In a 2016 article Paul Schoemaker and Philip Tetlock
remind us that “companies and individuals are notoriously inept at judging the
likelihood of uncertain events, as studies show all too well. Getting
judgements wrong, of course, can have serious consequences. Steve Ballmer’s
prognostication in 2007 that there’s no chance the iPhone is going to get any
significant market share, left Microsoft with no room to consider alternative
scenarios,” (p.74).
There’s a direct link between judgement and
accountability. For example in our youth our judgement often goes awry simply
because we don’t feel accountable for our actions and hence don’t think things
through properly. Even organizations have issues with ‘judgement’ because
individuals aren’t held accountable; and hence don’t ‘learn’ to think things
through quickly. In fact one of the downsides of command and control style
leadership is that these leaders use their power to avoid accountability when
it comes to ‘bad’ judgements being made.
Schoemaker and Tetlock mention “the experience of a UK
bank that lost a great deal of money in the early 1990’s by lending to U.S.
cable companies that were hot but then tanked. The chief lending officer
conducted an audit of these presumed lending errors, analysing the types of
loans made, the characteristics of clients and loan officers involved, the
incentives at play, and other factors. She scored the bad loans on each factor
and then ran an analysis to see which ones best explained the variance in the
amounts lost. In cases where the losses were substantial, she found problems in
the underwriting process that resulted in loans to clients with poor financial
health or no prior relationship with the bank – issues for which expertise and
judgement were important. The bank was able to make targeted improvements that
boosted performance and minimized losses,” (p.74).
There’s the other side of the coin too – organizations
that are so ‘risk averse’ that employees make judgements based on ‘fear of
failure’ which rarely leads to optimum solutions for the organization in the
short or long term. Most of us learn through the mistakes that we make and
through the risks that we have taken in our lives. Being able to take risk is
based on values like accountability, but also integrity and excellence, and
safety where appropriate. Our core values, if aligned correctly, should be
enough to allow us to make those judgements that have risk attached but the
rewards are worth it; where even failure has a reward, as we learn ‘what
doesn’t work.’
Schoemaker and Tetlock highlight how “most predictions
made in companies, whether they concern project budgets, sales forecasts, or
the performance of potential hires or acquisitions, are not the result of cold
calculus. They are coloured by the forecaster’s understanding of basic
statistical arguments; susceptibility to cognitive biases, desire to influence
others’ thinking, and concerns about reputation. Indeed, predictions are often
intentionally vague to maximize wiggle room should they prove wrong. The good
news is that training in reasoning and debiasing can reliably strengthen a
firm’s forecasting experience,” (p.75).
A key cognitive bias is the perceived culture of the
company and the perceived impact this culture has on the judgements you make.
This perceived culture will be different for employees in different
departments; or at different levels or at different stages in their career; as
well as the personal values of each of the employees in the organization.
Schoemaker and Tetlock remind us that “cognitive biases
are widely known to skew judgement, and some have particularly pernicious
effects on forecasting. They lead people to follow the crowd, to look for
information that confirms their views, and to strive to prove just how right
they are. Training can help people understand the psychological factors that
lead to biased probability estimates, such as the tendency to rely on flawed
intuition in lieu of careful analysis. Another technique for making people
aware of the psychological biases underlying skewed estimates is to give them
confidence quizzes,” (p.75).
We live in a world where judgements that are made can
impact more than just the individual making the judgement, but can impact the
whole world. Take global warming, a scientific phenomenon that if correct and
not ‘checked’ will be the end of the world as we know it. Yet recently the
President of the United States broke away from the Paris Accord on Climate
Change, claiming ‘global warming’ was a politically driven ‘con’ and that
because his grandfather was a Professor at MIT, he had an instinct for science
– hmmm, making judgement on a phenomenon that could be the end of life on earth
requires patience, accountability, integrity and much more serious debate.
Schoemaker and Tetlock remind us of the importance of
building the right teams. “Whether a team is making a forecast about a single
event or making recurring predictions, a successful team needs to manage three
phases well: a diverging phase, in which the issue, assumptions, and approaches
to finding an answer are explored from multiple angles; an evaluating phase,
which includes time for productive disagreement; and a converging phase, when
the team settles on a prediction. In each of the three phases, learning and
progress are fastest when questions are focused and feedback is frequent,”
(p.77).
The key to judgement in the 21st century,
besides the values already discussed is the concept of trust. We need to
recruit the right people with the right experience and values; then trust them
to make the right judgement calls and trust them to be flexible in their
approach so that they will be honest when things start to go wrong or don’t
work.
The judgements organizations make today shouldn’t just be
about short term shareholder value, but about long term sustainable growth. The
UK has seen the ‘high street’ change so much in the last 12 months. Retail
stores that have been around for hundreds of years closing their doors for good
or closing down a large proportion of their stores laying off thousands of
employees. These closures are due to poor judgement and now everyone pays, even
the shareholders.
As we become more technologically advanced; and as we see
the divide between rich and poor become even greater, we need leaders, both
from business and politics to make better judgement calls for the world in
general – otherwise the future could be very bleak.
Finally Schoemaker and Tetlock suggest that “companies
should systematically collect real time accounts of how their top teams make
judgements, keeping records of assumptions made, data used, experts consulted,
external events, and so on. Where well-run audits can reveal post facto,
whether forecasters coalesced around a bad anchor, framed the problem poorly,
overlooked an important insight, or failed to engage team members with
dissenting views. Likewise they can highlight the process steps that led to
good forecasts and thereby provide other teams with best practices for
improving predictions,” (p.78).
References:
Schoemaker, P.J.H. and Tetlock, P.E. (2016).
Superforecasting: How To Upgrade Your Company’s Judgement. Harvard Business
Review, May, p.72-78.
