Making Smart Decisions
A summary of the full-length HBR article “Why Good Leaders Make Bad Decisions” by Andrew Campbell, Jo Whitehead, and Sydney Finkelstein, highlighting key ideas and company examples, and a checklist for putting the idea into action.
IDEA IN BRIEF
Leaders make decisions largely through unconscious processes that neuroscientists call pattern recognition and emotional tagging. These processes usually make for quick, effective decisions, but they can be distorted by bias.
Managers need to find systematic ways to recognize the sources of bias—what the authors call “red flag conditions”—and then design safeguards that introduce more analysis, greater debate, or stronger governance. The authors identify three of these red flag conditions as the presence of:
– Inappropriate self-interest, which, according to research, can bias even well-intentioned professionals such as doctors and auditors.
– Distorting attachments to people, places, and things—for example, an executive’s reluctance to sell a business unit they’ve worked in.
– Misleading memories, which may seem relevant and comparable to the current situation but lead our thinking down the wrong path by obscuring important differentiating factors.
By using the approach described in this article, companies will avoid many flawed decisions that are caused by the way our brains operate.
IDEA IN PRACTICE
Leaders make quick decisions by recognizing patterns in the situations they encounter, and then responding to the emotional associations attached to those patterns. Most of the time, the process works well, but it can result in serious mistakes when those emotional associations are biased.
Example: When Wang Laboratories launched its own personal computer, founder An Wang chose to create a proprietary operating system even though the IBM PC was clearly becoming the standard. This blunder was influenced by his belief that IBM had cheated him early in his career, which made him reluctant to consider using a system linked to an IBM product.
To guard against distorted decision making and strengthen the decision process, get the help of an independent person to identify which decision makers are likely to be affected by self-interest, emotional attachments, or misleading memories.
Example: The about-to-be-promoted head of the cosmetics business at one Indian company was considering whether to appoint her number-two as her successor. She recognized that her judgment might be distorted by her attachment to her colleague and by her vested interest in keeping her workload down during the transition. The executive asked a headhunter to evaluate her colleague and to determine whether better candidates could be found externally.
If the risk of distorted decision making is high, build safeguards into the decision process. Expose decision makers to additional experience and analysis, design in more debate and opportunities for challenge, add more oversight, and monitor whether the decision is generating the expected results.
Example: In helping the CEO make an important strategic decision, the chairman of one global chemical company encouraged the chief executive to seek advice from investment bankers, set up a project team to analyze options, and create a steering committee that included the chairman and the CFO to review the CEO’s proposal.
IDENTIFYING RED FLAGS
Red flags are useful only if they can be spotted before a decision is made. How can you recognize them in complex situations? We have developed the following seven-step process:
Lay out the range of options. It’s never possible to list them all. But it’s normally helpful to note the extremes. These provide boundaries for the decision.
List the main decision makers. Who is going to be influential in making the judgment calls and the final choice? There may be only one or two people involved. But there could also be 10 or more.
Choose one decision maker to focus on. It’s usually best to start with the most influential person. Then identify red flag conditions that might distort that individual’s thinking. Discuss with the individual if needed.
Check for inappropriate self-interest or distorting attachments. Is any option likely to be particularly attractive or unattractive to the decision maker because of personal interests or attachments to people, places, or things? Do any of these interests or attachments conflict with the objectives of the decision?
Check for misleading memories. What are the uncertainties in this decision? For each area of uncertainty, consider whether the decision maker might draw on potentially misleading memories. Think about past experiences that could mislead, especially ones with strong emotional associations. Think also about previous judgments that could now be unsound, given the current situation.
Repeat the analysis with the next-most-influential person. In a complex case, it may be necessary to consider many more people, and the process may bring to light a long list of possible red flags.
Review the list of red flags you have identified for bias. Determine whether the balance of red flags is likely to bias the decision in favor of or against some options. If so, put one or more safeguards in place. Biases can cancel each other out, so it is necessary to assess the balance taking account of the likely influence of each person involved in the decision.
Andrew Campbell is a director of the Ashridge Strategic Management Centre in England. Jo Whitehead (jo.whitehead@ashridge.org.uk) is a director of the Ashridge Strategic Management Centre in London. Sydney Finkelstein is the Steven Roth Professor of Management and Director of the Leadership Center at the Tuck School of Business at Dartmouth College. His new book is Superbosses: How Exceptional Leaders Manage the Flow of Talent (Portfolio/Penguin, 2016). Campbell, Whitehead, and Finkelstein are the coauthors of Think Again: Why Good Leaders Make Bad Decisions and How to Keep It from Happening to You (Harvard Business Review Press, 2008).
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