Some decisions may arise with vast amounts of preexisting information (such as whether to expand internationally), while others come down to following your gut (like hiring the right candidate). Effectively facing the thousands of decisions that occur in a business on a daily basis requires striking a balance between the known and unknown.
How Biases Influence Poor Decision-Making
Successful decision-making is a blend of both analytical and intuitive thinking that makes a subjective process as objective as possible. The journey toward an objective analysis requires an understanding of biases that influence final decisions. Here are four biases that can hurt a business:
1. Confirmation Bias
This means favoring information that supports a preferred outcome. The airline industry has some of the tightest margins and worst economics in terms of return on capital. So many companies function under the misconception that if they just get the economics right, everything else will fall into place. For Qantas, this led to decision-making that ignored the customer experience in place of cost control, handing other airlines that addressed this need a competitive edge.
2. Fallacy of Centrality
This bias is the result of a leader thinking he has all the pertinent information to make a decision simply because he’s the leader. GM appears to have fallen prey to this fallacy. Even after the beating the U.S. automotive market received after the Global Financial Crisis and the Great Recession, it still saw itself at the center of the manufacturing economy. Assuming it had all the data necessary to lead, it continued to produce defective cars.
3. Availability Bias
This bias is widespread throughout organizations — regardless of size. It occurs when individuals make decisions based on whatever information is available, even if it’s inaccurate or incomplete.
A person working under availability bias might do a poor job of identifying risks associated with a decision, usually due to severe time constraints or performance pressures. Unfortunately, many organizations reward this behavior by promoting people who make rapid decisions with as little data as possible and manage to guess right.
4. Adaptive Bias
Employees are sometimes forced to make up for the deficiencies that arise when those operating under availability bias get it wrong. They reason adaptively, rather than truthfully or rationally, as a way to reduce the overall cost of cognitive errors. This addresses uncertainty with concrete action and is basically a higher level of self-preservation.
Sidestepping Biases to Move Ahead Confidently
Trustworthy decision-making involves more than simply bias awareness. Here are several proper strategies that will help you avoid these biases altogether as you advance your company:
- Know your limits. Decisions are made differently in large organizations versus smaller ones. For example, when Amazon’s senior leadership needs to make a decision, top executives begin the meeting by silently reviewing a memo filled with relevant information and recommendations. Then, they ask clarifying questions and make a decision with a shared understanding of the issues. This process begins with all the analytics possible and ends with collective intuition. Small businesses, on the other hand, require strategies that compensate for the lack of data and resources. Product Hunt, for instance, successfully used The Lean Startup model to start small and build data to make increasingly better decisions over time.
- Build on your decisions. When I first started out, my earliest lesson was to scale the amount of effort required to meet the needs of a decision outcome. Significant decisions are composed of a series of decisions rather than a single one, and it’s more effective to structure decisions so their value increases based on focus and sequence.
- Recognize who the decision makers are. Decision ownership is something few organizations regard. Testing the level and location of decision-making authority will help ensure that a decision has longevity and won’t need to be revisited to gain buy-in after the fact.
- Be clear about purpose. You can’t plan a route without knowing where you want to end up. Without a definitive goal, you will flounder through your analysis of criteria and options. Determining purpose means figuring out whether the outcome of your decision will be utilized for a year, a month, or simply until a bigger decision is made down the line.
- Identify alternatives after you understand purpose. If you identify alternatives too soon in the decision-making process, you may fall prey to availability bias. When you present a recommendation to a leader, she might have a “pet alternative.” Don’t disregard it. Instead, gather objectives, and add that alternative to the mix before you conduct your performance assessment. This gives you a clear and demonstrable way to show you have considered the alternatives in the same manner, regardless of outcome.
- Treat risk assessment as part of the process. Some ideas sound amazing in theory but carry too much risk associated with implementation. Get creative as you think about future implications, and don’t implement an idea before you have considered potential problems.
These strategies can help replace guesswork with analytic methods and minimize the times you have to rely on intuition. Remember, a decision is only as valuable as your ability to put it into action successfully. Choose wisely, and journey to your next port of call with the determination of a weathered captain.
About the Author
Andrew (Drew) C. Marshall is the Principal of Primed Associates, an innovation consultancy. He is a co-host of a weekly innovation-focused Twitter chat, #innochat; the founder, host, and producer of Ignite Princeton; and a contributor to the Innovation Excellence blog.