HBR, NOVEMBER 14, 2013
The next two posts deal with decision making which is a critical component of any process within a business. You must recognize the traps (this post) many fall into and biases that affect everyone (next posting). The major traps are:
An unrealistic search for silver-bullet solutions. Most business problems are complex. But many executives badly want a silver bullet — a simple action that will leapfrog the competition or supercharge an organization’s performance in one fell swoop.
Failure to consider alternatives explicitly. Business is a game of choices, and you can’t make good choices without good alternatives. But most organizations do not explicitly formulate and evaluate alternatives in making big decisions.
Too many people involved. Important decisions are hard to make in large groups. Sensitive issues don’t get thoroughly discussed. Personalities interfere with reasoned argument. In fact, our research highlights the “Rule of 7″: for every individual you add to a group beyond seven, decision effectiveness declines by 10%.
Failure to consider opportunity cost. The decision to start doing something new is only one form of high-stakes decision. Another—often with equally big consequences—is to keep doing something you’re already doing. The decision not to shut down an uncompetitive product line or exit an unprofitable market can consume as much scarce management time and other resources as any merger. Yet few executives appreciate the opportunity cost associated with continuing with a losing venture.
Underestimating the challenges involved in execution and change management. The complexities associated with a big-stakes decision rarely end with the decision itself. Indeed, recent Bain research indicates that only 12% of large-scale changes are executed as intended.