A few years ago, I started thinking about all of the “mistakes” that management and organizations have made. There are several books dealing with the subject and various companies, leaders and managers are noted for the blunders they have made in decision making. For instance, out of the top ten mergers undertaken in the 90’s, eight of them lost money or shareholder value. Not just a little money, but billions and billions of dollars. We are all familiar with other noted disasters such as “New Coke”, Apple’s Newton and Ford’s Edsel. The question I wanted to answer was simply: “what is behind such faulty decision making?” I found an excellent article that looked at the top ten mistakes managers make in decision making. The title of the article was “10 reasons people make stupid decisions.” I have found this article posted on many blogs but I am unable to find the author of the article.  The top ten reasons the author lists are:

1. Attribution error
2. Illusion of control
3. Conformity
4. Availability bias
5. Endowment effect
6. Dysfunctional competition
7. Overconfidence
8. Confirmation bias
9. Egocentric bias
10. Sunk cost bias

I won’t go into describing each of these as you can readily find the article on line. However, if you are familiar with the work of Kahneman and Tversky, many of these biases and errors will be familiar to you. These two men wrote one of the greatest books of all time. The book Judgment Under Uncertainty: Heuristics and Biases deals with the numerous errors and mistakes that humans make in decision making. There have been other books such as The Abilene Paradox by Dr. Jerry B. Harvey, The Challenger Launch Decision by Diane Vaughan, Groupthink by Dr. Irving Janis and recently works by such authors as: Dan Ariely, Ori Brafman and Jonah Lehrer that all deal with the irrationality that goes into much decision making. However, to my thinking most of them are simply elaborating and extending the work done by Kahneman and Tversky.

It is very interesting to reflect on the fact that Dr. Herbert Simon won a Nobel Prize in Economics in 1978 for his work on the “rational” thinking that takes place in the economic sphere. In 2002, Dr. Kahneman and Dr. Tversky won a Nobel Prize for their work on the “irrational” decision making that takes place in the economic sphere. It took us another 24 years beyond Simon’s work to realize that a model of decision making based solely on the concept of rationality is flawed. Perhaps many people realized intuitively that such a model was flawed but that did not stop the experts and teachers at universities all over the world from basing economic decisions on a flawed theory. The concept of a Yin and Yang in respect to human decision making seems quite appropriate. Humans make decisions based on both rational and irrational perspectives. It is probably safe to say that no decision ever made was made on perfectly rational criteria, unless perhaps it was preprogrammed into a computer.

The issues that can be raised by noting the manner in which managers and leaders make decisions raises three key questions. The first is whether or not irrational biases help or hinder decision making. The second is just how many different biases actually affect our decision making? Are there more than ten and if so what are they and how can we recognize or categorize them. The third question is how can we overcome any negative effects that our biases play on our decision making?

My partner and I came up with the concept of pathologies and pathological thinking to describe and start a sort of typology of the various irrational biases that manager’s exhibit. We began to sort these into groups and to identify various strategies that could be used to overcome the negative effect of these biases. The term pathology seemed to fit since pathology can be defined as: “A departure or deviation from a normal condition.” We want to regard the irrational forces that adversely impact human decision making as temporary departures from normality. Granted, these “temporary” departures are frequent and systemic but they are temporary nevertheless. Most “rational” humans will want to understand their biases and learn how to overcome them or at the very minimum will want to learn how to mitigate their impact. We believe that “pathological thinking” can be “treated” and overcome.

Now perhaps you think we are being idealistic. How can human beings ever overcome emotions and psychological biases that are hardwired into their anatomy? Well, in the first place, we have a positive view of the evolution of humanity. We believe that people are getting better and better and indeed want to be better and better. Second, we believe that biases while perhaps part of our basic human nature can be identified and understood. Once a bias is identified, it can be dealt with as any other “pathological condition” can be dealt with. We can treat it, soothe the symptoms and minimize the possible negative effects. If we refuse to recognize our biases, we are helpless to avert the unintended consequences that often are the effects of irrationality and pathological thinking. Ellen Langer wrote a wonderful book called Mindfulness. The premise of Dr. Langer’s book is that: “The mindless following of routine and other automatic behaviors leads to much error, pain and a predetermined course of life. Only by living a mindful life will we have free rein to imagination, intuition and creativity.”

