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Why Your Company Makes Bad Decisions (And How to Change That)

Great leaders make bad decisions. Not because they aren't smart, but because they are humans.

Involving your team in the process will help your organization make better decisions.

By Gustavo Razzetti

May 19, 2021

Hint: build a participatory decision-making culture

Decision-making is one of the strongest indicators of a high-performing organization. Observing how your team decides provides a clear-cut snapshot of the broader culture. It can reveal healthy patterns or systemic issues.

Making decisions is a critical component of effective leadership. However, most organizations struggle with it. As a study by McKinsey shows, only 28 percent of executives praised the quality of their company's decisions; the large majority believe that bad decisions are as frequent as good ones.

The role people play in the decision-making process dramatically impacts your culture, according to research.

Involving people in decision-making not only makes them feel included, but also enables collaboration, neutralizes groupthink, and increases engagement. Multiple studies suggest that engaged employees are more committed to organizational success, have stronger connections with colleagues, are more collaborative, and produce higher quality results.

Involving your team in the decision-making process increases performance. Here's a closer look at what gets in the way and how to build a participatory decision-making culture.

Why Leaders Make Bad Decisions

Our brains are lazy – they love to take shortcuts. Rather than addressing hard questions, they substitute them with "lazy questions." Without noticing it, we end up solving a simpler, more superficial problem instead of the root cause. That's one of the reasons we make bad decisions.

There are many other ways in which our brains deceive us.

How many times have you thought, "What were they thinking?" It's easy to review some of the worst business decisions and feel frustrated for all the obvious signals people missed. Retrospection is a powerful thing, but we all fall prey to misperception.

Studies have uncovered an interesting pattern: a subconscious process causes us to see the world in ways that contradict reality. This shift in perception distorts what we see and hear without us realizing it.

George York and Dr. Robert Pearl named this phenomenon "brainshift." The scientists found that it occurs in two situations: when we are experiencing high anxiety or when there's a major reward at stake. Unsurprisingly, these two conditions are common in most business decisions.

That's why we make regrettable bad choices. We behave in ways that seem logical to us, but foolish to external observers.

Most executives miss the red flags when making decisions without paying attention to those who challenge their viewpoints.

Consider, for example, Jürgen Schrempp, the CEO of Daimler-Benz who led the Chrysler merger. He faced a lot of internal opposition and still moved forward with it. Nine years later, the German automaker had to pay to dump Chrysler and end its exposure to billions in ongoing losses.

Speed is a curious motivator to overcome anxiety. Making quick decisions removes the pressure. However, the unconscious processes used to make fast, effective decisions is why good leaders make bad decisions, according to Finkelstein, Whitehead, and Campbell. Misleading memories, self-interest, and emotions distort the process – we miss those three red flags.

As Sydney Finkelstein wrote in a Wall Street Journal article, "Leaders tend to rely on past experience that seems useful, but is actually sometimes dangerous. We always talk about how important experience is. I think we overstate experience because it doesn't exactly fit the situation you're in. You're liable to rely on it in a way that's just not going to be that helpful."

In progressive organizations, decision-making is highly distributed. Rather than validating decisions by a hierarchy, it's expected to involve experts and those affected by the outcome.

If you are thinking, "That's not an issue for me. We involve people in most decisions," think twice before you stop reading. Involving people is not enough. Most organizations fail to do it right; they ask for people's input, but then don't act upon it. Or they feel good by trying to empower people but fail to distribute real authority.

That's why a participatory decision-making process can backfire.

Why Companies Fail to Make Good Decisions

Organizations realize that moving at the speed of change requires aster decisions. Involving people seems like an additional burden that could slow down the process. But what's the point of moving fast if you make the wrong call?

Here are some of the most common reasons companies fail to make good decisions based on my research and consulting.

1. Team members are not aligned on how they decide.

"How do you make decisions as a team?" I usually ask this question when we start working with a new client. I want each team member to reflect on it and provide their answer. Comparing notes is always illuminating.

