Where Do Bad Decisions Come from?
“What were they thinking!” is a common refrain heard around the physical and virtual water cooler at almost every organization. Don’t think it applies to you or your company? Odds are very good that unless you are the only employee, someone in your organization has asked this question more than once in the last 12 months. While it may be tempting to simply dismiss these comments and their authors as obstructionists or haters to be pushed aside and overcome in the name of progress and leadership, it’s worth taking a moment to look closer and think deeper. The fact is, that for those in the business of making decisions, it is inevitable that eventually you will make one that results in a bad outcome for your organization.
With that admission out of the way then, let’s dive in to the seven decision making errors that can lead to bad organizational outcomes:
Type 1: Seeing causal relationships where none exist (a false positive). These are generally attributed to faulty testing or poor data interpretation and measured or estimated by α (Alpha); the statistical probability of incorrectly rejecting the null hypotheses.
Type 2: Failure to recognize causal relationships that do exist (a false negative). These are also generally attributed to faulty testing or poor data interpretation. However, type II error is measured or estimated by β (Beta), or the statistical probability of incorrectly accepting the null hypotheses.
Type 3: Visioning error; solving the wrong problems.
Type 4: Innovation error; failure to generate and select feasible and effective courses of action.
Type 5: Failure to act.
Type 6: Taking the wrong action or acting too soon.
Type 7: The iatrogenic cascade (management quicksand) is the serial creation of new and increasingly negative situations brought about through the interaction of past decisions and current circumstances. Despite the positive intent of organizational leaders, negative cascades appear when management decisions set the table for forces and actions, both inside and outside of the organizations, to interact in synergistic ways to the detriment of the firm.
The first six error types are generally well explained in businesses literature and resonate with the lived experience of business leaders. However, most business leaders have much less experience and practice dealing with management quicksand situations and compounding decision error (Type 7). The medical profession has long realized that early interventions such as the drugs administered to a patient set the table for interaction effects from future treatment that may combine in unexpected ways that harm the patient in the future. However, for young business leaders the current pandemic may be providing their first experience with this type of cascade. Even for seasoned professionals, they may have only one or two leadership experiences to draw from, such as 9/11 or the Great Recession, in which a large external black swan events interacted with their firm’s internal decision making to drastically alter the firm’s fortune.
The good news is that while such large-scale events are rare, the study of managerial decision making is well known. We know where decision-making errors come from and can use that knowledge to make better decisions. We can break linkages between internal decisions and external circumstances when they combine in unforeseen ways to amplify negative impacts to the firm. We can avoid or minimize the impact of decision errors, including those that set the table for management quicksand (type 7 error), by proactively avoiding it, recognizing it quickly when it happens, and using known decision-making frameworks to decrease risk and increase the quality of leadership coming from the C-suite.
While you can never eliminate water cooler speculation over your thought process, you can assure yourself, and your organization, that you are doing what it takes to reduce or eliminate decision-making errors. It’s hard work, but we know how to do it and are ready to help.
Let’s get to work!