Let us look at my first question “Do irrational biases help or hinder decision making?” On the face of it, the answer might seem obvious, but sometimes what we call  “irrational” might reflect a deeper intuition based on experiences that have become a part of our inner psyche. Richard Farson notes in his wonderful book “Management of the Absurd” that “the more experienced the managers the more they trust simple intuition.”  The more confident we are, the more we tend to rely on intuition.  Dr. Deming used to say that “experience without theory teaches nothing.” I added “but theory without experience also teaches nothing.”  In the best of all worlds, we learn to balance intuition with a profound sense of data and research.  Dr. Deming promoted a concept of Profound Knowledge shortly before he died in which he extolled managers to rely more on systemic thinking and less on gut feel and tradition.  The concept of Paradigm Shift derived from Thomas Kuhn’s book “The Structure of Scientific Revolution” points out the danger of blindly assuming that what worked in the past will continue to make us successful in the future. This simple advice is often ignored because of the biases we fail to examine and perhaps choose to ignore.

The second is just how many different biases actually affect our decision making?  Are there more than ten and if so what are they and how can we recognize or categorize them.  In my research, I have found so many that I was beginning to wonder how or if anyone was ever rationale. Then, I heard a metaphor that put it all in perspective.  It has to do with writing. Most manuscripts are full of typos and grammatical errors.  Nevertheless, the correct spellings and grammar are often obscured by the salience of the errors that we find. Thus we fail to realize that there are more correct words and grammar than there are incorrect.  It is a little like the concept of one rotten apple in a barrel. It hides the good ones which are much more bountiful.

I could go on with many more examples such as above but I think you get the point.  We make many more correct judgments on a daily basis than we do incorrect ones.  Despite the many biases and thinking traps that exist, for the most part we are making progress as a human race and I venture an optimistic opinion that we are better off today than we were 100 years ago.  Nevertheless, perhaps fewer than twenty of the top one hundred corporations on the first Fortune 100 list in 1954 are still around. This calculates to an average corporate lifespan of less than fifty years.  Dr. Peter Drucker noted that the major reason for the failure of a corporation was its inability to accept a new reality.  New business concepts radically change existing business models and in some fields go on with a sense of “punctuated equilibrium.”  Think of the concept of idea transfer. We have gone from stone tables to e-readers.  Major changes such as paper, the Gutenberg Press, copyrights, books, internet and e-readers have radically changed the transfer of ideas and the design of value in the “printing business.”  I predict that we are about to see the end of large scale publishing companies. Much like Bud and Miller have been relegated to second rate players in a beer market that is now dominated by micro and craft brewers. If you continue to hold on to your old paradigm, you will go the way of the encyclopedia Britannica.

The third question is how can we overcome any negative effects that our biases play on our decision making? There are three keys that will unlock the doorway to get out of these traps.

  1. Imagination
  2. Creativity
  3. Innovation

My partner and I created the following model to illustrate the relationship between these three concepts

The “Imaginative and Innovative Organization”, much like the “learning organization” but infinitely more playful and spontaneous will not fall into pathological thinking because it will be too busy exploring new options and ideas regardless of where those ideas take it.  Recently Netflix seemed to cannibalize its DVD business by providing free on-demand downloads of movies and TV serials.  Netflix saw the future and choose to take a risk by changing its strategy.  This move has now paid off handsomely for Netflix and will position it to become part of the next paradigm rather than to be stuck in the old paradigm.  Such a move requires the ability to let go of the past.  This can only be done if you are imagining and creating a future that is vastly different from the present.  The “Imaginative and Innovative’ organization will be doing these transformations on a daily basis. The idea of cannibalizing its own business or obsoleting itself will not seem like heresy because it will be part of regular corporate policy.  However, policy will not be set in stone and policy itself can become a thing of play.  Imagine an organization that plays with its policy and procedures.  Imagine an organization where every employee is able to be imaginative, creative and innovative. If you can imagine this, you will be able to create the type of organization that is successful in the 21st century and beyond.

Dr. John Persico Jr.

