Sydney Finkelstein, Jo Whitehead and Andrew Campbell
Harvard Business Press, 236 pages, $33.95
How The Mighty Fall
HarperCollins, 222 pages, $31.50
Good leaders can make bad decisions. President Kennedy blundered over the Bay of Pigs. Margaret Thatcher championed a poll tax that contributed to her own party booting her out of power. And one can add to that list various Canadian leaders – politicians and government executives – who, while proficient, had some nasty goofs.
So mistakes can happen to you. And that’s why two recent books on failure can help you to succeed.
Sydney Finkelstein, a professor at Dartmouth University, wrote a book a few years back on Why Smart Executives Fail and is back with a new effort, Think Again, co-authored with Jo Whitehead and Andrew Campbell of the Strategic Management Centre at Ashridge Business School in England. They studied bad decisions – not simply decisions that went awry or risky ventures but decisions that were clearly flawed from the outset.
“Two factors are at play in a flawed decision: an individual or a group of individuals who have made an error of judgment and a decision process that fails to correct the error. Both have to be present to produce a bad decision,” they stress.
That was an important realization. A bad decision starts with at least one influential person making an error in judgment. But normally the decision process will save the day, as facts are brought to the table challenging the flawed thinking or other individuals with different viewpoints begin to influence the outcome. So a second factor contributes to the bad decision: how the decision is managed. As the decision is being discussed, the erroneous views are not exposed and corrected. Of course, if there is no discussion, if it is a diktat from above, a flawed decision stands no chance of being corrected.
Flawed thinking is more likely to happen in four situations that the authors call red-flag conditions because their occurrence should serve as a warning to be alert:
Misleading Experiences: When our memory contains an experience that has some similarities to the current situation but also some important differences, we can be misled into forming a view of the current circumstances or choosing a course of action that is misguided. We make these kinds of errors quite frequently, actually, but most of the time we catch ourselves as we look more closely at the circumstances, imagine how our actions will play out, or take in more information. However, particularly when we have been successful in the past, it’s easy to slip up and imagine the situation today is the same as our glorious triumph in the past.
Misleading Prejudgments: In decision-making, our thoughts become interconnected with emotions. When we are faced with a situation that looks familiar, we access previous knowledge of a comparable situation and can be flooded with old feelings. The stronger those emotions, the more they will influence our thinking. So, for example, if we were successful in the past with a certain course of action, feelings of pride may surface again. Moreover, if someone suggests an alternate course of action we are likely to experience a strong, negative feeling – a deep emotional reaction that then stimulates our neo-cortex to generate arguments against the counter-proposal.
Inappropriate self-interest: It’s easy to watch scandals in the private sector like Enron and the financial sector, and imagine that self-interest only applies in those private sector cases. But the impact of self-interest is more pervasive, and can affect the decisions of the most thoughtful and upstanding leaders. “It can influence our judgment even when we are trying to prevent it from doing so,” the authors note. A lot of decision-making happens unconsciously and certainly we are particularly prone to screening the effects of self-interest from our conscious mind.
Inappropriate attachments: From lovers to logos, we can be overly attached to something and tussle with a decision so that it will fit that pre-existing attachment. Attachments can be sunny or sinister in nature. We might hold a positive attachment to a loved one on staff in the organization or a logo we helped bring in a decade ago that is now being reconsidered. Or we might harbour a negative attachment such as our age-old anger at another department. “We often underestimate the effect of our own attachments, and those of others. Of all the red flag conditions, those arising from attachments are most likely to seem benign,” the authors note.
When we hit a red flag condition, we need to be careful. The authors present four safeguards external to the individual that can help us to strengthen the decision-making process so that the influence of distorted thinking is diluted or challenged. “They provide a guard against flawed decisions, although not a guarantee that no mistakes will be made. We cannot eliminate human biases, but we can counterbalance their potential effects,” the authors state.
The four different categories of safeguards are:
Experience, data and analysis: The risk of a flawed decision can be reduced at the source by the provision of new experiences, data, or analysis for the decision maker. Consultants or market research are often sought in decisions. BP sometimes employs two firms of lawyers to get contrasting views on very important decisions.
Group debate and challenge: Sometimes it’s not new information that is needed but a refreshing debate that challenges assumptions and gives more weight to data on hand that is not being give appropriate consideration. Generally, we seek this examination by forming a decision group, and establishing a process that encourages the members to challenge entrenched views. That can involve a facilitator, a requirement for a consensus decision, applying the different perspectives of Edward De Bono’s Six Hats approach, or calling upon certain people to take opposing positions and to formally debate the proposal at hand.
Governance: Sometimes debate is not enough and we have to depend upon a strong governance procedure to prevent a flawed decision. The governance team is the person or people who approve the proposal. It is the backstop, and must be independently minded. “Few large organizations allow the decision proponent to also authorize important decisions. Often there are independent, non-executive board members or trustees to increase the objectivity of the authorization process,” the authors note. That, of course, reflects their private sector background and should stimulate you to consider how to replicate such governance in your own surroundings.
Monitoring: Of course, the governance team can have its own biases, and then we have to rely on monitoring the early progress of the decision, with the aim of changing course if things do not turn out as planned. “Awareness that this will happen can encourage decision makers to think carefully before making their recommendations. If decision makers know that the outcome will be recorded and publicized, this can be enough to cause them to ‘think again’.”
Those are worthwhile red flags to remember and safeguards to consider utilizing in those risky situations. But you can add to them two other factors highlighted in the latest book from Jim Collins, who after two best sellers chronicling what makes companies successful and one monograph applying his Good To Great concepts to the social sector, has now looked at what leads companies to flounder in How The Mighty Fall. He presents a five-stage model of corporate collap