4. HBR Issue: February 2009
Article Title: Why Good Leaders Make Bad Decisions by Andrew Campbell, Jo Whitehead and Sydney Finkelstein.
Question: Leaders make quick decisions through unconscious processes by recognizing patterns in situations. This approach can lead to errors of judgment. In this context, examine the factors that influence good leaders to make biased decisions and assess the process of decision-making that affects these factors. Also suggest some measures that help organizations reduce the risk of biased judgment. Decision making lies at the heart of our personal and professional lives. Every day we make decisions. Some are small, domestic, and innocuous. Others are more important, affecting people’s lives, livelihoods, and well-being. Inevitably, we make mistakes along the way. The daunting reality is that enormously important decisions made by intelligent, responsible people with the best information and intentions are sometimes hopelessly flawed. Consider Jürgen Schrempp, CEO of Daimler-Benz. He led the merger of Chrysler and Daimler against internal opposition. Nine years later, Daimler was forced to virtually give Chrysler away in a private equity deal. Steve Russell, chief executive of Boots, the UK drugstore chain, launched a health care strategy designed to differentiate the stores from competitors and grow through new health care services such as dentistry. It turned out, though, that Boots managers did not have the skills needed to succeed in health care services, and many of these markets offered little profit potential. The strategy contributed to Russell’s early departure from the top job. Brigadier General Matthew Broderick, chief of the Homeland Security Operations Center, who was responsible for alerting President Bush and other senior government officials if Hurricane Katrina breached the levees in New Orleans, went home on Monday, August 29, 2005, after reporting that they seemed to be holding, despite multiple reports of breaches. The reality is that important decisions made by intelligent, responsible people with the best information and intentions are sometimes hopelessly flawed. All these executives were highly qualified for their jobs, and yet they made decisions that soon seemed clearly wrong. Why? And more important, how can we avoid making similar mistakes? This is the topic we’ve been exploring for the past four years, and the journey has taken us deep into a field called decision neuroscience. We began by assembling a database of 83 decisions that we felt were flawed at the time they were made. From our analysis of these cases, we concluded that flawed decisions start with errors of judgment made by influential individuals. Hence we needed to understand how these errors of judgment occur. In the following pages, we will describe the conditions that promote errors of judgment and explore ways organizations can build protections into the decision-making process to reduce the risk of mistakes. We’ll conclude by showing how two leading companies applied the approach we describe. To put all this in context, however, we first need to understand just how the human brain forms its judgments. How the Brain Trips Up
We depend primarily on two hardwired processes for decision making. Our brains assess what’s going on using pattern recognition, and we react to that information—or ignore it—because of emotional tags that are stored in our memories. Both of these processes are normally reliable; they are part of our evolutionary advantage. But in certain circumstances, both can let us down. Pattern recognition is a complex process that integrates information from as many as 30 different parts of the brain. Faced with a new situation, we make assumptions based on prior experiences and judgments. Thus a chess master can assess a chess game and choose a high-quality move in as little as six seconds by drawing on patterns he or she has seen before. But pattern recognition can also mislead...
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