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Three of the most important attributes required for great leadership are: vision, creativity and imagination. Many times these are lumped together and the fine nuances between the three are lost. We often hear that someone is creative and imaginative or has vision and creativity. People refer to these traits as though they were synonyms. Nothing could be further from the truth. They are mutually independent characteristics. You can be creative but lack vision. You can have imagination but lack creativity. Today I would like to look at the issue of vision and the place it should have in your organization. However, let us first look at the role that vision has played in the theater of history and destiny.

John Man in his book “The Leadership Secrets of Genghis Khan” notes that Genghis Khan was a leader of exceptional vision and modernity. Furthermore, Man states that vision, direction and ambition were the key leadership traits that Genghis Khan possessed and used to conquer and administrate his vast empire. Genghis Khan’s vision was the unification of China, that later evolved into global conquest.

Napoleon had a vision of a unified Europe. We may feel that war has no value in such visions, but this assertion allows us the luxury or arrogance of judging history by 21st century standards. One could ask if Europe might not have been better off if Napoleon’s dream had been realized. Would the world have suffered through WW1 and WW2 if there had been a united Europe? What if Alexander’s dream of making Greek democracy the dominant world system had been realized in 320 BCE? Would we be facing a Middle East where terrorism seems rampant and we are bogged down in wars that seem to have no ending?

But what exactly is a vision? It has been said that when you link goals and action items to a vision, it becomes a plan, but where does the vision come from in the first place? Why do so many people and organizations seem to have a plan but no vision? Many organizations every have a mission statement but no clear vision. We have five year and twenty five year plans but seldom do we see five year or even one year visions. You can have a vision and no plan or a plan and no vision but the more common state of affairs is a plan without a vision. Take the following test. Select ten companies that you own stock in, you admire or you think would be great companies to work for. Now go online and see how many of these have a strong and clear vision statement.

For example, let’s take 3M. Go to Google and type in “3M Vision statement.” Here is what you will find:

3M Brand Identity Vision
We earn customer loyalty and respect when we effectively differentiate from our competition, communicate and reinforce the 3M brand strategy. The 3M brand identity standards serve to continually reinforce our frame of reference and the 3M brand promise.

Unnh?? Do you know what this means? Does anyone at 3M know what it means? Do you think the average 3M employee comes to work saying: “Today I am going to work hard to continually reinforce our frame of reference and the 3M brand promise.” By the way, what is the 3M brand promise?

Ok, let’s try another company. How about Microsoft? Go to Google and type in “Microsoft Vision Statement.” Here is what you will find:

Microsoft: A Vision and Strategy for the Future
Diversity and inclusion are integral to Microsoft’s vision, strategy and business success. We recognize that leadership in today’s global marketplace requires that we create a corporate culture and an inclusive business environment where the best and brightest diverse minds—employees with varied perspectives, skills, and experiences–work together to meet global consumer demands. The collaboration of cultures, ideas, and different perspectives is an organizational asset and brings forth greater creativity and innovation.

This is the first of four paragraphs relating to Microsoft’s vision and strategy. It is alternately referred to as a vision statement for global diversity and inclusion. This latter interpretation seems to be closer to what this statement is about than a corporate vision. Are you inspired by Microsoft’s vision? Would you know what it means for you as an employee? What is Microsoft’s ultimate goal?

Let’s review the purpose of a vision: Here are some suggested purposes for a vision or statement of vision:

•Vision statements are the inspiring words chosen by successful leaders to clearly and concisely convey the direction of the organization. By crafting a vision statement, you can powerfully communicate your intentions and motivate your team or organization to realize an attractive and inspiring common vision of the future.

•Vision statements define the desired or intended future state of an organization or enterprise in terms of its fundamental objective and/or strategic direction. Vision is a long term view, sometimes describing how the organization would like the world in which it operates to be.

As a pragmatist, I believe that all employees should share in the vision of the organization. How do we expect anyone to go beyond mere organizational compliance and conformance if they do not buy into and subscribe to a larger vision for their company? However, as a realist, I have to admit that the visions of many great companies are only known to the founder or senior leaders. How many people knew what Henry Ford, John D. Rockefeller, Andrew Carnegie, Steven Jobs or Sergei Brin’s visions were? Most visions are not adequately shared or understood by the followers of such visions. Nevertheless, there are still powerful visions at play in the development of any great country or organization. The more powerful the vision, the greater the achievements usually are. Thus, the greatest mistake is not to have a vision without a leader but to have a leader without a vision or with an insignificant vision that is not worth the effort.

