Left unchecked, subconscious biases will undermine strategic decision making.

In a McKinsey survey of over 2,000 senior executives, only 28% said that their strategic decision making was generally good, while 60% thought that bad decision making was as frequent as good and the remaining 12% thought that good decision making was infrequent (source McKinsey Quarterly 2010 number 2).

These are telling statistics on important choices which frequently have major business impacts. Mergers routinely fail to deliver as projected, strategic plans ignore competitive responses, and large investment programmes exceed budgets and time lines. How many of these failings could have been avoided if the decisions which led to them happening could have been avoided by genuinely unbiased thinking?

Good process matters more than good analysis

Research by Dan Lovallo and Olivier Sibony revealed some really interesting insight in this area. They identified that good process mattered more than good analysis in creating good quality decisions – by a factor of six!

This doesn’t mean that analysis is unimportant, in fact good decision making processes are more likely to surface poor quality analysis. However, the opposite does not hold true – good analysis will not create good decisions if the processes are poor.

Frequent cognitive biases

It is human nature for biases we carry into the decision making process to persuade the choices we make. Psychologists and behavioural economists have identified many ‘cognitive biases’ – rules of thumb by which we make sense of the world and which help us make our decisions, even if those decisions are not taken from a truly objective, rational point of view.

In the 21st Century, with increasing levels of complexity, more uncertainty and less predictability, we must as leaders recognise these biases and take actions to counter them, particularly when the decisions are critical for the organisation.

How to counter our biases

You cannot avoid all biases in all decisions. However, to mitigate the risks senior leaders should review their company’s decision making processes.

1. Choose which decisions need the higher rigour
2. Determine which biases are most likely to occur in critical decisions
3. Select tools and methods to counter the most relevant biases
4. Embed the tools and methods in formal processes

Strategic planning

Strategic planning and decision making is heavily reliant on analysis, often involving attempts to predict the future based on historical data. Many traditional decision-making models are predicated on humans being rational decision makers. Both are flawed assumptions.

This does not mean that strategic planning and analysis should be stopped. But the modern leader needs to have a good understanding of human cognitive biases to increase the quality of the process and their own and their organisation’s strategic decisions.

What examples do you have of biases influencing decisions taken within your business, and what actions have you taken to avoid these? Please let us know.


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