Top 10 Cognitive Biases that Affect Strategic Planning

Are You and Your Leadership Team Aware of the Top Cognitive Biases that Affect Strategic Planning?
We are all subject to cognitive bias. The term refers to the way that the framing of information and its context can influence our decision-making and judgment. Certainly, framing and context can help us to make decisions more efficiently, but cognitive bias also can lead us to errors in judgment because we are not being completely rational and objective.

Cognitive Bias and Strategy Planning
There is arguably no more important responsibility of business leaders than to develop a clear, believable, and implementable strategy for their enterprise that will lead to success. Leaders need to design a game plan that outlines clear and compelling choices about where to play and what actions to take.  Done right, a successful strategic plan sets a company up to perform beyond just the sum of its parts.

As leaders hold strategy retreats, design business models, and build plans, they need to be mindful of hidden biases which could affect their thinking and put the business at risk. Rather that succumbing to a one-sided view or to closing off their minds to new situations and ideas, business leaders must actively guard against cognitive biases that affect strategic planning.

The Top 10 Cognitive Biases that Affect Strategic Planning
The best way to avoid faulty strategic thinking is to recognize bias when it raises its ugly head. Here are the top cognitive biases from leadership simulation assessment data that can lead you astray:

1. Action-Oriented Bias
   Action-oriented biases can push leaders to act or move to action-oriented discussions too soon or less thoughtfully than they should during the strategic planning process. Often caused by a perceived pressure to act, overconfidence, the need to feel in control, insular thinking, or a lack of systemic thinking skills, the tendency to act too soon can derail strategic innovation and stakeholder buy-in.

   To combat action-oriented bias, design in the time to consider several strategic scenarios along with the consequences of both action and inaction.

2. Anchoring Bias
   People who are subject to anchoring bias depend too much on initial information (the anchor) to make subsequent judgments. Leadership teams that attach themselves too much to an initial value, idea, or approach can often make bad decisions and fail to see other strategic alternatives objectively.

   One of our favorite ways to combat anchoring bias during strategic planning is to designate a red team to challenge ideas of the group.

3. Attribution Error
   Attribution bias explains our tendency to underestimate the influence of the situation on people’s behavior. From a strategic planning perspective, this can cause executive teams to miscalculate the importance of aligning their corporate culture with their strategy.

   New strategies often call for new behaviors and new ways of thinking. Make sure you understand and shape your culture to help, not hinder your strategic priorities.

4. Confirmation Bias
   Confirmation bias leads us to not only look for evidence that validates what we already think but also to discount information that supports other points of view. In a changing and competitive landscape, confirmation bias can be devastating.

   To ensure that your strategic planning process does not overweight information favoring your existing beliefs, use third parties to create a neutral fact base during the information gathering stage.

5. Dunning-Kruger Effect
   This effect is when a leader, division, or company thinks they are good at something that they actually are not. It is not hard to see how overestimating abilities can negatively impact strategic decision making.

   To ensure that you have an accurate take on your capabilities, use benchmarks, 360 degree feedback, competitive research, and client focus groups to see where you truly stand.

6. Framing Effect
   Similar to the anchoring bias, the framing effect impacts our decision making as a consequence of how the information is presented instead of on the information itself. This effect can derail strategic plans if lesser options or poor information is framed in a more positive light or if more attractive options or better information are cast in a less favorable light.

   To avoid the framing effect, actively involve the entire strategy design team in how information should be presented and insist on a strong rationale behind each strategic imperative.

7. Groupthink
   Groupthink occurs when groups make decisions in a way that discourages creativity or individual responsibility in favor of harmony or conformity. Consensus becomes the driving force. Unfortunately, groupthink during strategic planning discourages critical thinking, innovation, and constructive debate — three important attributes in a healthy strategy design process.

   To minimize groupthink, make sure that everyone has a chance to share their opinion, encourage alternative viewpoints, and purposefully test different scenarios.

8. Planning Fallacy
   The planning bias refers to an unrealistic and underestimated prediction of how much time a task will take, how much a task will cost, and risks associated with that task. The tendency to be overoptimistic is human but can be risky when allocating resources and creating strategic timelines.

   Smart leadership teams build steps into the strategic planning process to compare timelines, costs, and risks to similar projects and to outside estimates in order to create more realistic plans.

9. Primacy Effect
   The primacy effect is the tendency to consider the first piece of information we encounter more than later information. As you can imagine, the primacy effect greatly impacts decision making.

   To minimize its impact, invest the time to do the required research and consider all options equally.

10. Sunflower Bias
    In almost every team there is a level of sunflower bias — the tendency to align with the expressed or assumed views of their leader.  Sometimes called “follow the leader,” this bias greatly diminishes the value and diversity of your strategic planning team.

    If you suspect that there is too much sunflower bias, stay curious longer, ask more open-ended questions, run alternative scenarios, and move to action slower.

The Bottom Line
Cognitive biases represent flawed thinking that can lead to bad decisions and misaligned strategies. The more you are aware of these common but overly influential biases during your strategic planning process, the better prepared you and your team can be to design a winning strategy for success.

To learn more about how to create clear, believable, and implementable strategies, download Should You Facilitate Your Own Strategy Retreat – 3 Guidelines to Help You to Decide?