Great visions inspire great efforts. It has been that way down through history and it is no different now. The Bible says in Proverbs 29:18 “Without a vision, the people will perish.” Great leaders know that great visions are essential for the development of great strategies. Why then do so many organizations lack inspiring and noteworthy visions? We have many great organizations in the world and we have many great leaders. The answer lies in an observation that I have made over many years of consulting. When the founder leaves the organization, the organization struggles or starts a slow spiral into decline and mediocrity. This suggests to me that no doubt the power of the founder’s vision and ideals was somehow imbued in the very fiber of the organization. Once the leader left, the vision gradually diminishes until any remnants of it are non-existent. Unless, a new leader comes along who can instill some of the old spirit into the organization (or as has recently happened with Apple, Dell, Google and Starbucks, the old leader returns) the organization will decline and die.

The task of the leader is to think long-term. This means insuring that the vision they have for the organization becomes part of the organizations DNA. This is a task that is seldom done. Perhaps too few leaders think ahead to when they will die or leave the organization. The task of creating a vision often gets delegated to a committee or task force of senior executives. The result is a mediocre and lackluster statement that does not seem to be tied to any real values or goals that are exciting and worth following.

Here is a paradox. A vision must be realistic but idealistic. A vision is a dream coupled with the belief that such a change or transition is possible. Consider the “Vision” of Dr. Martin Luther King:

“I have a dream that one day, down in Alabama, with its vicious racists, with its governor having his lips dripping with the words of “interposition” and “nullification” — one day right there in Alabama little black boys and black girls will be able to join hands with little white boys and white girls as sisters and brothers.”

The power of this dream is unmistakable. MLK paints a picture of something that did not exist but it also does not seem impossible. He paints an alternate picture of reality. There is a saying that if a human can dream it, another human can create it. Great visions are inspired by dreams of what the world can be. Great visions are always positive and forward thinking. To have a great vision, you must have great dreamers who can translate their dreams into a vision of reality that each individual can literally see. If you can’t picture it, it is not a vision.

The leaders role is to create that vision for his/her followers. If you want to call this the role of leadership, that is fine. I believe that a team of leaders could create a great vision although history shows this to seldom be the case. However, if a team of individuals were all moved by the same spirit of creativity, commitment, imagination and value to others, I see no reason why they could not create a great vision statement.

You may ask, who decides whether or not a vision is great. The answer is simple. Have you created an organization where employees come to work because they have something to believe in or do they simply come to work for the paycheck? I think it is fair to say most of us want to work for a purpose or cause or product that we feel contributes value to others. When an employee feels that value in their effort, you do not have to worry about their work ethic or their loyalty to your organization.

Do not be daunted by the task of creating or translating your vision into a reality that everyone can see.  There are many ways this can be done.  What is more important is that employees see the vision being lived in the work, services and products of the organization.  Perhaps once a year, the Vision should be measured in terms of how close you have come to achieving it.  If the vision can be seen as having a substantive reality, it will become a goal or dream that everyone can share.  Visions evolve and as the world changes, your vision may change. If you are lucky or successful, perhaps you will attain your vision in your lifetime.  For most of us, it will remain a rather elusive dream that motivates and inspires our daily work and life.  A life with purpose is truly a life worth living.

We have all been told countless times that a “mission statement” is critical to the success of an organization. I am sure you have heard that “if you don’t know where you are going, any direction will do.”  However, the evidence and research shows that many successful companies do not have either a business plan or a mission statement.  How many times have you seen a mission statement that said “We want to be the best” or “We highly value our employees”? We tend to just take these for granted. They are generic and vanilla statements and most employees simply ignore them. In fact, in even the best companies, the mission statement (if it exists) is virtually unknown by most employees if not most of management.  I have visited dozens of companies wherein most of management could not begin to tell you what their mission or vision is for their organization.

