Even intelligent, well-informed managers sometimes make bad decisions.
Armed with the best information and intentions, we still get tripped up by our own biases and assumptions.
“People need to recognize that we are biased in every single situation,” says Sydney Finkelstein, one of the authors of Why Good Leaders Make Bad Decisions and How to Keep it From Happening to You. “There’s no such thing as objectivity.”
Factors when we make bad decisions
Most managers say they spend almost a third of their time at work making decisions, a McKinsey study found. The higher up the chain of command, the more time spent deciding stuff.
With that much time spent making decisions, managers want to feel more certain they make good decisions.
Finkelstein and fellow researchers, Andrew Campbell and Jo Whitehead, found several factors that get in the way of making consistently good decisions.
What these factors have in common is that they seem to be helpful at first — until they quietly and quickly lead good decision-makers astray.
Here are the top three reasons good managers sometimes make bad decisions:
1. Pattern Recognition
Even when facing new situations, managers make assumptions based on past experiences and judgments.
Relying heavily on what they know isn’t exactly a bad thing – after all, most managers have come up through the ranks and have a wealth of knowledge.
The problem comes when they make assumptions because they think they’ve seen it all before.
For instance, Dick Fuld, the former and final CEO of Lehman Brothers successfully got the company through a global financial crisis in the 1990s. Ten years later, Fuld tried to handle a similar situation in the same way, relying on what he knew about the first crisis.
Problem was, the first crisis was fueled by the housing collapse. The second was more complex. So his plan failed.
To avoid pattern recognition, researchers suggest you seek out fresh experience and analysis, especially a different take on the problem from trusted colleagues or employees. Talk to those who weren’t around the last time the seemingly same thing happened.
2. Emotional tagging
We attach emotions to every experience stored in our memories. Managers don’t just see the goal they’ve crushed; they feel the excitement. They don’t just see the bad decision; they feel the disappointment in the outcome.
Feeling those emotions impacts current decision-making, researchers found, because time is spent reviewing those feelings when it would be best spent on more objective things – say, just the facts.
For instance, you’ve probably never heard of a Wang PC. Bad decisions based on emotions is why. Wang Laboratories launched a PC with its own operating system when IBM’s PC was the emerging standard. Founder Dr. An Wang had worked at IBM years before and felt cheated by a decision that affected him negatively. He was reluctant to consider using anything linked to IBM and his system never took off.
To avoid emotional tagging, researchers suggest you push others to challenge you. Present your challenges to colleagues who don’t have an interest in the outcome to help you separate emotions from reality.
3. Ignoring red flags
The brain doesn’t naturally follow the textbook model of making hard decisions: lay out options, define objectives, assess options and make an objective decision.
Instead, people sometimes ignore red flags (because of patterns or emotions) and make compulsive decisions.
For instance, William Smithburg, former Quaker Oats Chairman, acquired Snapple quickly because he had good memories of a profitable deal with Gatorade. His impulsiveness led to a huge loss.
To identify red flags, tune into your own biases. What seems particularly attractive or unattractive about the option you’re considering? If it seems too perfect or imperfect, that’s a red flag. If you’re attached to decision because of people, places or things, it can be a red flag. So, get a second opinion before going with your gut.