There is no shortage of strategic decision failures, through missed opportunities and/or bad (or reckless) choices. Missed opportunities abound, even for industry leaders, e.g. Kodak, Blackberry, Nokia, Yahoo!, Barnes & Noble. Approximately 50% of M&A deals result in “partial” or “substantial” value erosion [1], and IT and capital projects routinely exceed budget and schedule, and under-deliver on their planned benefits [2], [3].

In this article, I offer a simple framework to answer the question “why does our decision making often go wrong?”.

I imagine that there are already such frameworks that I could use for this purpose, but, despite searching, I haven’t found one, so I made up something that I think could be useful. I am very keen for any feedback on this framework or suggestions of other frameworks that you, the reader, might offer.

Ok, here goes.

I figure that our decision making goes wrong due to distorting influences at one or more of the following five levels: 1. our feelings, 2. our thinking, 3. our identity, 4. others, 5. organisation / society. It might be useful to visualize these levels as concentric circles.

Below I unpack this framework with the use of examples at each level. Each example is intended to show things that can happen that will distort our decision making. I welcome your suggestions for other examples in each category.

1. Our feelings

We don’t appreciate how our biological discomfort can affect our decisions (for instance, we shouldn’t shop for groceries when we’re hungry)

When we feel emotional our decision clarity is impaired

2. Our thinking

We avoid cognitive effort

We settle for what easily comes to mind and don’t apply enough imagination

We don’t appreciate the impact of cognitive biases on our decisions (see The Mother of all Biases)

Knowingly or not, we rely on our heuristics, because they generally work well for us

We are uncomfortable in dealing with uncertainty and so instead we make overly simplistic assumptions

3. Our identity

We believe we are rational while believing others are not

We have too much confidence in our experience and intuition (see Don't be so sure and Reliability of Intuition?)

Our decisions in the past have mostly worked out well, so we believe our future decisions will too

We feel under time pressure and that we don’t have time for a more analytical approach

We don’t learn, because we ascribe good luck to our capabilities and bad luck to external factors (see Success = Talent + Luck, but Great Success = …)

We have egos and don’t like to be challenged

4. Our relationships with others

We have too much trust in expert opinion (see An inability to Forecast)

We prefer people like us and hence don’t readily encourage diverse perspectives (see The Diversity Multiplier)

We don’t recognize the decision distorting power of social pressure

For reasons of fear and/or greed, we “play the game”

5. Our organization / society

Our incentive structures don’t align well to corporate objectives

We are constrained by a prescribed way of making decisions

We believe that the quality of strategic decisions should be assessed on the

outcome achieved (see Reward good effort, not outcome)

Short term pressures from shareholders

Organizational politics

So, is this a useful framework? To answer that we need to test the framework against a few criteria:

· Is it MECE (mutually exclusive and collectively exhaustive)?

· Does it offer new insights?

· Can it be practically applied?

Since I recognise that I am biased 😊, I leave this to you, the reader, to please comment on.

A satisfactory solution requires a good understanding / diagnosis of the problem. The intention of this framework is as a means to diagnose or enrich our diagnosis of a decision context.

End note: I recognise that the first three layers (feeling, thinking, identity) have a loose parallel to Don Norman’s three levels of design (visceral, behavioural, reflexive) [4] and the triune brain model (reptilian, paleomammalian, neomammalian) [5].

References:

[1] "Seven catalysts for merger integration success," Accenture’s A. Tinlin and A. Verga

[2] "Delivering large-scale IT projects on time, on budget, and on value," McKinsey & Co’s M. Bloch, S. Blumberg and J. Laatz

[3] Independent Project Analysis Inc (ipaglobal.com)

[4] “Emotional design: Why We Love (or Hate) Everyday Things”, Don Norman

[5] https://en.wikipedia.org/wiki/Triune_brain