In my seminars on strategic planning, I have conducted numerous debates between proponents of mission statements and opponents.  The score is somewhat tied at about 50-50.  Often the judges select the arguments of the proponents but equally as often the opponents win the debate.  Why?  How can so much wisdom exhorting the power of a mission statement be wrong?  When one adds the time to develop such statements in planning workshops usually attended by senior executives, there seems even less justification for spending precious hours and resources on these statements. My partner and I have developed a more balanced view of the value of such statements and when and how they should be developed and deployed.  

Let’s look at three possibilities. 1.) The mission statement is in the head of the founder.  2.) The mission statement is boring and unmemorable.  3.) The mission statement is inspiring and motivating. 

In the first case, you probably do not need a mission statement as long as the founder or leader is at the helm of the organization.  However, what if every employee also had a “personal” mission statement for their role in the organization?  What if their mission statement aligned with the founders’ mission statement?  Every employee coming to work each day would have a purpose linked to the overall purpose of the organization but inspired by their own goals and related to what they personally wanted to accomplish. Would you mind having a workforce filled with such people. Then why keep the founders statement or vision a secret? Why not expand the entire concept of creating a vision to a vision and mission for each employee in the organization?

The mission statement is boring and unmemorable.  This second situation applies to about 80 percent of the missions that I have seen.  Cookie cutter statements are not going to inspire anyone.  Worse, they fail to provide any strategic direction.  What is missing in these statements is imagination.  Think of the imagination that inspired the Wizard of Oz, Alice in Wonderland, Avatar, the IPOD, the Moon Landing, and Facebook. I am not talking about “Pie in the Sky” type thinking and planning.  I am talking about words, visions and missions that inspire and excite us.  Adventures and goals that take us out of our mundane everyday lives and help make us part of something bigger than ourselves. We all want to be part of something great, something memorable. Whether it is simply by supporting our sports team, developing a new innovative product or joining the church choir, we need to be part of something bigger than ourselves. However, we must believe that this “bigger’ thing is doing somewhere exciting or has the potential to be a winner. It has to be bigger than we are.  It has to embody deep seated hopes and dreams that are inherent in every human being. As Kelly Cutrone , the writer and fashion publicist has said in her new book:  “Normal Gets You Nowhere.”  Normal is average.  Average is middle of the road.  Do you aspire to be an average company with average employees?  If so, you will probably not survive long in today’s marketplace.

The third possibility is what we want to create.  A mission statement that is inspiring, memorable and actionable.  We want a mission statement that will embody the hopes and dreams of the founder and the employees that are hired by the organization.  Consider some of the following statements:

  • Space: the final frontier. These are the voyages of the starship Enterprise. Its five-year mission: to explore strange new worlds, to seek out new life and new civilizations, to boldly go where no man has gone before.
  • I believe this nation should commit itself, to achieving the goal, before this decade is out, of landing a man on the moon and returning him safely to the earth.
  • Henry Ford’s mission was “A simple, inexpensive vehicle affordable by ALL!”
  • Wal-Mart “To give ordinary folk the chance to buy the same things as rich people.”
  • Mary Kay Cosmetics “To give unlimited opportunity to women.”
  • 3M “To solve unsolved problems innovatively”

Each of these statements is inspiring and memorable.  But even better, each of these statements invites you to take part in some endeavor that is clearly exciting and worthwhile.  However, before you start to think about developing or changing your organizations mission statement you need to ask yourself a few questions. 

  • Are you inspired by your company mission or vision? Why not?
  • What would it take for you to be more inspired?
  • Would putting time and energy into developing an inspiring mission statement help you and your employees have more energy and focus? Why or why not?
  • Do you self-inspire? Do you have your own personal vision and mission? Why not?
  • Do you have the imagination to create a great mission statement for your organization? 

Too many organizations have a myth of innovation and creativity when in reality they have become moribund and bureaucratic.  They lack the ability to think out of the box, because the entire organization structure is one great matrix of boxes and chimneys and silos.  From the day an employee is hired, they are put into a box by their job description, their title, their department and the policies and procedures that govern everyday organization life in their company.  Is it any wonder that when a mission statement is created, it is lackluster and vanilla? It is difficult if not impossible to be creative and imaginative and think out of a box when your entire daily existence is to be part of and fit into one large box. Thus, many organizations need help to be creative and imaginative.  Asking the typical manager or employee to create an innovative and inspiring mission statement is like asking the fox to take good care of the hen house.  “It ain’t a gonna happen.”   

