My New Year’s wish is for better decision-making byorganization leaders in 2010. In the past decade, we have witnessed a pandemic of bad decisions. If only there was an H1N1-type inoculation to prevent the spread of this management disease.  Leaders of auto companies made decisions that brought that U.S. industry to the brink of disaster and put hundreds of thousands out of work. Leaders of financial services companies made decisions that contributed to the bottom falling out of the housing market and slowed the growth of thousands of small businesses. Government leaders made decisions that failed to provide jobs, education, and health care to millions of low-income families.

Economists and politicians will debate the reasons for the deterioration of our companies and economy for years to come, but underlying all of this theory and posturing is the fact that people in positions of authority have not made very good choices. I think there are at least three factors for this poor decision-making. One is a failure to recognize the effect that stress has on the ability of human beings to make difficult decisions. To this point, Myra White writes:

…executive functions which reside in the prefrontal cortex are critical to higher-level reasoning. They help us direct and maintain our attention, remain focused in the face of distractions, plan future behavior under conditions of uncertainty, anticipate outcomes and use feedback—all cognitive activities that are essential to complex decision-making.

Under stress these functions breakdown making it hard for us to carefully think through complex decisions. We have trouble concentrating, make short-sighted and biased judgments, and have difficulty accurately assessing the potential risks and gains associated with different courses of action.

Leaders should be aware of their own limitations when under stress. They need to reach out for help from others inside and outside of their organizations.

Another factor that contributes to poor executive decisions is a lack of information. Top level managers are often insulated from the experience and advice of mid-level managers and front-line employees. Their organizational systems do not allow for employees closest to customers to communicate information to senior leaders.  And successful leaders delude themselves into believing that they don’t need input and feedback from others. These executive leaders, therefore, are making decisions with an incomplete understanding of their businesses and their markets.

A third factor contributing to poor executive decisions is the drive to be in total control. Rather than letting others make important decisions for which they have expertise, many senior leaders reserve that responsibility for themselves out of fear of losing control. This results in a failure to consider all options and destroys the drive and creativity of managers.

Commenting on this problem, Heather Daigle, in a post on DDI’s blog, Talent Management Intelligence, writes…

It’s instinctive to want to regulate “optimal performance” with processes, procedures and best practices. However, making business objectives crystal clear, setting parameters – not regulations – for performance, and offering up some decision-making control to employees can go a long way to restoring the engagement, well-being and productivity of your talent.

Given these factors, it’s a wonder that companies can be successful at all. Some observers of businessRockPaperScissors   success argue that it might have more to do with luck than with a rigorous decision-making process. The results of the past decade suggest that coin-toss or rock-paper-scissors might have worked just as well. 

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