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Why Good Leaders Make Bad Decisions?
- 2. MARTIN WINTERKORN • AMERICAN ENVIRONMENTAL OFFICIALS REVEALED THAT THE WORLD’S LARGEST AUTOMAKER HAD PUT SOFTWARE INTO ITS DIESEL CARS THAT MANIPULATED EMISSIONS TESTS. THE COMPANY SUBSEQUENTLY ADMITTED THAT 11 MILLION CARS WORLDWIDE HAD THE SOFTWARE. - SEPT,2015.
- 3. • FAILURE IN TESTING CHANGED BEFORE IMPLEMENTATION, ELIMINATION OF DISCOUNTS AND PROMOTIONS AND REDEFINING THE BRAND AND POOR AD CAMPAIGNS -APRIL 2013
- 4. • THE REALITY IS that important decisions made by intelligent, responsible people with the best information and intentions are sometimes hopelessly flawed (Campbell 2009).
- 5. DELUSIVE EXPERIENCES INAPPROPRIATE ATTACHMENTS AMBIGUOUS PREJUDGMENTS IMPROPER SELF-INTEREST
- 6. EXPERIENCE DATA AND ANALYSIS DEBATE AND CHALLENGE – DECISION GROUP STRENGTHENING GOVERNANCE MONITORING RISKS
- 7. Campbell. A., Whitehead. J. & Finkelstein. S. 2009, ‘Why Good Leaders Make Bad Decisions’, Harvard Business Review, Vol. 87, Issue 2, pp.60-66. Campbell. A. & Whitehead. J. 2009, ‘Think Again – How Good Leaders can avoid Bad Decisions’, The Ashridge Journal. Viewed 4 May 2016. < https://www.ashridge.org.uk/Media- Library/Ashridge/PDFs/Publications/ThinkAgain.pdf>. White. E. 2009, ‘Why Good Managers make Bad Decisions’, The Wall Street Journal. Viewed 4 May 2016. <http://www.wsj.com/articles/SB123438338010974235#:iihwhU6sMU_OgA> .
Editor's Notes
- Good afternoon everyone, My name is Abhi, this is Chris and Madhuri. The fact that human life progresses on the basis of decisions made, only makes taking good decisions on a consistent manner very significant. Mistakes and errors are bound to happen as it is a part of human nature.
- In the case of Volkswagen approved the use of software knowing that it can be illegally used to manipulate the system during lab testing. When caught, the loss was approximated at 7.3 Billion USD. As a consequence, the ceo resigned and issued a public apology.
- Let’s consider another case, Ronald Johnson came to J.C. Penny , a esteemed retail company with high expectations from his previous experiences as retail head at Apple and Target. He was quick to implement untested marketing techniques i.e, removing discounts, rebranding company’s image & aggressive ad campaigns. As a result, stocks crashed from $42 to $14.
- So the question arises, why good leaders make bad decisions. The truth is sometimes even the most capable people, who have the best access to every information and a positive intent, occasionally end up taking a bad decision. BUT WHY??
- Decision making is a complex process. Firstly it involves identification of patterns. Our brain has a tendency to look for patterns, or situations we have already dealt with in order to make a decision. Even though this is a good way to reach a good decision, it can be misleading for some situations seem similar to the ones we have already experienced when they are not. The most important reason is delusive experiences, when assumptions are made for a situation that seems familiar but in fact, it is entirely new. That occurs from misunderstanding of patterns or application of emotion tags that lead to poor decisions. Inappropriate attachments is a tendency for attachment to work surroundings whether that is equipment or co-workers. The emotional bond disrupts the judgment process and restrict individuals from abandoning their attachments despite the need for redundancy as well as selling part of the business for strategic reasons Ambiguous prejudgments occur when the person enables a particular solution that had a great effect on the past to a current situation and the outcome is different. Improper self-interest is a condition where unwanted emotional bias, drive our actions towards familiar patterns and therefore, affects the quality of the decisions.
- The above mentioned reasons prevent the brain from understanding the current situation and results to incorrect judgements and may have a catastrophic effect. Experience Data and Analysis(Firstly): If leaders are provided with a complete analysis of possible failures or an alternate approach to tackle a situation, then the risk in flawed decisions could be reduced. For instance, when Volkswagen chose software over engine replacement, the leaders should have shifted its focus from profit to customer retention. Debate and Challenge(Secondly): Debating with a group, allows pre-conceptions to be challenged unambiguously. This will allow the leader to have a clarity on a long-term strategic benefit for the company. For instance, if J.C Penny could have debated over new marketing techniques to avoid consistent losses. Strengthening Governance(Thirdly): In order to enforce a right decision, sometimes it needs to be ratified from the highest order. In the Volkswagen scandal, the CEO along with a competent advisory committee and a decision group could have saved Volkswagen a fortune. Monitoring Risks(Lastly): Additional or extra monitoring, allows the company to be well guarded from all the possible risks. Both J.C Penny and Volkswagen could have avoided colossal blunders by additional monitoring on the possible risks that would rise from the decisions made.
- Our brain plays a significant role in influencing us to create an error in judgement which good leaders should understand. Reflectiveness can benefit leaders realise the critical points causing the bad decisions and help them increase the safeguards which will counteract these bad decisions. The error in judgement can never be completely eliminated but the odds of making a good decision can be increased using the solutions above.