Sorry to be negative here.  But let’s face reality. Why are so many mission statements either forgettable or useless?  Dr. Deming noted that “Change comes from outside by invitation only.”  I have always assumed that this meant you need to have help from someone who is not part of the system or someone who can view the situation without any inherent biases.  Call them a counselor, consultant, advisor or coach; we all need someone who is more objective than we can be when trying to change. 

Well, you have some tips and ideas here.  If you were expecting a formula for a great mission statement, I are sorry.  There is no such formula.  A great mission statement comes from passion, imagination, focus and to some extent failure and experimentation.  It is an iterative process. My partner and I use the PDCA cycle as a means of summarizing this. P is for Play.  D is for Design.  C is for Create and A is for Activate.  It is a cycle that is never ending and always being refined and improved.  Apply this cycle to your mission statement and see where it takes you

I will define strategy as a systematic effort to change dreams into reality.  Destiny is defined by one online dictionary as:

  • an event (or a course of events) that will inevitably happen in the future
  • The ultimate agency regarded as predetermining the course of events. “we are helpless in the face of destiny”
  • Fortune: your overall circumstances or condition in life (including everything that happens to you); “whatever my fortune may be”; “deserved a better fate”; “has a happy lot”; “the luck of the Irish”; “a victim of circumstances”; “success that was her portion”

Strategy and destiny are polar opposites. One woman says that she is in charge of her fate and another man says “it was destiny.”  One man says “I made it happen” and another says “He got lucky.”  I have a good friend who argues that there are no choices in life. Everything is preordained. Success, failure, happiness and sadness are all controlled by fate. There are no decisions and no alternatives. If someone makes a fortune, it was destined to happen. No matter what they did, they would have made the fortune anyway.  In my friend Bruce’s’ world, there are no mistakes, since we could not have chosen differently. What does any of this have to do with business?  I will get to that shortly. 

First a question for you: How many of you saw the inevitable demise of GM or Blockbuster?  I will bet that roughly 1/ 3 of you can honestly say that you saw the writing on the wall ten years ago.   My ex-boss and friend Lou Schultz says that he saw the writing on the wall 20 years ago when our consulting firm was working with GM.  Was Lou a prophet? Did Lou see things that no one else saw? Was it destiny or divine fate that made GM declare bankruptcy? Was it inevitable that they lost over 30 percent of their market share and hundreds of thousands of jobs?  If so, why have Honda and Toyota prospered in the same market? 

Fortune Magazine ran an article describing the mindset at GM and how a lack of imagination and vision ran the company into the ground.  According to the Fortune analyst, it was not destiny, bad luck or fate that caused the bankruptcy of GM.  It was simply narrow-mindedness and lack of foresight.  Philippe Silberzahn (April 1, 2010) in a very insightful blog compares the reasons that civilizations decline (noted by Arnold Toynbee) to the eventual bankruptcy at GM.  He writes:

“What, for instance, is the cause of General Motors’ bankruptcy in 2009? Clearly, this comes at the end of a long decline that visibly started back in the early 1970s. It could be the entry and success of the Japanese cars in the US at that time. But we suspect this would be more the symptom than the cause. In fact, some researchers (Santos, Spector and Van der Heyden) attribute GM’s breakdown to a decision made by its new CEO back in… 1958. That year, the divisional managers of the company stopped being part of the company’s policy (i.e. executive) committee. This marked the end of the interweaving between strategy and operation. From then on, the disconnect between the two grew: strategy became increasingly detached from the field, while operations only sat at the receiving end of decisions made “upstairs”. Instead of being fully engaged in policy decisions, divisional managers were told what to do and how to do it. The creative interweaving of strategy and operation was broken.”

No destiny here!  GM’s case is simply a failure of strategy and decision making.  Peter Drucker said in a conference on Knowledge Management in San Diego several years ago that the major reason for the demise of all organizations was a failure to correctly perceive reality.  If you think of decision making and reflect on the perils of illogical reasoning that I posted in my last blog, you might wonder if it was possible to make any good decisions. However, I think reality would show that at least as many right decisions are made as wrong decisions. For the sake of simplicity, we can summarize all of Kahnemans and Tverskys “errors in judgment and reasoning” into two major categories as follows. 

