Sunday, June 24, 2018

Do You Let Bias Effect Your Decisions?


Decision making and leadership are not mutually exclusive. Make effective decisions and your team will be motivated and more productive; and the implementation of the decision is more likely to be a success. Yet if you keep making ineffective decisions, eventually you’ll demotivate your team (probably quite quickly), productivity will fall and implementation is less likely to succeed.
 
For decades, behavioural decision researchers and psychologists have suggested that human beings have two modes of processing information and making decisions. The first, System 1 thinking, is automatic, instinctive, and emotional. It relies on mental shortcuts that generate intuitive answers to problems as they arise. The second, Systems 2 thinking, is slow, logical, and deliberate.
 
To find out how much you rely on each mode of thinking – intuitive System 1 or more deliberate System 2 – try this cognitive reflection test, below, before reading on (answers at the end of this article).
 
1 A bat and ball cost $1.10 in total. The bat costs $1.00 more than the ball. How much does the ball cost?
 
2 If it takes five machines five minutes to make five widgets, how long would it take 100 machines to make 100 widgets?
 
3 In a pond is a patch of lily pads. Every day, the patch doubles in size. If it takes 48 days for the patch to cover the entire pond, how long would it take for the patch to cover half the pond?
 
See the answers at the end of the article to see if you were right?
 
It’s worth noting that each of the two models of thinking has distinctive advantages and disadvantages. In many cases, System 1 takes in information and reaches the correct conclusions nearly effortlessly using intuition and rules of thumb. Of course these shortcuts can lead us astray. So we rely on our methodical System 2 thinking to tell us when our intuition is wrong or our emotions have clouded our judgement, and to correct poor snap judgements. All too often, though, we allow our intuitions or emotions to go unchecked by analysis and deliberation, resulting in poor decisions.
 
But of course it’s not quite that simple. Psychologists and behavioural economists have identified many cognitive biases that impair our ability to objectively evaluate information, form sound judgements, and make effective decisions. Where an effective leader is aware of their biases and when they may affect their judgement for the worse; and of course where the ineffective leader is often in complete denial of their own biases, refusing to look at themselves in the mirror, instead insisting it’s those around them who need to look in the mirror (as they couldn’t possibly be at fault).
 
These ineffective leaders, who are in denial about how biases effect their judgement, can be in positions of power for years before they are identified as the problem. This is because they are naturally manipulative and divert the problems on to other people; and where their bosses are also blind to the problems they are causing in their organization.
 
Below are several biases that can have a negative impact on both our decisions and our employees.
 
Action-orientated biases include excessive optimism and overconfidence. Where with excessive optimism we are overly optimistic about the outcome of planned actions. We overestimate the likelihood of positive events and underestimate that of negative ones. And with overconfidence we overestimate our skill level relative to others’ and consequently our ability to affect future outcomes. We take credit for past positive outcomes without acknowledging the role of chance.
 
Biases relating to perceiving and judging alternatives. Where firstly with confirmation bias we place extra value on evidence consistent with a favoured belief and not enough evidence that contradicts it. We fail to search impartially for evidence. Secondly with anchoring and insufficient adjustment we root our decisions in an initial value and fail to sufficiently adjust our thinking away from that value. Thirdly with groupthink we strive for consensus at the cost of a realistic appraisal of alternative courses of action. Finally with egocentrism we focus too narrowly on our own perspective to the point that we can’t imagine how others will be affected by a policy or strategy. We assume that everyone has access to the same information.
 
Biases related to the framing of alternatives. Where firstly with loss aversion we feel losses more acutely than gains of the same amount, which makes us more risk-averse than a rational calculation would recommend. Secondly with sunk-cost fallacy we pay attention to historical costs that are not recoverable when considering future courses of action. Thirdly escalation of commitment where we invest additional resources in an apparently losing proposition because of the effort, money, and time already invested. Finally controllability bias where we believe we can control outcomes more than is actually the case, causing us to misjudge the riskiness of a course of action.
 
Stability biases, where with status quo bias we prefer the status quo in the absence of pressure to change it; and present bias where we value immediate rewards very highly and undervalue long-term gains.
 
Beshears and Gino found that “holding individuals accountable for their judgements and actions increase the likelihood that they will be vigilant about eliminating bias from their decision making. For example, a study of federal government data in the USA on 708 private-sector companies by Alexander Kalev and colleagues found that efforts to reduce bias through diversity training and evaluations were the least effective ways to increase the proportion of women in management. Establishing clear responsibility for diversity (by creating diversity committees and staff positons, for example) was more effective and led to increases in the number of women in management positons.”
 
