This chapter is from the book
This chapter is from the book
This chapter is from the book
Decision-Making Myths
When we read about a CEO’s failed strategy in the Wall Street Journal or analyze the actions of the manager profiled in a case study at Harvard Business School, we often ask ourselves: How could that individual make such a stupid decision? My students ask themselves this question on numerous occasions each semester as they read about companies that falter or fold. Perhaps we think of others’ failures in these terms because of our hubris, or because we might need to convince ourselves that we can succeed when embarking upon similar endeavors fraught with ambiguity and risk. Jon Krakauer, a member of Rob Hall’s 1996 Everest expedition, wrote, “If you can convince yourself that Rob Hall died because he made a string of stupid errors and that you are too clever to repeat those errors, it makes it easier for you to attempt Everest in the face of some rather compelling evidence that doing so is injudicious.”20
Let’s examine a few of our misconceptions about decision making in more detail and attempt to distinguish myth from reality. (See Table 1.1 for a summary of these common myths.) Can we, in fact, attribute the failure to a particular individual—namely the CEO, president, or expedition leader? Does the outcome truly suggest a lack of intelligence, industry expertise, or technical knowledge on the part of key participants? Did the failure originate with one particular flawed decision, or should we examine a pattern of choices over time?
Table 1.1. Myth Versus Reality in Strategic Decision Making
|
Myth |
Reality |
|
The chief executive decides. |
Strategic decision making entails simultaneous activity by people at multiple levels of the organization. |
|
Decisions are made in the room. |
Much of the real work occurs “offline,” in one-on-one conversations or small subgroups, not around a conference table. |
|
Decisions are largely intellectual exercises. |
Strategic decisions are complex social, emotional, and political processes. |
|
Managers analyze and then decide. |
Strategic decisions unfold in a nonlinear fashion, with solutions frequently arising before managers define problems or analyze alternatives. |
|
Managers decide and then act. |
Strategic decisions often evolve over time and proceed through an iterative process of choice and action. |
Myth 1: The Chief Executive Decides
When Harry Truman served as president of the United States, he placed a sign on his desk in the Oval Office. It read “The Buck Stops Here.” The now-famous saying offers an important reminder for all leaders. The CEO bears ultimate responsibility for the actions of his or her firm, and the U.S. president must be accountable for the policies of his administration. However, when we examine the failures of large, complex organizations, we ought to be careful not to assume that poor decisions are the work of a single actor, even if that person serves as the powerful and authoritative chief executive of the institution.
A great deal of research dispels the notion that CEOs or presidents make most critical decisions on their own. Studies show that bargaining, negotiating, and coalition building among managers shape the decisions that an organization makes. The decision-making process often involves managers from multiple levels of the organization, and it does not proceed in a strictly “bottom-up” or “top-down” fashion. Instead, activity occurs simultaneously at multiple levels of the organization. The decision-making process becomes quite diffuse in some instances.21 For example, in one study of foreign policy decision making, political scientist Graham Allison concluded, “Large acts result from innumerable and often conflicting smaller actions by individuals at various levels of organization in the service of a variety of only partially compatible conceptions of national goals, organizational goals, and political objectives.”22 In short, the chief executive may make the ultimate call, but that decision often emerges from a process of intense interaction among individuals and subunits throughout the organization.
Myth 2: Decisions Are Made in the Room
Many scholars and consultants have argued that a firm’s strategic choices emerge from deliberations among members of the “top management team.” However, this concept of a senior team may be a bit misleading.23 As management scholar Donald Hambrick wrote, “Many top management ‘teams’ may have little ‘teamness’ to them. If so, this is at odds with the implicit image...of an executive conference table where officers convene to discuss problems and make major judgments.”24
In most organizations, strategic choices do not occur during the chief executive’s staff meetings with his direct reports. In James Brian Quinn’s research, he reported than an executive once told him, “When I was younger, I always conceived of a room where all these [strategic] concepts were worked out for the whole company. Later, I didn’t find any such room.”25 In my research, I have found that crucial conversations occur “offline”—during one-on-one interactions and informal meetings of subgroups. People lobby their colleagues or superiors prior to meetings, and they bounce ideas off one another before presenting proposals to the entire management team. Managers garner commitment from key constituents prior to taking a public stance on an issue. Formal staff meetings often become an occasion for ratifying choices that have already been made rather than a forum for real decision making.26
Myth 3: Decisions Are Largely Intellectual Exercises
Many people think of decision making as a largely cognitive endeavor. In school and at work, we learn that “smart” people think through issues carefully, gather data, conduct comprehensive analysis, and then choose a course of action. Perhaps they apply a bit of intuition and a few lessons from experience as well. Poor decisions must result from a lack of intelligence, insufficient expertise in a particular domain, or a failure to conduct rigorous analysis.