First.  Denial:  We do not want to admit that the world has changed and that our cheese has been moved.  “Who moved my cheese? I want my cheese back.”  “It is simply not true that all videos will eventually be on demand and downloaded by satellite or cable connections.” “If I can only hang in there long enough, maybe the competition will go away or maybe my customers will ignore the higher quality of my competitors.”  “We have always done it this way, why should we change.”

Second. Perceptual Bias:  We see the world that we want to see and not the world as it is.  “Our quality is just as good as their quality.” “We are just as innovative as the competition.”  “Nobody could understand our business.”  There are many errors in decision making that can be categorized under the label of “biases.’  T. K. Das and B. S. Teng have a paper titled: Cognitive Biases and Strategic Decision Making Process: An integrative Perspective (Journal of Management Studies, November, 1999) that does an excellent job of describing many of these biases and their effects on strategic decision making. 

Unfortunately, there are no pills or simple rules for avoiding either of these two systemic categories of problems.  No one is immune to denial or bias. I would love to be able to tell my clients that by hiring me, their success is assured. “I have the remedies to all of your problems and for a small fee I will guarantee that you will never make another strategic error.”  Many of you are familiar with the Monday morning quarterback syndrome and are rightfully skeptical of consultants and other prophets who come around after the fact with the “correct” solutions.  On the other hand, what of Peter Schiff, Nouriel Roubini and Charles Morris who all precisely and accurately described the present “Great Recession” BEFORE THE FACT?  What of Juval Aviv’s warnings to the Bush Administration that terrorists would use planes as bombs and target high profile buildings and monuments one month BEFORE 9/11? Were these people just lucky?  Do you still believe in luck? If so, then would you note all of these situations as simply fate or destiny or karma?  Then there is no reason to work on strategy.

My definition of luck is stolen from someone whom I no longer remember.  It goes like this:  “Luck is where preparation meets opportunity.” In part 2 of this blog, I will look at the methods and reasons that enable some leaders to describe scenarios and future events that seem to elude the rest of us.  Why did Churchill see the danger in Hitler that was ignored by other leaders in Europe? Why did Honda see the opportunities to sell motorcycles in the US that Harley Davidson missed?  Why did Southwest Airlines remain profitable while the rest of the US airline industry was going bankrupt? How come the three largest American Brewers are now foreign owned but we have over 400 craft brewers in the US making a living selling beer?  Tune in to the next installment for answers to these and other questions concerning strategy and destiny.

A few years ago, I started thinking about all of the “mistakes” that management and organizations have made.  There are several books dealing with the subject and various companies, leaders and managers are noted for the blunders they have made in decision making.  For instance, out of the top ten mergers undertaken in the 90’s, eight of them lost money or shareholder value. Not just a little money, but billions and billions of dollars. We are all familiar with other noted disasters such as “New Coke”, Apple’s Newton and Ford’s Edsel. The question I wanted to answer was simply: “what is behind such stupid decision making?”  I found an excellent article that looked at the top ten mistakes managers make in decision making.  The title of the article was “10 reasons people make stupid decision.”  I have found this article posted on many blogs but I am unable to find the author of the article. The top ten reasons the author lists are:

  1. Attribution error
  2. Illusion of control
  3. Conformity
  4. Availability bias
  5. Endowment effect
  6. Dysfunctional competition
  7. Overconfidence
  8. Confirmation bias
  9. Egocentric bias
  10. Sunk cost bias

I won’t go into describing each of these as you can readily find the article on line. However, if you are familiar with the work of Kahneman and Tversky, many of these biases and errors will be familiar to you. These two men wrote one of the greatest books of all time. The book Judgment Under Uncertainty: Heuristics and Biases deals with the numerous errors and mistakes that humans make in decision making.  There have been other books such as The Abilene Paradox by Dr. Jerry B. Harvey, The Challenger Launch Decision by Diane Vaughan, Groupthink by Dr. Irving Janis and recently works by such authors as: Dan Ariely, Ori Brafman and Jonah Lehrer that all deal with the irrationality that goes into much decision making. However, to my thinking most of them are simply elaborating and extending the work done by Kahneman and Tversky.