Answers to Cognitive Reflection Test:
 
1 Correct Answer: Five Cents
 
The intuitive response is to assume that the bat costs $1.00 and the ball costs 10 cents. But if you engaged System 2 and did the math, you’d see that this couldn’t be true. There’s a dollar difference between the two, so the only set of prices that meets all the requirements in the problem is $1.05 for the bat and $0.05 for the ball.
 
2 Correct Answer: Five Minutes
 
It’s easy to get this one wrong, because our minds spontaneously pick up a pattern that is misleading. We assume that if five machines make five widgets in five minutes (5-5-5), by analogy 100 machines would make a 100 widgets in 100 minutes (100-100-100). But if you’re using System 2, you see that each machine takes five minutes to make one widget. Think of it this way: if it takes nine women nine months to give birth to nine babies, how long would it take 100 women to birth 100 babies?
 
3 Correct Answer: 47 Days
 
If you jumped to the conclusion that half the pond would be covered in half the time (48/2 = 24 days), you neglected to account for exponential growth, a type of reasoning that requires cognitive effort (and, thus, System 2 thinking). The correct answer is 47 days, because if the pond is half covered by then, a doubling over the next (48th) day will result in the pond being entirely covered with lily pads. By the way, ‘one day’ is also a correct, albeit uncommon, response. It takes one day for the lily pads to cover the second half of the pond. If that was your answer, you deserve extra credit for creativity.
 
References:
 
Beshears, J. and Gino, F. (2015). Leaders as Decision Architects. Harvard Business Review, May, p.52 – 62.  

Sunday, May 27, 2018

What are Some Basic Mistakes Organizations Make?

In the last 70 years we have seen significant developments in technology – just look at what’s been achieved in the development of computer technologies. For example in 1953, Grace Hopper develops the first computer language, which eventually becomes known as COBOL. Thomas Johnson Watson Jr., son of IBM CEO Thomas Johnson Watson Sr., conceives the IBM 701 EDPM to help the United Nations keep tabs on Korea during the war. In 1954, the FORTRAN programming language, an acronym for FORmula TRANslation, is developed by a team of programmers at IBM led by John Backus, according to the University of Michigan.
 
Then in 1958, Jack Kilby and Robert Noyce unveil the integrated circuit, known as the computer chip. Kilby was awarded the Nobel Prize in Physics in 2000 for his work. In 1964, Douglas Engelbart shows a prototype of the modern computer, with a mouse and a graphical user interface (GUI). This marks the evolution of the computer from a specialized machine for scientists and mathematicians to technology that is more accessible to the general public.
 
Look at mobile technology where the speed of advancements have just been incredible, a trait that seems set to continue in the short term to medium term.
 
The same is true in the medical and health sector, and though we still have to find many more cures, the advancements continue to develop each and every year.
 
So if we look at today’s business organizations and how they are run, how much have they advanced in the last 20 years, let alone the last 70? For example, has customer service got progressively better year on year? Are today’s leaders significantly better than their counterparts 20, 30, 40 years ago?
 
Organizations now have access to so much more information, thanks to the advancements in technology; they have access to hundreds, if not thousands, of training courses on any subject you can think of – but the question is, are ‘we’ getting better at leading and developing business organizations, and if not, why not?
 
I would suggest, for example, that the advancements in business leadership have faded into insignificance compared to the advancements in other areas; where in some areas business leadership has regressed rather than advanced over the last 20 to 50 years. This is partly due to the world changing (not necessarily for the better in some areas); acceptable standards and basic values changing or no longer clearly defined; and a basic lack of accountability at the top of many business organizations on a global scale.
 
Some of the basic mistakes organizations still make in the 21st Century include;
 
1. Businesses not being customer centric. Where some organizations simply don’t focus on customer service, and in fact are happy to mislead customers and take advantage of them – where the organizations sole purpose appears to be on short-term profit maximization at any cost.
 
The 21st century customers are also at fault, whereby they stay customers to organizations who treat them badly, often simply because they can’t be bothered with the hassle of changing their accounts to another supplier – possibly telling themselves that ‘all the suppliers are as bad as one another’.
 
