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Management biases: handling human blunder

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Biases

Succeeding in today’s business environment involves not only having a strategy designed in a way that ensures the company’s success, but also using the proper methods to make sure the strategic decision-making process will be as accurate as possible. In order to arrive at such a result, managers should be aware of the biases that can appear within organizations and what techniques they can use to control or reduce them.

Following the article that details the errors which can occur when designing the strategy of a company, the biases that can appear when top management must make a decision are presented below:

1. Group thinking

Because most strategic decisions are made in groups, the context in which this happens is essential. The psychologist Janis, I. (1972) defines group thinking as a psychological driver for consensus at any cost, which suppresses dissent and appraisal of alternatives in cohesive decision making groups.  As a result, group thinking can lead to poor strategic decisions. To put it in other words, group thinking occurs when a person or a nucleus of people in a group support a decision without questioning and considering the facts and/ or the alternatives.

An example can be seen in the circle of the former U.S. president, John F. Kennedy, when the members of his group supported the decision to invade Cuba in 1961, even though available information showed that it would be an unsuccessful mission and it would damage the United States’ international relations.

2. Prior hypothesis

This can occur when managers (the decision makers) have strong beliefs regarding two variables and tend to make decisions based on those beliefs, even though they are presented with facts and figures which state the opposite. They can also tend to seek information that supports their prior belief while ignoring everything proves the contrary.

In a strategic context, this can happen when a CEO, with prior experience in strategy planning, decides to adopt a certain strategy based on previous experience only. In other words, he decides to go with a strategy just because it worked before, disregarding the facts that do not support his decision.

3. The illusion of control

This bias refers to the manager’s overconfidence in his ability to control different events.  Richard Roll (1986) refers to the illusion of control as the hubris hypothesis of takeovers and explains that managers are overconfident about their ability to create value and they end up by acquiring other companies, for example, sometimes even at higher prices than their actual value.

The existence of management biases shows the need of controlling the decision making process to make sure it is as accurate as possible and based on facts only. Two techniques can be used in order to do so:

1. Devil’s advocate

It requires both a plan and the critical analysis of the plan. The people who are responsible with the final decision split in 2 groups: half of the decision makers come with arguments that support the implementation of the plan and the other half with arguments that will make the proposal unacceptable.

2. Dialectic inquiry

It requires the generation of a plan and a counter-plan. Decision makers listen to the arguments and limitations, and then decide which one will bring them the most results with the least amount of resources.

All people are, intrinsically, subjective, as they see the world through their own past experiences and will take action based on those beliefs. What can be done for taking an objective decision is to create a context where each person will follow a set of rules, hence reducing the level of subjectivity.

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