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25.11.2008 Business & Finance

Natural Forces That Shape Strategic Thinking

> Natural Forces That Shape Strategic Thinking

The way people think has a fundamental effect on their behaviour and the decisions they make. In today's write-up,we examine the most powerful and natural forces shaping strategic thinking: The human mind.## M:[Read more]##

We frequently suffer in the hands of businesses that do not seem to know what they are doing or doing what they know badly. Jeremy Kourdi believes there are several types of failure: Thinking flaws, leadership flaws, and cultural flaws. 

The way people think both as individuals and collectively within organisations, affects the decisions that they make in ways that are far from obvious and rarely understood. Bad decisions can often be traced to the way they were made in the first place: Alternatives not clearly defined; right information not collected; costs and benefits not accurately assessed. 

Sometimes the fault lies not in the decision making process but in the mind of the decision-maker. The working of the human brain can lead you towards a number of traps that you will avoid only if you recognise that they exist, and understand which ones are likely to influence your thinking. The following are some common traps.

Behavioural flaws 

The anchoring trap. This is where we give disproportionate weight to the first piece of information we receive. It often happens because the initial impact of the first piece of information is so significant that it outweighs everything else, drowning out ability to effectively evaluate a situation. 

As a result, the decision is anchored on this one issue. To avoid this trap, managers need to be sure about what really is happening, taking care to gather all the relevant informations in order to consider different options.

The status quo trap. This biases us towards maintaining the current situation, even when better alternatives exist. This might be caused by inertia or the potential loss of face if the current position was to change. 

Managerial recipes – beliefs and approaches that are developed over time from experience and become institutionalised – commonly guide strategic thinking and action. When a business formula worked once, it is convenient to believe that it will do so again. Often there are vested interests in maintaining the status quo. Or people may feel insecure about admitting that things have changed and recognising the need for a new approach. 

An organisation that as a whole values questioning, experimentation, openness and learning is much less vulnerable to the status quo trap. 

The sunk-cost trap. This inclines us to perpetuate the mistakes of the past because we have invested so much in an approach or decision that we cannot abandon it or alter course now. 

This trap is particularly significant when managing risk and making investments in new projects or making acquisitions. To avoid it, managers need to plan intelligently and know in advance where the plan can be modified and by how much. 

Maintaining a clear focus on the desired outcome is crucial, as is keeping a general overview of the project. 

The confirming-evidence trap. Also known as confirmation bias, this is when we seek information to support existing predilection and discount opposing information. It may result from a tendency to seek evidence to justify past decisions or support the continuation of the current favoured strategy. 

It can lead managers to fail to evaluate potential weaknesses or existing strategies and to overlook attractive alternatives. 

Managers should challenge and test existing assumptions to identify weaknesses in current thinking and to research alternative approaches in strategic development. 

The overconfidence trap. Closely lined to confirming-evidence trap, the overconfidence trap is when people have an exaggerated belief in their ability to understand situations and predict the future. 

This trap is more subtle and insidious than it may seem: to the overconfident, the solution may seem obvious when in fact a better option lies hidden elsewhere. It is wrong to assume that the best solution to any problem is easily available; because of the unrelenting pace of change, the best solutions often need to be unearthed. 

Many factors can cause overconfidence: a lack of sensitivity, complacency (perhaps resulting from past success), a lack of criticism or feedback, a tendency to make assumptions, a confident predisposition or sheer bravado. 

Agreeably, confidence is vital for success, particularly with difficult decisions where a steadfast, determined approach is needed. 

However, it is important to investigate and understand all the options before deciding on the appropriate action. This means not rushing to judgement and avoiding hasty, ill-conceived action.  

The framing trap. This is when a problem or situation is incorrectly stated, thus undermining the decision-making process. This is usually unintentional, but not always. Managers habitually follow established, successful formulas (or managerial recipes), and from their views through a single frame of reference. 