Most teams are not aligned on how they make decisions. They operate based on different assumptions –written rules don't match informal ones. Team leaders think they are good at involving people when they aren't. Some team members believe they have more authority than they actually do. Most people feel their perspectives don't count – bosses usually override what the team agreed upon.

Lack of clarity and alignment can be detrimental to your team.

Start by mapping the decisions your team makes. Consider the different decision-making methods, choose the ones that best work for your team, and align on how to decide moving forward.

Team members need to learn the peculiarities of each decision-making method and how to successfully practice them.

For example, Zappos provides full authority to frontline employees that deal with customers. However, circle-specific issues are decided by its members using consent.

2. Organizations focus on empowerment, not authority

I have a problem with the notion of empowerment – I'm in a mission to eradicate that term from organizations (and society, too).

Empowerment is believing that people are powerless; that only leaders can give them power. This biased idea undermines employees, women, and minority groups. It positions the power – the ability to act, think, and act – as something that can be provided instead of nurtured. As I wrote countless times, motivation is internal, not something your boss can provide.

Hierarchy doesn't equal smarts. Having a title doesn't give anyone a special power to make better decisions. Actually, the studies I shared above show that leaders are usually deceived by their brains equally or even more than 'regular folks.'

When it comes to making decisions, leaders don't need to make people feel empowered but to provide them with the decision-making rights to make things happen. How does your organization distribute authority? Can your service reps solve customers' issues without holding them in the line until they "talk to the manager"?

At Meyer Restaurant Group, waiters can do whatever it takes to create a memorable experience for their customers. They can go the extra mile without asking the manager for permission, even if it costs the company money.

3. Leaders say one thing and do another

Adopting a participatory decision-making approach requires more than asking people for opinions. You must really consider people's input, not just listen to it.

There's nothing more frustrating for people than to be asked for input and then realize that their boss won’t consider their feedback. This is precisely what happens with most employee surveys: they request feedback that no one will ever read or consider.

If people vote for a decision, the manager's opinion shouldn't override what the group decided. Or, if applying a consultative approach, set clear expectations for people.

Are you asking for real advice, input, or additional ideas? Have you made up your mind and are exploring things you might have missed? Or are you simply trying to make people feel included?

Ambiguous messages create confusion, leaving no room for debate. It seeds distrust, making people suspicious of their bosses' intentions. Thus, they reframe the message into their own terms: "My boss never really cared about our opinions."

Clueless leaders operate under the assumption that rules don't apply to them. Not modeling the right behavior is a recipe for ineffective decision-making.

4. Managers want to make perfect decisions

Not all decisions are equal. However, perfectionists treat decision-making as a life-or-death thing. They spend valuable time and energy on things that don't matter much.

In cooking, each recipe requires a different method depending on the complexity and desired outcome. The same applies to decision-making. Sometimes, you just need to toss small chunks of information to make a quick decision. However, when you don't have all the information you need or the decision is not urgent, it might be better to put it on the back burner and let it simmer.

Use the Decision-Making Canvas to categorize your decisions based on time (urgent/ not urgent) and complexity (high/low risk).

Another way to overcome perfectionism is to consider the hidden cost of inaction. "What's the impact of not making a decision?" Some decisions can be postponed. But, in most cases, analysis paralysis or avoidance can be really expensive.

Jeff Bezos follows the 70% rule. There's a point at which you must stop looking for more data or answers to all your questions. Once you arrive at 70% of the information you need, move on. Making a decision is more effective than doing nothing because you only have 90% of the answers.

Balancing speed and risk helps put things in perspective and neutralize perfectionism.

5. Managers put the energy and time in the wrong place

Endless debates can be as inefficient as a lack of participation. Involving too many people, not having clear roles and discussing dynamics, or managers trying to win all arguments, are just a few examples of energy wasters. Rather than putting the time in the right place, inefficient processes suck all the energy out.

