Planning and Problem Solving

My Business Capstone classes are currently participating in a simulated strategy development exercise. Using public data and significant amounts of research, students are building a SWOT (strengths, weaknesses, opportunities and threats) analysis for a real organization. Using the SWOT as a guide, they are creating long-term strategic options that the organization could implement to reach revenue, expense and profit targets for year-end fiscal 2018. The company we are researching is JCPenney (JCP)—we have no contact with the organization. At the conclusion of the project, students will write an evaluation of JCP’s strategic position and present their strategic solutions to a mock board made up of faculty. This is hard work and often a struggle, but it is of value because it mirrors what organizations typically go through when setting strategy.  

One interesting observation is that students, like real-world business leaders, are experiencing common decision-making problems and biases. For example, the temptation with many is to leap forward in the process and create strategy before all of the needed information is gathered. 

Generally, the assumption is that decision-making is rational.¹ In fact, when describing the steps in solving a problem or making a decision, the step-by-step process exemplifies prudence. The truth of the matter, however, is that biases creep into the process and impact what is done to resolve a situation. Some of this comes from impatience to settle the problem quickly. That is, workers and leaders (students, too) may fail to fully understand the problem before acting to resolve. This increases the risk that the wrong problem gets worked. For example, students may create strategy before they fully understand the SWOT. Leaders do the same by leaping to conclusions or satisficing; that is, finding a solution that works and then halting the search for additional options.²

 

Of course, what needs to happen is a more thorough and sometimes painful thinking process. It takes concentration and effort to put in the long and arduous time necessary to think through issues and problems. We only hope that organizational leaders are willing to do this and we especially hope our politicians do so as well. 

Researchers have investigated and found that there are common biases used as shortcuts to decisions. Some are unconscious issues that require only awareness to combat and some are procedural. Consider the person described earlier who prefers to make an instant call. This may occur more frequently at the senior ranks of an organization; some leaders believe that by being in their position they must have all of the answers. Others believe that with their vast experience they can intuit the correct answer. Intuition can be valuable but is subject to prejudice; it is very hard to know when an answer is correct or incorrect until after it is implemented.¹  

Leaders and other "experts" may also be so assured in their conclusions that they become blinded to counterfactual information.¹ It is natural to overestimate the quality of our answers; I have observed this in my students and the leaders I have dealt with over the years -- some have a very hard time accepting they can be wrong (this is natural -- I don't much like it myself). One interesting fact that the research suggests is that when leaders are of lower-level thinking and relational abilities, they are more likely to exhibit higher confidence in their decisions.¹ Perhaps this is a protective measure.

There are also informational biases. For example, there is a tendency to anchor or focus on initial information and any new information is given a lower weight.¹ "Anchors are widely used by people in professions in which persuasion skills are important -- advertising, management, politics, real estate and law."^{1(p. 180)} For example, anchoring occurs in the negotiations. Very often the first offer anchors the starting point of the negotiation -- the first price presented when purchasing a car or the listed price of a house.³ In strategy making, the problem is similar in that the first considered position establishes the platform to work from, and if not accurate or complete, a faulty decision can result.

The problem can also persist after the anchor is established. We tend to filter out information that does not confirm what we believe and we may even interpret new information to build support for our position.¹ This problem also emerges when we allow readily available information or more recent facts to color our thinking.¹ For example, "when managers doing performance appraisals give more weight to recent employee behaviors than to behaviors of 6 to 9 months earlier..." ^{1(p. 180)}

There are other biases or problems that can throw off decision-making. One may have a difficult time backing off from a decision even when there are solid reasons to do so.¹ Another is the belief we can influence or predict happenings that are uncontrollable.¹   Some errors also occur because of our propensity to take on risk. Being risk averse may cause us to prefer one solution over another.¹ Finally we may even beat up on ourselves when events occur and the outcome looks so obvious we thought we should have predicted it.¹ Ron Johnson's action of eliminating sales and coupons at JCP in early 2012 looks crazy today given the plunge in sales that occurred since its implementation. Should Johnson have been able to predict this at the time? It is interesting that many of his strategies are still being executed except that sales and coupons are back.  

What are the antidotes? The first is recognition that biases will get in the way of good decisions and organizations can improve their outcomes with the following practices:⁴

• Follow a standard procedure for all decisions of a certain magnitude: (1) Identify the real problem (not just the symptoms); (2) determine how you will assess and decide among available solutions; (3) seek several different options to resolve the problem; (4) address the pros and cons of each option; and (5) select. After a decision is made and executed, review the results and consider adjustments

• Clearly identify and stay focused on the goals of the decision. It is easy to wander without an understanding of the objectives.

• Work hard to falsify beliefs and information; try to find something that suggests the opposite.

• Don't always assume a relationship exists between variables. A plummeting economy does not necessarily mean bad sales results.

• Look for as many options as possible when looking at decisions.

Decision-making is a difficult cognitive process that is fraught with biases and errors, and organizational leaders alike are subject to these problems. If certain actions are taken, errors can be reduced. The time to learn about these issues is in school, and we need to keep reminding leaders that it is part of the human condition to make errors in decision-making, but something can be done about it.

Please feel free to make comments.

References

¹ Robbins, S., & Judge, T. (2011). Organizational Behavior (14th ed.). Upper Saddle River, NJ: Pearson Education.

² Griffin, R.W. (2011). Management (10th ed.). Mason, OH: South-Western Cengage Learning.

³ Lewicki, R.J., Barry, B., & Saunders, D.M. (2010). Negotiation. Boston: McGraw-Hill Irwin.

⁴ Robbins, S., & Judge, T. (2013). Organizational Behavior (15th ed.). Upper Saddle River, NJ: Pearson Education.