Hospitality & Design Summit 2009 - 146

- Speaker Perspectives Think Again: Why Good Leaders Make Bad Decisions, continued As a result, we focused our research on how our brains make decisions. While the brain has been wonderfully designed for decision-making – it can also be tricked into false judgments. We identified the four conditions under which flawed thinking is most likely to happen. We call these “red flag conditions” because they provide a warning that, when these conditions exist, even an experienced decision maker may get it wrong. Complex decisions, involving interpretation and judgment are difficult to get right. You need debate – but how do you know when you or the other party are arguing from a biased position? You need consensus – but how do you know when your consensus is really groupthink? What is needed is a diagnostic for knowing when the risk of being wrong is at its highest – when the decision maker needs to step back and “think again”. Our red flag conditions are a simple, but not simplistic tool to help decision makers know when to pause for breath – when you need to take special steps to make sure that a decision does not go off the rails. misleading experiences are memories that seem similar to the situation we are facing, but are not. They are most likely to disrupt our thinking as we assess the situation, either because we misrecognize the pattern or because the emotion tagged to the pattern gives us an unsuitable action orientation. Misleading experiences contribute to more than half of all flawed decisions. For example, the high profits made from sub-prime lending and the success of CDO vehicles misled bankers across the world, causing them to take risks that now seem foolish. misleading pre-judgments are previous decisions or judgments that mislead current judgments. They are most likely to create distortions when we evaluate outcomes: they cause us to get committed to the wrong plans. In addition, they can cause us to fixate on a particular plan of action – often something that has worked in the past. British premier Tony Blair made a speech in Chicago in 1999 promoting an interventionist policy with regard to “failed states”. This pre-judgment influenced his decision over Iraq. inappropriate self-interests are personal interests that conflict with the responsibilities we have for other stakeholders. We routinely ask individuals to leave the meeting or refrain from voting if we know they have a personal interest at stake. In fact, much of the current financial crisis is being blamed on the lack of alignment of interests between highly paid bankers and a stable financial system. inappropriate attachments are strong emotional feelings we have towards a group, tribe, place, or possession, that are inappropriate given the decision we are trying to make. In the current climate, where many organizations need to cut back employment and sell assets, some “loyalties” will overrule rational downsizing decisions and some assets will be inappropriately retained because “the Chairman used to work in that business”. Each of these red flags can unbalance the mental processes of a decision maker. The leader will feel confident that he or she is making a wise choice, even though the thinking is flawed. As a result, when one or more red flags exist, leaders and their colleagues need to put in place some safeguards. SaFegUarding againSt bad deciSionS Safeguards reduce the risk that red flag conditions will lead to a bad decision: they act as a counterweight (see exhibit). Choosing safeguards is not mechanical. There is no direct link between a particular red flag condition and a particular safeguard. Instead safeguards need to be chosen not only with an understanding of the red flag conditions, but also a knowledge of the people and organization, as well as a healthy skepticism of too much bureaucracy. Of course it is not possible to eliminate all the risks. Even armed with our safeguards framework leaders will still make mistakes – but it is possible to improve the odds. experience, data, and analysis. One type of safeguard is to provide decision makers with new experiences or data and analysis. By doing so, the risk of a flawed decision can be reduced at the source. For example, during the Cuban Missile Crisis, Kennedy needed to know the number, location, and state of readiness of the missiles—so that he could better judge whether it was feasible to carry out a military strike and the time he had available before the Soviets would have a functioning and significant threat to U.S. security. So he had the air force carry out reconnaissance flights. group debate and challenge. Creating a debate that challenges biases need not involve an elaborate process. It could mean simply chatting through an issue with a friend or colleague. Even if the other person is not an expert, the process of debate can help expose assumptions and beliefs. In large organizations a typical way way to orchestrate debate and challenge is to form a decision group. The size of the team may vary from two to many, although typically a few people are a better number for a debate. The choice of who should be on the team is vital in defining the quality of challenge that can take place. For example, a U.K. food company with several business divisions sometimes chooses a manager from a sister division to chair the decision group. The intention is to bring a challenging, and potentially more objective, perspective to the decision. Kennedy’s ExComm was chosen to include diverse views. governance. Sometimes an open debate is hard to generate or is not enough to challenge a powerful and strongly entrenched point of view. In this case, the governance team, which approves the proposal submitted by the decision team, may play the critical role. President Kennedy gave himself this role in the Cuban Missile Crisis. In the case of a major acquisition, the decision team might be the CEO and the CFO, and the governance team might be the board led by the chairman. monitoring. This is a normal part of almost every decision. What we are suggesting here is that, for some decisions, where there are red flag conditions that managers believe are hard to address with the first three categories of safeguard, then the last defense is to put in place some extra monitoring. The safeguard is the extra monitoring over and above what would have occurred anyway. In the case of the Cuban Missile Crisis, Kennedy could not be sure that he had made the right decision. He knew he had limited data about how the Russians would respond to his dec- hospi tal i ty des i g n su m m i t 2009

Hospitality & Design Summit 2009

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