The Inquirer : Edition 13
Strategic Thinking
This is our final piece inspired by Daniel Kaheneman. I have run many workshops and facilitated away days on strategic thinking. Most senior managers come to appreciate the difference between strategic thinking and strategic planning although anecdotal evidence indicates strongly that more time is devoted to the latter without investing in high quality strategic conversations in the early stages of a strategic process. Throughout a strategic process, the leader faces significant challenges. Convincing colleagues to devote time to thinking is the first hurdle, then facilitating and employing thinking tools is the next and finally, before turning thinking into planning, there is the big question of thinking biases to overcome.
We have referred to some of the thinking biases which we are prone to in earlier editions and we will elaborate on some of them here as they apply to strategic thinking and decision-making. Besides Kahneman, other authors have used a similar experimental evidence base to urge caution on our leaders.
In Think Twice : Harnessing the Power of Counterintuition, Michael Mauboussin alerts us to recognise and avoid common mental missteps, including:
- Misunderstanding cause-and-effect linkages
- Aggregating micro-level behaviour to predict macro-level behaviour
- Not considering enough alternative possibilities in making a decision
- Relying too much on experts
Sharing vivid stories from business and beyond, Mauboussin offers powerful rules for avoiding each error and how important it is to think twice - to question reasoning and adopt decision-making strategies that are far more effective, even if they seem counterintuitive. Dan Ariely, in his book Predictably Irrational : The Hidden Forces That Shape Our Decisions, highlights a range of problems including self-control and emotion in decision-making.
In their HBR article Before You Make That Big Decision (June 2011), Kahneman, Lovallo and Sibony remind us that these books have their limitations. They are good at warning us but offer few tools to employ. Kahneman et al state ‘an insidious feature of cognitive biases is that we have no way of knowing that they’re happening; we almost never catch ourselves in the act of making intuitive errors ……………………….. even when we become aware of the existence of biases, we’re not excited about eliminating them in ourselves – after all it’s difficult to for us to fix errors we can’t see.’
So, we return to the importance of having strategic conversations at work where we search for biases and distortions, where we challenge ‘facts’ and ‘givens’ turning conversations into investigations/ rich inquiry processes into the meaning we attach to context, assumptions, data and intuitions. Kahneman et al suggest some tools to help us to do this – 12 questions to help leaders to vet the quality of thinking and decisions not just through the content of any proposal but for the biases that may have distorted the reasoning of the people who created them.
ASK YOURSELF
| Question | Action |
| 1 Check for self –interested bias Is there any reason to suspect the team making the recommendation of errors motivated by self-interest? | Review the proposal with extra care, especially for over-optimism |
| 2 Check for the Affect heuristic Has the team fallen in love with its proposal? | Rigorously apply all the quality controls on the checklist |
| 3 Check for Groupthink Were there dissenting opinions within the team? Were they explored adequately? | Solicit dissenting views, discreetly if necessary |
ASK THE RECOMMENDERS
| Question | Action |
| 4 Check for Saliency bias Could the diagnosis be overly influenced by an analogy to a memorable success? | Ask for more analogies and rigorously analyse their similarity to the current situation |
| 5 Check for Confirmation bias Are credible alternatives included along with the recommendation? | Request additional options |
| 6 Check for Availability bias If you had to make this decision again in a year’s time, what information would you want and can you get more of it now? | Use checklists of the data needed for each kind of decision |
| 7 Check for Anchoring bias Do you know where the numbers really came from? | Re-anchor with figures generated by other models or benchmarks and request new analysis |
| 8 Check for Halo effect Is the team assuming that a person, organisation or approach that is successful in one area will be just as successful in another? | Eliminate false inferences and ask the team to seek additional comparable examples |
| 9 Check for Sunk-cost fallacy, Endowment effect Are the recommendations overly attached to a history of past decisions? | Consider the issue as if you were the CEO or the owner |
ASK ABOUT THE PROPOSAL
| Question | Action |
| 10 Check for Over-confidence, Planning fallacy, Optimistic biases, Competitor neglect Is the base case overly optimistic? | Have the team built a case taking an outside view; use simulations |
| 11 Check for Disaster neglect Is the worst case bad enough? | Have the team conduct a re-mortem? Imagine that the worst has happened and develop a story about the causes |
| 12 Check for Loss aversion Is the recommending team overly cautious? | Realign incentives to share responsibility for the risk or to remove risk |
PLi comment :
All 12 questions may be relevant during the course of a strategic decision-making process. Leaders need to think about the time, place and style of asking them. Of course when we judge it is not necessary to use them may be the very time to do so. It is striking how often the words ‘rigour’ and ‘discipline’ coms up in this literature. It seems clear that getting into the good habit of asking ourselves these questions and answering them seriously could add real value to the quality of strategic thinking and decisions made in all sectors.
Steve Turner
13 April 2012
