all the information. And for most companies, planning more than 12 to 18 months ahead is an exercise in futility.
The current business environment demands strategic agility — the ability to react swiftly to rapidly changing marketing conditions without losing focus. In order to develop that skill, today’s leaders must get very good at three things:
- Identifying and constantly challenging our underlying assumptions
- Identifying and eliminating our organization’s behavioral biases
- Constantly assessing and evaluating how we process information and make decisions
Our thought bubbles and behavioral biases are out to get us. As leaders, we can continue to buy into the illusion that all our decisions are rational and carefully thought out. Or we can learn to recognize our thought bubbles and biases when they occur, employ the appropriate strategies to counter their affects, and significantly improve our planning and decision-making processes.
I’m going with option B. How about you?