Furthermore, people's roles in an organisation influence the way problems are framed. For example, a manager being judged by the staff turnover in his team is likely to explain the departure of an employee in a way that does not undermine his position. 

The framing trap often occurs because well-rehearsed and familiar ways of making decisions are dominant and difficult to change. 

It may lead managers to tackle the wrong problem –  decisions may have been reached with little thought and better options may be overlooked. A failure to define the problem accurately may lead either to the wrong solution being implemented or to the right solution being implemented in the wrong way.

The causes of the framing trap includes poor or insufficient information, a lack of analysis, a feeling that the truth needs to be concealed, or a fear of revealing it, or a desire to show expertise. A simpler cause may be lack of time to frame the problem correctly. 

Organisations can go out of business if managers fail to adapt their frame of reference as the business environment changes. Defining problems accurately lays foundations for solving them. This requires sufficient time, efficient information systems and good analytical skills. It also depends on a supportive atmosphere where matters can be openly discussed. 

The recent event trap. Also known as hindsight bias, this trap leads us to give undue weight to recent (probably dramatic) event or sequence of events. It is similar to the anchoring trap, except it can arise at any time. Research has shown that if an event actually did occur, people often recollect that they had predicted it with a high degree of confidence. 

Asked about an event that did not occur, they either claimed that they had not predicted it, or that they had placed a low degree of confidence on the prediction of it occurring. Thus we believe that our judgements, predictions and choices are well made, but this confidence may be misplaced. 

The prudence trap. This leads us to be overcautious about uncertain factors. It reflects a tendency to be risk averse, and is likely to arise when there is a decision dilemma, when it is felt to continue with the current approach carries risks and that alternative approaches also carry risks. 

Yet good decision-making depends on a willingness to take calculated risks and to minimise them. Fear of failure is understandable. Parameters must be set, indicating how and when to manage risk and where experimentation is allowed, and ensuring it is properly managed and controlled. 

Coping with decisions

To lower the stress inherent in decision dilemmas, many people avoid a real decision by deciding to wait and see. This may increase risk because it prolongs an outdated and inappropriate strategy. 

Over-reliance on previously winning formula has damaged many businesses that were, in their time, successful first-movers. It is dangerous to assume that what has worked before will work again. Putting off real decisions reinforces damaging attitudes and allows time for de-motivation and cynicism to take hold. 

Setting clear strategic priorities can help avoid procrastination, as does empowering people and making their responsibilities clear. 

Cultural flaws

The culture of an organisation can hinder effective decision making in to opposite ways.

 Fragmentation occurs when people are in disagreement. Usually, dissent is disguised or suppressed, although it may surface as “passive aggression.” 

Dissent often festers in the background, being muttered to colleagues rather than raised openly. Each fragmented group, and these may be several, is likely to show a confirmation of bias and evaluate incoming information to support their initial opinions, rather than view it objectively. 

Fragmentation may be caused by or be the cause of factionalism and any move to break it may be seen as an attempt to gain dominance by one faction. 

Groupthink is when an impression of harmonious agreement is given because ideas that do not support the line a group is taking are suppressed. It may occur because individuals are denied information, or lack the confidence or ability to challenge the dominant views of the group.

 Groupthink can occur when teamwork is either strong or weak. As with fragmentation, the longer it lasts, the more entrenched and “normal” it becomes.

Such behaviours are common in organisations. Decisions may be validated by people who want to satisfy and support others, or who are keen to avoid conflict and risk. 

When information is collated and analysed through a filter that reflects a particular perception, the more entrenched and self-reinforcing the situation becomes. 

When such entrenched, self-reinforcing feedback loop exist, there is no chance that the people trapped in them will accurately sense when and why circumstances are changing. 

— The writer is a lecturer at the Ghana Institute of Management and Public Administration (GIMPA). [email protected] [email protected]

Article By Capt. Sam Addaih (retd)

   

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