How to Avoid Making Bad Decisions When Change Is Needed

A man backs away in fear of what looks link a tsunami about to engulf him

Rarely, one hopes, do bad decisions end in a disaster like the one pictured above. But they do cause a rash of problems. And, in the corporate world, poorly made decisions around change initiatives can lead to epic business failure. Managing change is difficult enough but don’t make it even more challenging by sending the company in the wrong direction by poor decision making.

As much as we would like to think that decisions are made purely rationally, decision makers are human beings after all. We are all subject to emotional biases that taint the process. Let’s face it…decision making is a messy but critical skill for business leaders. The bigger the decisions around major change, the greater the risk if they are wrong. The hope for those of us in charge is that, if we are aware of the emotions that get in the way of sound decisions and well-managed change, we can better account for and avoid them.

From our over two decades of change management consulting, we share a list of three feelings that color the way we make choices around change and some consequences of those decisions:

  1. Beware of the bias of overconfidence
    We all like to think we’re better than we actually may be. We see our abilities through rose-colored glasses. In business this can lead to unrealistic and foolish optimism. Remember the deal the chairman of Time Warner made to merge with America Online? He was so confident in the deal he had crafted that he decided not to place a limit whereby he would have the option to revisit terms if stock fell below a certain level. Soon thereafter AOL shares dropped 50%. Time Warner was out of luck.

    The overconfidence bias measures the difference between what people really know and what they think they know. And experts suffer more from the overconfidence effect than laypeople because they consistently forecast no better – but with a higher degree of certitude.

  2. Avoid the bias of motivated reasoning
    Confirmation bias (or motivated reasoning) is a tendency to search for or interpret information in a way that incorrectly confirms one’s preconceptions. It leads decision makers to actively seek out and assign more weight to evidence that endorses their hypothesis, and ignore or underweigh evidence that could disprove their premise. For example, GM failed to recognize the trend toward smaller cars. They had an edge with their large models and believed that they could continue to “win” because that is what they wanted to believe. This bad decision resulted in their 2009 bankruptcy. Could this have been avoided if GM had not ignored information which challenged their preconceived notions?
  3. Be careful of the bias of faulty framing and anchoring
    A framing bias occurs when people react to a specific choice in different ways depending on how it is presented. In general, people tend to circumvent risk when a positive frame is presented but pursue risks when a negative frame is presented. An anchoring bias occurs when people rely too heavily on the initial (or only one) piece of information offered when making decisions.

    Good decisions are based on good information. But what happens when the information is poorly framed or anchored in a predetermined reference point? For instance, when negotiating, the initial price usually sets the baseline for the rest of the conversation. Because of this, prices that are lower than the initial price seem more reasonable even if they are actually higher than what the products or services are truly worth. An example in business is the decision of the London executive of Decca Records who rejected the Beatles when they auditioned there. He framed his remarks around his belief that “groups were out”…especially those with guitars. Or consider the decision Coca-Cola made in introducing the New Coke. They had run numerous taste tests but never asked if their tasters really wanted to replace the old with the new. Coke executives used the wrong reference point to make their faulty decision.

During change, think carefully about how you structure your communications and initiatives because people will naturally “anchor” whether you want them to or not.

The lessons? Watch out for emotional biases as you make decisions and plan for change. Follow a sound decision-making process so you don’t leap ahead to conclusions without careful evaluation. Invite colleagues to challenge your thinking and to represent another opinion. Minimize overconfidence, motivated reasoning and faulty framing so that the decisions you make and the changes you propose propel your business toward a healthy, robust future.

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