Mckinsey Quarterly on Behavioral Strategy Spring 2010
28
On the cover
Seeing through biases in strategic decisions
Artwork by Paul Wearing
29
30
The case for behavioral strategy
Dan Lovallo and Olivier Sibony
46
How we do it: Three executives reflect on strategic decision making
WPP’s Sir Martin Sorrell Kleiner Perkins’ Randy Komisar Xerox’s Anne Mulcahy
58
When can you trust your gut?
A conversation between Daniel Kahneman and Gary Klein
Also in this package:
44 68
A language to discuss biases Taking the bias out of meetings
30
The case for behavioral strategy
Dan Lovallo and Olivier Sibony
Left unchecked, subconscious biases will undermine strategic decision making. Here’s how to counter them and improve corporate performance.
Once heretical, behavioral economics is now mainstream. Money managers employ its insights about the limits of rationality in understanding investor behavior and exploiting stock-pricing anomalies. Policy makers use behavioral principles to boost participation in retirement-savings plans. Marketers now understand why some promotions entice consumers and others don’t. Yet very few corporate strategists making important decisions consciously take into account the cognitive biases—systematic tendencies to deviate from rational calculations—revealed by behavioral economics. It’s easy to see why: unlike in fields such as finance and marketing, where executives can use psychology to make the most
Dan Lovallo is a professor at the University of Sydney, a senior research fellow at the Institute for Business Innovation at the University of California, Berkeley, and an adviser to McKinsey; Olivier Sibony is a director in McKinsey’s Brussels office.
32
2010 Number 2
of the biases residing in others, in strategic decision making leaders need to recognize their own biases. So despite growing awareness of behavioral economics and numerous efforts by management writers, including ourselves, to make the case for its application, most
On the cover
Seeing through biases in strategic decisions
Artwork by Paul Wearing
29
30
The case for behavioral strategy
Dan Lovallo and Olivier Sibony
46
How we do it: Three executives reflect on strategic decision making
WPP’s Sir Martin Sorrell Kleiner Perkins’ Randy Komisar Xerox’s Anne Mulcahy
58
When can you trust your gut?
A conversation between Daniel Kahneman and Gary Klein
Also in this package:
44 68
A language to discuss biases Taking the bias out of meetings
30
The case for behavioral strategy
Dan Lovallo and Olivier Sibony
Left unchecked, subconscious biases will undermine strategic decision making. Here’s how to counter them and improve corporate performance.
Once heretical, behavioral economics is now mainstream. Money managers employ its insights about the limits of rationality in understanding investor behavior and exploiting stock-pricing anomalies. Policy makers use behavioral principles to boost participation in retirement-savings plans. Marketers now understand why some promotions entice consumers and others don’t. Yet very few corporate strategists making important decisions consciously take into account the cognitive biases—systematic tendencies to deviate from rational calculations—revealed by behavioral economics. It’s easy to see why: unlike in fields such as finance and marketing, where executives can use psychology to make the most
Dan Lovallo is a professor at the University of Sydney, a senior research fellow at the Institute for Business Innovation at the University of California, Berkeley, and an adviser to McKinsey; Olivier Sibony is a director in McKinsey’s Brussels office.
32
2010 Number 2
of the biases residing in others, in strategic decision making leaders need to recognize their own biases. So despite growing awareness of behavioral economics and numerous efforts by management writers, including ourselves, to make the case for its application, most