Governments and ‘watchdogs’ also fail customers by allowing ‘cartel’ like arrangements between suppliers, which we have seen in energy sectors, mobile phone sectors, banking sectors, to name just a few.
 
Organizations and customers need to start respectively offering and demanding higher levels of customer service; and customer groups just need to realise the ‘purchasing power’ they have as a customer group and start using this to their advantage. Where the advances in technology now give them access to a lot more power than customers had 20 to 50 years ago and beyond.
 
2. Leaders are not inspiring their workforce. Command and control leadership seems to be on the increase – which is so sad to see. The gap between leaders and employees is widening, due to the poor behaviour of leaders – which unsurprisingly means too many employees becoming demotivated, uninspired and less than optimally productive.
 
What’s worse, is that when these poor leaders become aware of their demotivated workforce – they are in complete denial of their direct role in creating the negative culture and actually blame their employees for not caring, rather than looking squarely at themselves and realizing they are the problem.
 
In my view leadership has become too commercialised and we need to get back to the very basics of leadership; where leaders are inspirational, they are transparent, they lead by example, they see an organizations most vital resource as it’s human resource and treat them accordingly, and where they promote future leaders on skills, behaviors, characteristics and values.
 
3. Organizations don’t communicate a fully transparent corporate vision to their workforce. Too many organizations, of all sizes, seems to fail to be transparent, for whatever reason and don’t share their vision for the future – assuming they even have one.
 
This is business 101, where a well thought-out and well communicated corporate strategy and vision, owned by the workforce leads to an inspired and motivated workforce that understands the future and the role they play in achieving that future state. Without communicating a clear future vision, employees can’t even start to ‘own’ it, don’t see how their job supports the successful future of their organization and hence are less motivated to achieve anything.
 
This also links back to the command and control type leader who doesn’t like to be transparent, seeing employees as a resource that don’t need to know where the organization is going and just need to do what they are told to do, when they are told to do it.
 
A transparent vision doesn’t just help employees see the future and how their role supports it; it also allows employees at all levels to contribute to its success and identify potential problems and also innovate solutions long before a command and control driven organization will know they have problems. Front line employees need a direct link to the organizational strategy to ensure constant optimal growth.
 
4. Business ethics. Suddenly in the last 20 years – the word ‘sorry’ seems to have become the easiest word (not the hardest). Unethical leaders appear too often these days – ripping off customers at best, and leading to unnecessary deaths at worst.
 
When these ‘bad’ leaders are caught, there seems to be no shame or remorse from the perpetrators – and a simple ‘sorry’ seems to be okay for too many, especially those bodies that should bring these unethical leaders to account.
 
Where are the ethical role models for the future generations of leaders to aspire to be like? In too many cases we are giving the completely wrong impression of leadership to the next generation and this is all we see in the media. Where are we showing what ‘great’ leadership looks like.
 
We need to discuss values more often and openly; what ‘values’ really mean and how they impact organizations and individuals, both in the short and long term. I saw an elderly lady burst into tears the other day in front of an assistant in a store – where she said, I’m so sorry, but it’s so nice to find someone who cares for a change.
 
 
The world is advancing at a phenomenal rate year on year in many sectors and it’s time for business organizations and their leaders to make similar positive advancements for the good of all their stakeholders.

Sunday, April 29, 2018

Does Big Business Learn From Past Mistakes?

Do we learn from past mistakes? In today’s global economy does big business look at past successes and past failures of other organisations to help them plan effectively for the future; or is there a sense of arrogance that comes with the large size of some organizations that makes them feel invincible?
 
On 15th April, 2018, it was 106 years since the Titanic sank and leaders should remember and reflect on the comments of the captain, Edward. J. Smith, before the fateful voyage. When asked how he could best describe his, nearly, 40 years at sea, he replied, “Uneventful. I have never been in an accident and I have seen but one vessel in distress in all my years at sea. I have never seen a wreck and have never been wrecked, nor have I ever been in any predicament that threatened to end in disaster of any sort.”

In the 21st century the biggest and most profitable organisations should be the guiding example for the rest of the business community to follow and learn from. Yet these organisations need to be conscious and aware; and not allow their size to make them complacent to their constantly evolving competitive business environment.
 
I know I’ve learnt so much during my career both from my mistakes and learning from the mistakes of others; and learnt that complacency can be a dangerous trait for both organisations and individuals as we go through our career.

