Does Your Organization Have Cognitive Biases that Influence Management Decisions?

The answer to the question in the titles is, “Yes, of course.” Now how many of you are scratching your heads and saying, “Bruce has gone off the deep end, I don’t even know what a cognitive bias is!” All human-centered organizations (I am assuming you don’t work with robots) have cognitive biases based on culture and the experience of key decision makers. The goal of decision-making best practice is not to remove cognitive biases, but to institute decision processes that minimize their potential negative impact.  While I am not a cognitive scientist, our CEO and founder is, and I find as a manager I can gain a lot of insights into how to do my job better from this discipline.  So today my post is intended to make you focus a little more on the way people (humans) think and act.

So, what are cognitive biases?
According to a recent report by Dan Lovallo and Olivier Sibony in McKinsey Quarterly, “The Case for Behavioral Strategy,” cognitive biases are, “systematic tendencies to deviate from rational calculations” as described in research on behavioral economics. For several good examples, written in an easy to understand and entertaining fashion, you can check out Dan Ariely’s book, “Predictably Irrational, Revised and Expanded Edition: The Hidden Forces That Shape Our Decisions.”

A June 2011 article in “Harvard Business Review” triggered my thinking on this subject by offering help in ferreting out cognitive biases that impact decision making. (The Big Idea: Before You Make That Big Decision; by Daniel Kahneman, Dan Lovallo, and Olivier Sibony). An added goody is a survey to help you identify your own biases. I followed some of their recommendations for further reading on the subject and offer these bits of information and resources for your consideration.

The types of cognitive biases suggested in “The Case for Behavioral Strategy” were:

  • Action biases that reflect excessive optimism, overconfidence or failure to integrate potential responses to your organization’s chosen course of action by competitors.
  • Interest biases – self-serving recommendations or attachment to previous products or plans.
  • Pattern recognition biases – this includes confirmation bias, when individuals over-weight evidence favorable to their recommendation and disregard or under-value evidence that contradicts their opinions. This bias also includes relying on evidence from prior situations that are not parallel with the current situation and being persuaded by a good storyteller or the desires of a particularly powerful person in the organization.
  • Stability biases such as aversion to loss or fear of change.
  • Social biases like for consensus or following the leader.

Dealing with Biases
You may not be able to recognize your own biases, however Daniel Kahneman suggests that there are clues you can follow or questions to ask in order to search out and counteract biases in others. In their conclusions, the authors recommend building a process for major decisions that is less distorted by cognitive biases. I recommend the entire article for your review, so I offer but a few enticing ask-yourself-questions from the Executive Summary and article:

  • Has the team fallen in love and lost objectivity about its proposal?
  • Were there dissenting opinions within the team and were they fully explored?
  • Are credible alternatives included along with the final recommendation — not just the easy to dismiss paper tigers or wounded horses?
  • “If you had to make this decision again in a year’s time, what information would you want, and can you get more of it now?”
  • Did the team conduct a premortem, that is “Imagine that the worst has happened and develop a story about the causes.” (Performing a Project Premortem, by Gary Klein)
  • Use Reference Class Forecasting — (for me this was a new term, so I share this summary as an aside: a relevant reference class uses past similar projects to assess likely outcomes of the proposed decision. You perform a statistical analysis on the outcomes of those projects in terms of time, budget and conformance with expectations and then infer the likely outcome of the proposed project. Bent Flyvbjerg talks about reference class forecasting, with examples, in “Eliminating Bias in Early Project Development through Reference Class Forecasting and Good Governance.”)

My advice to you is to be aware that you and others have biases that influence perceptions, recommendations and decisions. Protect your organization by involving a diverse group in collecting information and considering options. Collect data and use it. Encourage dissenting opinions before a final decision is made.

A couple more resources:
“Project Management Journal”: From Nobel Prize to Project Management; Bent Flyvbjerg; 2006
“Strategic decisions: When can you trust your gut?”  Gary Klein

Planning Your Organizational Change

Last week, I talked about the inevitability of change and why project and senior managers face challenges in successful change execution. (Don’t Take Organizational Change for Granted – Manage it) I know that you cannot overcome all problems associated with change. However, planning and communication minimize the discomfort.

The first planning step is deciding where you want the organization to be when the change is complete. This creates both the vision and evaluation criteria. On rare occasions, the resulting change vision rests solely with a leader, more often though the vision comes from discussions with people representing several parts of the organization. After the initial discussions, the successful change requires a project leader, a champion and a small group of committed individuals.

The core team tasked with implementing the change needs to spent time creating a “talking points presentation” about what, why, and how. Talking points are sound bites (Yes, just like the politicians use!). They are not paragraphs of text or pages of process – those come later. In creating the key points you want to communicate, address the reasons people resist change – fear, no perceived need, moving people out of their comfort zone – cover those concerns specifically in the talking points. Remember, just as in politics, change is local.

Consider implementing a rolling change rather than a company-wide alteration of process and tools simultaneously. Although the core actions of the change have the same goals for each part of the organization, the impact and implementation details will vary across departments. If you have the luxury of time and resources, consider beginning the change with test cases or single departments and learn how to improve the implementation process as you go along. I have a theory in change management – “Less is more.”  Don’t try to get everyone to make big changes all at once, rather go for small wins and changes in perception and behavior.

During the initial planning, create an implementation schedule and make sure that employees know that their feedback and suggestions will be integrated, as the change becomes inclusive of the entire company. Add training into the schedule. Include a time for evaluation at each increment or stage and factor in some time for reflection.

DO NOT FORGET TO SHARE WITH CUSTOMERS AND CLIENTS

Customers and clients do not like surprises, even positive ones. Share the talking points and plans with key customers and stakeholders. Tell them how they will experience the change – sell it. Ask for their input and feedback. Keep the communication personal. Schedule face-to-face meetings; include a presentation at a shareholder’s meeting or in the annual report. Have marketing or business development personnel, customer service staff or business analysts talk with key clients as the organization prepares for change.  I just worked with a small health care company and the CEO was excellent at incorporating the clients and stakeholders into the changes he was making internally.  The result for his company was increased respect and business.

Share successes and challenges with all stakeholders. Celebrate success!

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