Decisions are the fuel on which every organization runs. Even though we’re moving away from the old concept of leaders as “deciders” and employees as “doers,” the CEO still holds the key responsibility of making decisions that affect the entire group. This is one of his or her five responsibilities as chief executive.
Unfortunately, CEOs—like all humans—aren’t usually very good at making decisions.
In their book, Decisive: How to Make Better Choices in Life and Work, Chip and Dan Heath explore our collective decision-making weaknesses as human beings. They describe what they call the “four villains of decision making”—narrow framing, confirmation bias, short-term emotion, and overconfidence about the future.
I think these four villains map particularly well to the way most CEOs approach decisions. Let’s see what they look like in action, and how we can keep them from leading us and our companies astray.
Villain #1: Narrow Framing
Say a CEO is asked to make a decision about an acquisition. We encounter the first villain in how the question is posed: “Should we acquire credit union XYZ?” The decision has been framed very narrowly, often because it is reactive. Instead of asking, “What is the best way to invest a certain amount of money to expand our membership reach?” the question narrows the decision to a simple yes or no.
The CEO’s first responsibility in every decision-making process is to widen the scope of the decision and make sure it is framed as broadly as possible so the discussions get to the root of the real issue.
Villain #2: Confirmation Bias
Even if the question is properly framed, it is easy for people to search out only the information that confirms their preferred course of action. Confirmation bias happens every day in companies, from hiring decisions to large-scale strategy choices.
In mergers and acquisitions, I’ve seen companies assign huge teams of people to collect thousands of pages of information during their due diligence. The problem is that a large majority of that information turns out to not be relevant to the decision-making process. All it does is make people feel more certain of their positions.
The right approach might be to decide before you begin what assumptions need to be tested to gather specific proof in support of doing the deal and what factors, if discovered, would cause you not to do the deal. One team should test the assumptions while another team should be charged with uncovering reasons not to proceed.
Villain #3: Short-Term Emotion
Any time a lot of work is put into an effort, people will become emotionally invested in the decision. No one wants to do months of work only to decide not to move forward. The vast majority of CEOs are predisposed to action. So, when it comes down to making a decision, their default position will be to do something. The driving force of short-term emotion can cause bad decisions that have long-term implications.
Villain #4: Overconfidence About the Future
Finally, after a decision is made, we convince ourselves that we made the right decision regardless of any future data. In a study from KPMG regarding mergers and acquisitions, 82 percent of CEOs reported that a major acquisition each one had led was a success. When KPMG analyzed the objective data, they found that “83 percent of the mergers were unsuccessful in producing any business benefit as regards shareholder value.”
Talk about a disconnect between beliefs and reality. Not only do we make poor decisions; we also tend to deny it when we do. Therefore, it’s critical that leaders continue to look for objective data after a decision has been made to adjust to changing conditions as quickly as possible.
As CEO, it’s vital to be constantly on the lookout for these four villains of decision making. Look for examples from your own past, ask other credit union CEOs about their own good and bad decisions, or even look for the villains at work as you read The Wall Street Journal. Your work to stay vigilant of these biases will pay off in more informed, effective decisions about the business.
Joel Trammel is CEO of Khorus. Download his free e-book, 15 CEO Best Practices for Exceptional Results to get his take on how to succeed in this challenging, one-of-a-kind role.