It’s nothing new, “for organisations to deceive themselves is neither rare nor random. Charles Frankel, Assistant Secretary of State in President Johnsons Administration in the US (1965-67) concluded that self-deception was not simply a passing problem, but a permanent condition facing all organisations,” (Landau, M. and Chisholm, D., 1995, p.72).

So what can organisations and leaders learn from history and specifically the tragic story of the Titanic?

The Titanic was warned in advance of the increase in ice and the potential for icebergs, but chose to ignore the warnings; as an example, a steward on the Titanic when asked if it was true that the ship was unsinkable, replied “Madam, God himself could not sink this ship.” Large organisations can enjoy the feelings of power and control – and with it the feeling of invincibility just like the Titanic.

After setting sail the Titanic restated its objectives and decided to attempt to beat the record for crossing the Atlantic to impress its shareholders. There was no immediate reward for beating this record (held by its sister ship) since the Titanic was receiving publicity on both sides of the Atlantic. Power and arrogance led to this decision and contributed to the upcoming disaster. Best practice organisations focus on business principles such as sustainable growth and putting the customer first; on transparency and creating cultures that lead to job satisfaction and retention at all levels – an organisation that will provide a ‘luxurious and safe passage’ for all those who embark on the journey.

Finally, the capacity of the Titanic's lifeboats was only 1,178, while the ship was built to carry 3,000 passengers and crew. There was simply no way any more than half the ship's complement would survive should the unthinkable happen. So when the tragedy occurred, only the few survived - only 705 out of about 2,220 escaped to the safety of these craft. The lessons should be self-evident, plan for all eventualities; accurately analyse, assess and manage your organisations risk.

Critical self-evaluation is a basic requirement of excellence in leadership – it takes courage and self-belief – and that is how we will distinguish between the great leaders of tomorrows great organisations and those organisations who are wondering where the iceberg came from – and who to blame for not seeing it coming!

As Pamela Waymack states in her 2006 article, “management’s overconfidence and failure to see its own vulnerability contributed to the sinking of the Titanic. Neither historic track record nor size and prowess are a match for a market in flux. We cannot assume that our organisations are invincible. A seaworthy captain with a spotless record for 40 years was no match for this field of icebergs,” (p.41).

References

Landau, M. and Chisholm, D. (1995). The Arrogance of Optimism: Notes on Failure-Avoidance Management. Journal of Contingencies & Crisis Management, Vol 3, Issue 2, p.67-80.

Waymack, P. (2006). Managing the ice in the waters ahead: Lessons from the Titanic. HFM (Healthcare Financial Management). Vol 60, Issue 7, p.38-41.

Sunday, March 11, 2018

Are You a Company Man?

The pressure of work varies from occupation to occupation – some are more relaxed than others in respect of the hours of intensity that are required. I remember when I moved into the consulting sector in my late 20’s having to work 16 hour days at times, especially when we were analyzing a potential client before the ‘project pitch’. It was exhilarating and exhausting at the same time – yet I have no regrets for the intensity, it was required at that particular time and I learnt so much at the same time.
 
Fortunately it wasn’t ‘constant’ and to some extent there was a work life balance over time – and as you ‘earned your stripes’ in the industry from a ‘grunt’ (as us new consultants were called) climbing the ladder to project manager and above, the intensity shifted from ‘hours’ to ‘strategic output and relationship building’. So there is a time and a place for ‘intensity’ in some industries, within the career life-cycle.
 
Yet in some other industries there seems to be a slight contradiction between the concept of finding that ‘work life balance’ and how some organizations ‘drive’ their employees. Erin Reid and Lakshmi Ramarajan mention in their 2016 article how “tales of time-hungry organizations – from Silicon Valley to Wall Street and from London to Hong Kong – abound. Managers routinely overload their subordinates, contact them outside of business hours, and make last minute requests for additional work. To satisfy those demand, employees arrive early, stay late, pull all-nighters, work weekends, and remain tied to their electronic devices 24/7. And those who are unable – or unwilling – to respond, typically get penalized,” (p.86).
 
This is the ‘new’ world we live in. Since the financial crisis job security has been a key concern for most employees. The financial crisis brought with it a constant stream of job losses, which hurt the life’s of hundreds of thousands of people around the globe, where many have never recovered. The new demands put on employees are based on the simple principle that if you’re not prepared to do it – there are hundreds of people ready to take your place. So fit in or ship out.
 