Psychologists offer a slightly more forgiving explanation for faulty choices. They find that all of us—expert or novice, professor or student, leader or follower—suffer from certain cognitive biases. In other words, we make systematic errors in judgment, rooted in the cognitive, information processing limits of the human brain, that impair our decision making.27 For instance, most human beings are susceptible to the “sunk-cost bias”—the tendency to escalate commitment to a flawed and risky course of action if one has made a substantial prior investment of time, money, and other resources. We fail to recognize that the sunk costs should be irrelevant when deciding whether to move forward, and therefore, we throw “good money after bad” in many instances.28
Cognition undoubtedly plays a major role in decision making. However, social pressures become a critical factor at times. People have a strong need to belong—a desire for interpersonal attachment. At times, we feel powerful pressures to conform to the expectations or behavior of others. Moreover, individuals compare themselves to others regularly, often in ways that reflect favorably on themselves. These social behaviors shape and influence the decisions that organizations make. Emotions also play a role. Individuals appraise how proposed courses of action might affect them, and these assessments arouse certain feelings. These emotions can energize and motivate individuals, or they can lead to resistance or paralysis. Finally, political behavior permeates many decision-making processes, and it can have positive or negative effects. At times, coalition building, lobbying, bargaining, and influence tactics enhance the quality of decisions that are ultimately made; in other instances, they lead to suboptimal outcomes.29 Without a doubt, leaders ignore these social, emotional, and political forces at their own peril.
Myth 4: Managers Analyze and Then Decide
At one point or another, most of us have learned structured problem-solving techniques. A typical approach consists of five well-defined phases: 1) identify and define the problem, 2) gather information and data, 3) identify alternative solutions, 4) evaluate each of the options, 5) select a course of action. In short, we learn to analyze a situation in a systematic manner and then make a decision. Unfortunately, most strategic decision processes do not unfold in a linear fashion, passing neatly from one phase to the next.30 Activities such as alternative evaluation, problem definition, and data collection often occur in parallel rather than sequentially. Multiple process iterations take place, as managers circle back to redefine problems or gather more information even after a decision has seemingly been made. At times, solutions even arise in search of problems to solve.31
In my research, I have found that managers often select a preferred course of action, and then employ formal analytical techniques to evaluate various alternatives. What’s going on here? Why does analysis follow choice in certain instances? Some managers arrive at a decision intuitively, but they want to “check their gut” using a more systematic method of assessing the situation. Others use the analytics as a tool of persuasion when confronting skeptics or external constituencies, or because they must conform to cultural norms within the organization. Finally, many managers employ analytical frameworks for symbolic reasons. They want to signal that they have employed a thorough and logical decision-making process. By enhancing the perceived legitimacy of the process, they hope to gain support for the choice that they prefer.32
Consider the story of the Ford Mustang—one of the most remarkable and surprising new product launches in auto-industry history. Lee Iacocca’s sales and product design instincts told him that the Mustang would be a smashing success in the mid-1960s, but much to his chagrin, he could not persuade senior executives to produce the car. Iacocca recognized that quantitative data analysis trumped intuition in the intensively numbers-driven culture created by former Ford executive Robert McNamara. Thus, Iacocca set out to marshal quantitative evidence, based on market research, which suggested that the Mustang would attract enough customers to justify the capital investment required to design and manufacture the car. Not surprisingly, Iacocca’s analysis supported his initial position! Having produced data to support his intuition, Iacocca prevailed in his battle to launch the Mustang.33
The nonlinear nature of strategic decision making may seem dysfunctional at first glance. It contradicts so much of what we have learned or teach in schools of business and management. However, multiple iterations, feedback loops, and simultaneous activity need not be dysfunctional. A great deal of learning and improvement can occur as a decision process proceeds in fits and starts. Some nonlinear processes may be fraught with dysfunctional political behavior, but without a doubt, effective decision making involves a healthy dose of reflection, revision, and learning over time.
Myth 5: Managers Decide and Then Act
Consider the case of a firm apparently pursuing a diversification strategy. We might believe that executives made a choice at a specific point in time to enter new markets or seek growth opportunities beyond the core business. In reality, however, we may not find a clear starting or ending point for that decision process. Instead, the diversification decision may have evolved over time, as multiple parties investigated new technologies, grappled with declining growth in the core business, and considered how to invest excess cash flow. Executives might have witnessed certain actions taking place at various points in the organization and then engaged in a process of retrospective sense making, interpretation, and synthesis.34 From this interplay between thought and action, a “decision” emerged.35
In my research, I studied an aerospace and defense firm’s decision to invest more than $200 million in a new shipbuilding facility; the project completely transformed the organization’s manufacturing process. When asked about the timing of the decision, one executive commented to me, “The decision to do this didn’t come in November of 1996, it didn’t come in February of 1997, it didn’t come in May of 1997. You know, there was a concept, and the concept evolved.” The implementation process did not follow neatly after a choice had been made. Instead, actions pertaining to the execution of the decision become intermingled with the deliberations regarding whether and how to proceed. The project gained momentum over time, and by the time the board of directors met to formally approve the project, everyone understood that the decision had already been made.