Making good decisions is not always common sense. Recognising the pitfalls and implementing a system for more effective decision-making can help you be more successful.
Over the last 18 years working in the business coaching and consultancy industry we have first hand experience with some of the bad decisions business owners make. Earlier in my coaching career a business colleague asked “Steve, what’s the biggest problem you see in businesses?” Without really contemplating for too long my instinctive response was, “Action without thinking”.
In hindsight one could argue it’s a very simplistic response, and yet many years later I consider there is definite wisdom in it.
To be fair, it’s not saying that business owners don’t think or that they are dumb. That is not the case. It simply means that at times, for various reasons, we don’t think ‘as smart as we really are’.
The purpose of this article is to explore the top three decision-making pitfalls we have encountered and what you can do to avoid falling foul of the same thinking patterns.
Our top three decision making pitfalls
1) Lack of a decision-making process
Lots of people dislike the idea of having to follow a process. They think it will be limiting and confine their natural style. However, far too many businesses adopt a very simplistic approach to decision making, with practices such as:
- A simple show of hands on who thinks what about a particular decision to be made.
- Resorting back to decisions taken in the past without any clear scrutiny of whether they were effective or not.
- What their gut or intuition says.
Tips to improve your approach:
It’s really helpful to document a process map for decision-making that people can follow to ensure they have the right criteria and thinking. This is particularly important when the subject matter is complex and/or the outcome of the decision is critical.
There are many variations on how this can be structured but here is a snapshot of one approach we recommend:
- Clearly state the nature of the problem and the issues it is causing.
- Describe the problem when it is no longer a problem? What is a perfect outcome?
- What are all the possible reasons this problem has surfaced?
- If we were to address one major cause that may have a multiplier effect and reduce other causes which might that be?
- Who are all the key stakeholders we need to consider who may be impacted by the decisions we take?
- … and so, it continues for several more steps until clarity is reached in terms of how to apply the best thinking to reach the right decision.
2) Emotion and/or ego trap
It’s probably no surprise to you that many decisions are not made on rational grounds, even after weighing up the pro’s and con’s. We find that’s for 2 main reasons: Emotion, Ego, or both.
Emotion is a powerful motivator that overrides logic in some circumstances. One example of this is often seen in family businesses where family members are promoted to senior positions irrespective of their level of competence and skills. The decision to promote them is an emotional one, possibly driven by favouritism, fear of outsiders, or trying to keep the family member happy.
Ego is where personal pride and stubbornness adversely impact on decision making in one or more of the following ways:
- Failure to admit mistakes and/or do not wish to proven wrong, at any cost.
- Not giving others the benefit of the doubt in arguments.
- Twisting the truth to try and lay the blame at another person’s feet.
- Stating that their intuition is always right without factual supporting evidence.
- Simply and blindly fall in love with their ideas and are not going to budge or listen critically to alternative opposing arguments.
Tips to improve your emotional and ego responses:
- Clarify expectations in detail to reduce ambiguity and subjectivity. An example is clarifying role expectations including KPI’s and the resultant performance assessment criteria.
- Gather the facts first and apply the emotion second. Ignore the temptation for an instinctive knee jerk reaction.
- Combine analytical analysis with your initial/default responses which may be based on intuition, emotion or beliefs.
- Do I know everything I need to know to feel the way I do right now? Do I have all the facts?
- State out loud ‘I know this opinion must be true because’?
- If this simply a belief or position I hold irrespective of what the facts say? If so, is there is basis in fact, can I be confident that my decision is being taken rationally?
3) Cognitive biases that skew your viewpoint
Five of the most common cognitive bias’ are:
1. Attribution – Attributing a result or outcome to the wrong cause such as ‘I never have any luck in business’ whereas the real reason is lack of strategy and execution.
2. Confirmation – Searching for results, or giving more credence to results/data you find, which substantiate your initial way of thinking or preference, whilst ignoring alternative options.
3. Authority – Deferring to the authoritative person or leader in the business and blindly following their decision or proposition without due scrutiny.
4. Anchoring – Being rooted to an initial position or belief irrespective of the weight of alternative viewpoints that you subsequently discover.
5. Sunk Cost – Becoming attached to what has already been done and thinking too much (time, money, effort) has already been invested to turn back now, rather than making a clear assessment of what is required from this point on to ensure success approach.
Tips to improve your awareness of cognitive bias:
The most proactive strategy to overcome the impact of cognitive biases is creating awareness and being cognizant of the consequences. We highly recommend training for team leaders and managers to ensure they recognise the symptoms of cognitive bias and can take alternate actions.
- Devil’s advocate – Appoint someone on the team to play a role where they constructively challenge the thinking of the group. Look for flaws in thinking and where any illogical thoughts or biases have crept in. It helps significantly if you have identified your criteria for thinking beforehand, because with a checklist in hand the devil’s advocate job is made easier.
- Overcome excessive reliance on intuition – Many people default to their gut or intuition when it comes to decision making. I have lost count of the number of times I have posed the question “Can you recall specific examples of when your intuition was right?” (and conversely when it was wrong?) The memory seems to fade when posed with these questions.
- Use pre-mortems – The pre-mortem poses the question “Assume the outcomes we are looking for in 12 months’ time are not achieved? What could have possibly gone wrong and why?” This helps identify the potential problems and the thinking or lack of it that could possibly have caused those results which allows you to be better prepared. Then you can plan to avoid those issues/problems.
- Make decision making a structured process (that still allows for creativity) – As indicated under pitfall #1, make thinking and decision making a structured process. Map out the desired outcomes, consider all stakeholder needs and identify the criteria, or boxes, which the right solution needs to tick in order to be considered a good outcome.
In summing up we would strongly suggest that companies make ‘thinking and decision making’ a clearly defined process in the same way that you might evaluate a capital purchasing decision. This will help take most of the thinking limitations and biases out of the equation with this structured approach.
What to do next?
To get started on improving the way of thinking within your business we suggest you firstly identify the decisions which are being made, and then define specific criteria for the ‘ideal’ way of making those decisions. Typically, important business decisions can be found across these areas:
- Change of business direction or strategy
- Promoting staff
- Performance appraisals
- Evaluating multiple proposals
- Simple problem solving
- Complex problem solving with multiple variables
- Boardroom decision making
If you would like to discuss the current state of decision-making in your business, and get some tips on how to improve, you’re welcome to request a complimentary consultation where we can have a purposeful conversation that helps you move forward.