Reid and Ramarajan suggest that “many people manage the pressure to be fully devoted to work by simply giving in and conforming. Indeed, at one consulting firm among the companies we studied, 43% of those people interviewed fell into this group. In their quest to succeed on the job, ‘accepters’ prioritize their work identities and sacrifice or significantly suppress other meaningful aspects of who they are. People we spoke to across professions told us, somewhat ruefully, of giving up dreams of being civically engaged, running marathons, or getting deeply involved in their family lives,” (p.87).
 
But this group have another secret – they’re not motivated to go beyond the basics. They will do their job – work the crazy hours and sacrifice their personal life – but they won’t be committed to the organization or be innovators and influencers. They look forward to the day they can either find a better job or safe enough to get their life back.
 
Reid and Ramarajan mention “another strategy employed by another group of workers is to devote time to non-work activities – but under the organizations radar. At the consulting firm (mentioned above) 27% of the studies participants fell into this group. These people were ‘passing’ – a term originally used by sociologist Erving Goffman to describe how people try to hide personal characteristics that might stigmatize them and subject them to discrimination. Consultants who were successful at passing as ideal workers received performance ratings that were just as high as those given to peers who genuinely embraced the 24/7 culture, and colleagues perceived them as being ‘always on’,” (p. 87.)
 
What’s sad about this group is that they are living a lie and apparently getting away with it. There’s nothing healthy about this group – to themselves or the organization – though both probably see this as a win-win, it’s actually a lose-lose as integrity and transparency have gone right out of the window. They are passing themselves off as company men or women – yet devoting time to non-work activities without being noticed. They will ‘sell’ this game playing as a survival tactic, but if you sacrifice integrity for survival in business, what have you really accomplished and what type of person have you become.
 
Yet Reid and Ramarajan highlight how “not everyone wants to ‘pass’ – or can play the game of passing – and some who initially revert to ‘passing’ grow frustrated with this strategy over time. These people cope by openly sharing other parts of their lives and by asking for changes to the structure of their work, such as reduced schedules and other formal accommodations. At the consulting firm, 30% of those interviewed pursued this strategy – identified as ‘revealing’. Although it’s often assumed that those who resist the pressure to be ideal workers are primarily women with families, we have not encountered enormous gender differences in our research. Data from the consulting firm showed that fewer than half of the women were ‘revealers,’ while more than a quarter of men were,” (p.88).
 
Employees should be able to be ‘revealers’ at any organization – as the concept of revealing links with the concept of transparency. This is the kind of organization culture leaders used to strive for – but it seems that standards are dropping in this regard. It’s in an organizations interests to offer an environment that supports a fair work-life balance; because if you do the rewards are best for everyone. The employee is motivated, more healthy, focused and energized and the organizations reaps these rewards through increased commitment, innovation, productivity and optimized sustainable growth.
 
Reid and Ramarajan found, for example, that “most organizations leave it to the employees to set boundaries between their work and non-work lives – often with the best intentions. When Netflix offered unlimited time off, for example, managers thought they were treating their people like ‘grown-ups.’ But proving complete freedom can heighten employees’ fears that their choices will signal a lack of commitment. Without clear direction, many employees simply default to the ideal-worker expectation, suppressing the need to live more balanced lives,” (p.90).
 
Sudden change can often be viewed with suspicion by employees. If a tough organization suddenly offers unlimited time off – the employee’s natural reaction is to wonder what the catch is. Are they trying to see who’s not committed to the organization and then the next thing you know they are downsizing and you’re the first one asked to pack your desk and leave. Organizations have to have a genuine trusting and transparent culture before you can start offering unlimited time-off. Change has to be managed, especially when trying to change from a distrusting to a trusting culture – it will take a long time and must be approached small steps at a time.
 
Reid and Ramarajan conclude by highlighting how “the pressure to be an ideal worker is at an all-time high, but so are the costs to both individuals and their employees. Moreover, the experiences of those who are able to pass as ideal workers suggest superhuman dedication may not always be necessary for organizational success. By valuing all aspects of people’s identities, rewarding work output instead of work time, and taking steps to protect employees’ personal lives, leaders can begin to unravel the ideal-worker myth that has become woven into the fabric of their organizations. And that will enhance employees’ resilience, their creativity, and their satisfaction on the job,” (p.90).
 
References:
 
Reid, E. and Ramarajan, L. (2016). Managing the High Intensity Workplace. Harvard Business School, June, p.84-90.