Management is essentially a process of making a large number of decisions on a daily basis. Whilst many of these decisions can be quickly and effectively made using a judgement call from the individual, the solution to key strategic issues may not be so easy.
Decisions that a leader needs to make regarding these issues are significant, they involve multiple dimensions of value, potential options and stakeholders, and the potential outcomes of these decisions can be unclear at the time.
To ensure they make the right call, senior leaders use a range of decision-making tools and techniques. But despite using the best modelling and data analysis, key influential leaders will inevitably make bad decisions from time to time.
Perhaps there might be a little devil on their shoulder that leads them to a damaging decision? Very unlikely, although some of us might debate that, given some of the leaders we have encountered. So the question must be asked, what causes otherwise highly intelligent and capable leaders to make serious errors in judgement on key strategic decisions? The answer may not be as simple as we all think. Key research  shows that these errors in judgement are caused by two key neurological phenomena living within all of our subconscious; pattern recognition and emotional tagging.
Pattern recognition occurs when a decision maker is faced with a situation that is similar to a decision that they have made (or seen made) in the past. Whilst this can and does lead to a lot of sensible decisions being made as a result of learning from mistakes, recognising similarities between the two situations can give the decision maker the feeling that they understand the situation better than they actually do. This feeling of familiarity may cause the decision maker to ignore key information regarding the situation that is contrary to what they believe should be the case. This leads the decision maker to a decision that would not have been made based on completely objective analysis. A simple example of this would be when a person is buying a car and having to decide between a Hyundai and a Volkswagen. The buyer, who has previously had a bad experience with the lower priced car, may recognise a correlation between price and quality and therefore choose the far higher priced Volkswagen (ignoring the fact that the Hyundai car has outperformed Volkswagen in quality and customer approval ratings).
Emotional tagging is the process in which emotional information from a person’s memories or experiences attach itself to a situation and tells a decision maker how they should feel about a certain decision. This can lead to bad decisions, as the decision maker may feel negatively about a decision that all available information is suggesting needs to be made (or vice versa). An example of this may be when an executive is faced with a situation of closing down an underperforming division and the choice is between a division they used to work in and a division they didn’t used to work in. The executive may favour one over the other based on the emotions they feel regarding the decision (again, ignoring key information that may contradict their decision).
So, how do we stop ourselves from becoming our own worst enemy? By recognising bias and removing it from the decision-making process. The same research that identified the two key forms or subconscious bias also identified three key ‘red flag’ conditions that can be used by managers as indicators to identify when a decision maker may be adversely influenced into making a bad judgement call. These conditions were:
- Inappropriate self-interest (the decision adversely affects the individual making the decision)
- Distorting attachments (the decision affects an area, population, place or product significant in the decision makers past or future)
- Misleading memories (the decision has similarities to a situation previously experienced by the decision maker)
By implementing decision making tools and by gearing analysis techniques toward fostering debates between stakeholders and decision makers, these red flag conditions can be identified and managed. Robust governance involving stakeholders with no emotional bias or conflicting interests should be brought in to the fold to safeguard the key decision making process from these red flag conditions. Exorcise the bad decision demons and favour the business angels of logic, numbers and facts.
Written by Sam Byrnes
Ref:  Campbell, A & Whitehead, J & Finkelstein, S, ‘Why good leaders make bad decisions’, Harvard Business Review, February 2009 pp 2-5