I see this very often. Organizations waste all the time upfront and then end up rushing to make the final decision. They leave little time for reflection or to prove the decision.

Moving fast is one thing, but rushing to make a decision can have detrimental effects. In his book Behavioral Ethics in Organizations, Dr. Muel Kaptein demonstrates how a rushed mindset affects decision-making.

In a study, students who were given ample time choose to help a man in distress that was planted by the researchers, stop an aided the person. However, among those who were told to "move as fast as possible," 90% of them ignored the man entirely.

Your team must make fast and smart decisions. Don't just rush the process.

6. Bosses own decision-making rights, not accountability

The decision-making process involves three parts: before, during, and after. What happens after a decision is made is as important as the decision itself.

The 'before' is all the time and analysis involved in arriving to the decision. The 'during' refers to the actual implementation. And the 'after' involves the consequences – both good and bad – of that decision.

With autonomy comes accountability – and this works for both managers and team members.

Unfortunately, many executives want to have the last word when it comes to making decisions. They want to own the power in the 'before' part, but not necessarily the aftermath. That's why the blame game gets started. If things go wrong, rather than owning their decisions, managers start pointing fingers at team members.  

Whoever has the autonomy to make a decision (be it a person or a group) should be the one responsible for the outcome. Accountability cannot be imposed but role modeling definitely helps.

The paradox of autonomy is that the more freedom you provide, the more people will become accountable. On the other hand, trying to control people promotes a blame culture.

If you are a leader, start by owning your decisions. Coach your team to own theirs, too.

7. You seek agreement instead of commitment

How a decision is implemented plays a critical role in achieving the desired outcome. Making the perfect decision is useless if people don't buy into it. Lack of support is why most initiatives go to waste.

Consensus requires that everyone say yes to a specific initiative. While that guarantees alignment, this method takes a lot of time and is not effective for complex decisions. It's hard to seek agreement with a decision that will create lots of repercussions.

Other methods – such as consent and advisory – promote participation and healthy debates but prioritize commitment over agreement. Everyone has a say and their chance to make a point. However, once the decision is made, everyone must commit to supporting it.

Atlassian and Amazon practice the "disagree and commit" principle. They promote disagreement as a healthy way to overcome blind spots and "brainshifts." The rule also establishes that everyone should commit to and support the decision.

As Atlassian's Matt Russell wrote, "It's healthy to disagree, offer up your perspective, and support it with data. But at the end of the day, we agree to rally around the decision and work to make it successful, regardless of whether we prefer it or not."

Creating an "all-in" culture where disagreement doesn't inhibit commitment is vital for success. Leaders should purposefully create a culture where debate and dissent are welcome. However, once the team commits to a decision, there should be no room for second thoughts or doubts.

How to Make Better Decisions through Participation

Start by aligning your team on how to make decisions. Consider the different decisions you make, the most effective methods for your team, and who will be the cook(s) in charge.

Different types of decisions require specific methods. Some make participation necessary; others give full authority to one individual, like a frontline employee or project leader. Consistency is crucial. Define clear rules and model the right behavior.

Aim for safe-to-try decisions, rather than perfect ones. When in doubt, ask, "What's the worst thing that could happen?" Balance risk and speed. Remember that the cost of inaction is usually greater than a not-so-perfect decision.

When involving people in the process, set clear expectations. Are all votes equal? Are you asking for advice or just validating a hypothesis? Can people influence the outcome? How will everyone's concerns and perspectives be considered?

Once you have 70% of the information, it's time to pull the trigger. Decision-making is an iteration game. You can always course correct. As the environment changes, so will your actions.

Make sure your team abides by the "disagree and commit" rule. A successful outcome is not just the result of a smart decision, but of a culture that's "all in."

Do you want to make better decisions as a team? Join our Build a Fearless Culture program or schedule a free consultation call to discuss how we can help your organization make faster, smarter decisions.

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