Decision Disasters and How to Avoid Them Part 2

January 12, 2015

Click here to read part 1.

Every club owner and executive by and large think they make pretty good business decisions.  Yet when they are examined in the harsh light of a peer business review, their shortcomings are revealed.  We know because REX Roundtables regularly conducts these reviews for its members.

So how do you avoid bad, ineffective and costly decision disasters when you don’t have such a review at your disposal? 

LEARN HOW TO RECOGNIZE THE COMMON DECISION FALLACIES

There are eight business decision fallacies that are so prevalent in the common sense of business, that they have been researched in several business schools.  I have reported on these in the previous REX article for ABC.  Read about them.  Read business disaster stories in places like the Wall St Journal.  Learn to recognize these critters before they creep into a decision.  For once they have moved in, executives tend to think they are domesticated, while in fact they are still wild animals that will eat you and your cash and your reputation alive.  Learn how to identify them at a distance!

BEWARE OF YOUR EXPERIENCE

For all the emphasis in the business world on numbers and hard-nosed facts, extensive research points out again and again that close to 90% of executive decisions are made largely through an unconscious or intuitive process. After the decision is made, we marshal the facts to support. This makes for quick, effective decisions in most cases, but important factors can undermine intuitive or experienced decision making – 1-your past experience, 2-your emotional attachments and 3-your self-interest.  Here is an example of how past experience undermines decisions.

Matthew Broderick had worked in operation centers in Vietnam and other military settings.  He had led homeland security operations centers during hurricanes. All of these experiences taught him that early reports surrounding a potential disaster are often faulty, and that it is better to wait for the “ground truth” to surface before taking action.  Unfortunately he had no experience with a hurricane hitting a city built below sea level-Katrina.  This is an example of how misleading memories and experience can lead to a bad decision.  Our experience that seems relevant and comparable is not, and it leads to decisions that are exactly wrong and at times disastrous.  In this case the broken levees were not officially identified for 12-18 hours after they began breeching.  Basing decision on the wrong experience is a factor in poor decisions.

EMOTIONAL CONNECTIONS CAN DAMAGE DECISIONS

Here is an example of how emotional attachments undermine decisions. In the 1980’s, Wang Laboratories was an important Boston high tech company and the leader in the word processing industry.  Wang recognized his company would be challenged by the rise of the personal computer and built a machine to compete.  He chose to create his own operating system software despite the fact that the competing IBM PC was becoming the dominant standard in word processing.  The operating system IBM had chosen was Microsoft. Early in his career, Wang believed he had been cheated by IBM over technology he had invented.  This led to a strong dislike of IBM and the avoidance of anything used by IBM even though the software itself had been developed by Microsoft.  This serious blunder contributed to the rapid decline of Wang Laboratories within a few years.  When you have an emotional connection to people, places or things, your decisions are in jeopardy.  Such emotional attachment is often a factor when you are making a choice about filling a new position with an in-house promotion or an external hire. 

BEWARE OF SELF INTEREST

The third factor that leads to poor decisions is inappropriate self-interest.  All leaders are aware that self-interest should not be a significant factor in decision making, yet even well trained and well intentioned professionals such as doctors, auditors and engineers are unable to prevent self-interest from biasing their judgment.  A prominent surgeon continued to tout the benefits of a hip replacement module as evidence mounted on its widespread early failure. Not publicizing this sooner led to significant legal penalties, disastrous public relations and much personal embarrassment.

BUILD A TEAM OF EQUALS-WHO WILL CHALLENGE YOU THINKING.

In order to avoid making poor decisions, you need a deliberate and structured ways to identify your likely biases and a procedure for improving the quality of your decisions.  The simplest solution is to involve others, at least one other, who has no appropriate attachments or self-interest.  This is the value of an outsider who has little experience with the situation and thus, is more objective.  Step two is to create an environment where this group can challenge your thinking and force you to review your logic and consider other opinions.  Without a culture of challenge and without a team of equals to further the debate which explicitly confronts your biases you are apt to make expensive and poor decisions.

Again and again, research into poor business decisions made by executive teams and by the boards of the largest businesses such as Enron, Tyco, Lehman Brothers, UBS, Bear Sterns, etc. point out two factors.  First the members of the executive team or board were highly qualified and experienced. Second, decisions by the leader were never challenged or seriously examined.  Often individual members had concerns, but the elephant in the room was never named.  As Peter Drucker famously said the purpose of an executive team is to foster conflict.  Meaning conflict that challenged everyone’s thinking to produce higher quality decisions.  This sort of challenging does not occur unless the trust level is very high.

Trust is the foundation of all human interaction.  It could be called a measure of the bandwidth that exists between those who are communicating.  Low bandwidth gives a slow and inefficient communication.  Low trust is like adding friction to the organization which means energy is consumed overcoming the friction, and that energy is not available to operate and drive the business.  Energy consumed in friction is converted to frustration.  See The Five Dysfunctions of a Team by Patrick Lencioni for a solid explication of why even a modest and a low trust climate undermines commitment, accountability and results. The book reviewed at http://www.rexonline.org/showreviews.php?action=fivedysf2 .

Here are a set of statements which can assess the level of trust on your executive team.

1– My experience is that my team members intend to care for me.

2– Team members know my goals and interests.

3– Team members understand how we are linked and how our behavior can affect one another’s work.

4– Team members consider my interests in their decisions and behavior.

5– Team members stand up for me when I am not present.

6– Team members admit their mistakes.

7– Team members admit their weaknesses to one another.

8– Team members ask for help from one another without hesitation.

9– Team members acknowledge and tap one another’s skills and expertise.

10– Team members willingly apologize to one another.

11– Team members are unguarded and genuine with one another.

12– Team members ask for other members input regardless of their areas of responsibility.

Using this assessment with your executive team can identify the areas to improve and protect your business from poor decisions.

AVOIDING DECISION DISASTERS

There are five more specific ways to largely avoid the seven decision fallacies and the poor decisions they produce. If you would like information on them contact the author.

Will Philips is the founder of REX Roundtables serving 150 of the world’s best clubs with 5,000 sites and 30,000,000 members.  Improving performance of their clubs and the quality of the leader’s lives.  You can reach Will@rexroundtables.com.