Organisational performance is the sum of decisions, both large and small. A series of good operational decisions compound into growth and competitive advantage. A series of bad ones does the opposite.
It only takes one of these common mistakes below to lead to poor decision making and compound significant losses in your organisation. How many do you recognise in your organisation?
1. Lack of scepticism
Humans are complex, emotional beings. We hold deep-seated beliefs that can play out both consciously and unconsciously. It’s a well known tactic of advertisers: play to an identity that upholds a customer’s view about who they are or want to be perceived. In confirmation bias, we more readily agree with the things we already thought were true, ignoring or marginalising the information that challenges our beliefs. This might be fine if you’re choosing a consumer good in your own daily life, but looking to substantiate the things that we believe in a business context is the death-knell for good decision making.
Unfortunately this isn’t helped by the fact that people are programmed for optimism. Our view tends to be skewed in favour of what we want to happen. A downturn coming in your market? The sales teams will be likely to keep their targets high and double down on outreach, and the marketing department might think they can boost the campaign to ride it out. These may offer some mitigation, but they’re often a band-aid in place of a tourniquet while business is bleeding losses. What is needed is a more objective and realistic appraisal of the situation in order to take the right corrective course of action.
2. Over-reliance on experience
People tend to like what they know. They’re comfortable with it, they understand it. They know what the impact of something will be if it’s happened before. Or, at least they think they do. This is how traditional demand forecasting processes work. Problem is, this relies on the patterns we can extract from past experiences, and these aren’t so helpful anymore.
The world is increasingly complex, volatile and unpredictable. So, just because A + B = C last month, doesn’t mean it will this month or next. Now more than ever before, you would be unwise to place all your bets on ‘C’. But that’s what so many of us do: stick to the patterns we know because we are creatures of comfort, familiarity and habit. So, when things change fast, we are often ill-prepared or slow to make the necessary adjustments. We haven’t programmed for or factored in the additional data we need.
3. Thinking correlation is causation
This is one of the biggest problems organisations make, and one of the most damaging. Let’s return to the example of A + B = C. This is all that correlation can ever tell you – the relationship between two things. It can’t account for more than two variables.
Here’s a stark example of this: in the winter months, sales of sledges go up and an increased number of old people die. Correlation would tell us that we should ban sledges. But we can look out the window and see it’s snowing, or check a weather app and instantly grasp that the extreme cold is causing both these things.
But in business, it’s not as straightforward, mainly because the number of variables is so large. Being able to understand how a vast web of interconnected things interact with each other requires a huge amount of processing power and analysis. Add to this the fact that a huge number of these things are unknown or unaccounted for and you can see how hard the decision making context is. It is only through a causal understanding of the world that we can actually know what is going on and what to do next.
4. Fitting data to your decision
According to a recent Gartner survey, over 60% of people in an organisation cherry pick data to fit the decision they want to make. And 50% retrofit data to confirm or support a decision that they’ve already made. Imagine the impact on your organisation if nearly two thirds have already decided a course of action and then pick the data to confirm it. Even if there’s evidence to the contrary. And if half of your team is making decisions and then using selective data to ‘confirm’ that it was a good decision, regardless of whether that is true.
Just think of the sheer volume of bad decisions being compounded in your organisation over time and your inability to understand the root cause of any problem you might be facing. Excessive amounts of inventory, erratic customer sales, production mismatches and supply chain issues; how do you know why they’re happening or what to do about them if your organisational decisions are stacked against you?
5. Wrong data or bad data
Information bias happens when data is handled incorrectly. This can be for a number of reasons, but it is almost always down to human error. The wrong information is collected, or it could be recorded in the wrong way or categorised incorrectly. To err is human, but no amount of divine forgiveness can reverse the significant impact that this can have on your business. A rogue digit on your spreadsheet could throw off your entire forecast.
Equally important is making sure that you are using the right datasets. If you’re about to jet off on holiday to Greece, you probably shouldn’t be looking at hotels in Spain. And yet, this often happens with organisational decision making: the wrong types of information or indicators are used. This links closely with causation. Knowing which variables to analyse is vital for good decision making.
6. Rule of thumb
Our brains make shortcuts all the time to make quick decisions. Sometimes they’re accurate, sometimes they’re not. This happens in an organisation too. People, teams and even whole functions come to rely on heuristics. There are times when these rules of thumb add huge value, but they are unscientific and usually untested. Do you really want your business to rely on mental shortcuts? Or would you rather a more systematic and scientific process where the human brain and computers can course-correct together.
Breaking the habit
All of the above make us human and that’s a good thing. But these human traits can harm organisational performance. Adjusting the course of a business based on any number of bad habits can easily send it off course. And you end up piling one bad decision on another. It doesn’t take long before profits, growth and organisational efficiency are badly impacted.
With a more scientific approach, companies can better prepare for today’s volatility, not just mitigating it, but turning it to their advantage. Businesses are run by people, and their judgement is essential. But it must also be checked, tested and applied in the right way. Human intervention should enhance the decision making process, not dilute it. The optimal decisions rely on a combination of human and machine.
The good news? This is possible. You can eradicate these bad habits and make decisions on a scientific basis, helping you maximise your competitive advantage. In fact, we’ve built the scientific method directly into organisational decision making with our decision intelligence software, Faculty Frontier. It builds a unique causal model of your organisation to help you understand what’s happening in your organisation and why, enabling you to make and action truly informed decisions. Click here to find out more.