You are not nearly as rational as you like to think.
In the classical model of decision making managers obtain complete information, eliminate uncertainty and evaluate everything rationally to end up with a decision perfectly balancing the needs of all stakeholders. In fact most people think this is how they make decisions.
In reality you make 35,000 decisions every day and +95% of them are automated through our intuition or “system 1” based on human factors developed millions of years ago. When your system 1 is in doubt about a decision it passes on a recommendation to your more analytical system 2, but this is a lazy system and typically just endorse it.
Now many decisions are not that difficult – and many are not that critical. But sometimes you make strategic decisions that make or break a career, a company or even a country.
70% of your strategies fail due to your biases.
Managers are keenly aware of the poor track record among strategic initiatives, where McKinsey research shows a 70% failure rate spread evenly among five key reasons. But the really interesting part is how everyday those reasons are – and how closely they tie in with the core bias groups:
Opportunity misinterpretation: You failed to fully comprehend the environment and strategic positions. Regardless of your intelligence, personality or background you are subject to availability bias, where you focus on our existing information. For example Blockbuster completely misunderstood, where the market was heading and kept investing in their brick & mortar network.
Poor design: You understood the opportunity, but failed to design a fitting strategy. Confirmation bias is one of the most dangereous biases, where you look only for information to confirm your ideas. For example Blackberry had the same information as everyone else, but focused on keyboard phones for B2B communication, although the market wanted touchscreen B2C entertainment.
Competency misalignment: You understood the opportunity and designed a fitting strategy only to forget to align the organization. You are probably just prone to overconfidence bias, where you believe you do not need to change anything to complete a task. For example Sony never lost faith in their proprietary Betamax technology, even as the open VHS standard was quickly outpacing them.
Lack of follow through: You understood, designed and prepared for the opportunity, but the organization just never got it done. Unfortunately, you have a preference for status quo – an emotional bias. For example Newscorp kept investing in MySpace despite major market share losses to Facebook and they eventually got USD 34m for at USD 580m investment.
External change: You got the strategy and execution right – but the world changed. It is very difficult to change, when you publicly and financially commit to a course of action, because of your loss aversion bias. For example traditional car makers have taken very long to embrace electric vehicles.
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