It is very interesting to reflect on the fact that Dr. Herbert Simon won a Nobel Prize in Economics in 1978 for his work on the “rational” thinking that takes place in the economic sphere. In 2002, Dr. Kahneman and Dr. Tversky won a Nobel Prize for their work on the “irrational” decision making that takes place in the economic sphere. It took us another 24 years beyond Simon’s work to realize that a model of decision making based solely on the concept of rationality is flawed. Perhaps many people realized intuitively that such a model was flawed but that did not stop the experts and teachers at universities all over the world from basing economic decisions on a flawed theory. The concept of a Yin and Yang in respect to human decision making seems quite appropriate.  Humans make decisions based on both rational and irrational perspectives. It is probably safe to say that no decision ever made was made on perfectly rational criteria, unless perhaps it was preprogrammed into a computer.

The issues that can be raised by noting the manner in which managers and leaders make decisions raises three key questions. The first is whether or not irrational biases help or hinder decision making. The second is just how many different biases actually affect our decision making?  Are there more than ten and if so what are they and how can we recognize or categorize them.  The third question is how can we overcome any negative effects that our biases play on our decision making?

My partner and I came up with the concept of pathologies and pathological thinking to describe and start a sort of typology of the various irrational biases that manager’s exhibit. We began to sort these into groups and to identify various strategies that could be used to overcome the negative effect of these biases. The term pathology seemed to fit since pathology can be defined as:  “A departure or deviation from a normal condition.” We want to regard the irrational forces that adversely impact human decision making as temporary departures from normality. Granted, these “temporary” departures are frequent and systemic but they are temporary nevertheless. Most “rational” humans will want to see their biases and learn how to overcome them or at the very minimum will want to learn how to mitigate their impact.  We believe that “pathological thinking” can be treated and overcome.

Now perhaps you think we are being idealistic. How can human beings ever overcome emotions and psychological biases that are hardwired into their anatomy?  Well, in the first place, we have a positive view of the evolution of humanity. We believe that people are getting better and better and indeed want to be better and better. Second, we believe that biases while perhaps part of our basic human nature can be identified and understood. Once a bias is identified, it can be dealt with as any other “pathological condition” can be dealt with.  We can treat it, soothe the symptoms and minimize the possible negative effects. If we refuse to recognize our biases, we are helpless to avert the unintended consequences that often are the effects of irrationality and pathological thinking.  Ellen Langer wrote a wonderful book called Mindfulness. The premise of Dr. Langer’s book is that:  “The mindless following of routine and other automatic behaviors leads to much error, pain and a predetermined course of life. Only by living a mindful life will we have free rein to imagination, intuition and creativity.” 

 In my next blogs, I will attempt to address the questions raised above and to describe some examples of how biases subvert our best strategies and how we can overcome their effects.  I welcome comments and questions and hope perhaps we can make this a more interactive conversation. What has been your experience with this subject? What have you learned about overcoming biases and prejudices? How do you help your employees and managers to make better decisions?

One of the best pieces of advice I have ever received was from my friend, mentor and Ph.D. advisor Dr. Gary N. McLean.  Dr. McLean told me that it is easy to be negative about life and the world, but the successful people in the world are positive. Looking back at those leaders who I would want to emulate, I have come to see the truth in Dr. McLean’s statement. There is a time for criticism, but we must always be optimistic and see the potential for greatness in everyone and everything. Criticism without positive action is nihilism and defeatism. The world is deluged with people who are defeatist and can see no positive value in themselves or others.

When we talk about a leader, we are thinking of people who inspire, challenge, motivate and provide a vision.  By practical definition, we are describing someone who must be optimistic. Any pessimism is tempered in a leader by a can do attitude. A leader helps us to see that we can change things and that regardless of how bad things are; there is hope for a better day.  A leader must be an interesting and unique amalgam of positive and negative forces.  I think of the Yin Yang of leadership as being a sort of duality between negativity and positivity. The negativity forces us to see the problems that exist and the positivity forces us to see the potential for changing these problems.

Recently, I attended a “Get Motivated” seminar put on by Peter and Tamara Lowe. I was able to get tickets and I took my entire class. Talk about positive thinking. The day was full of speakers who were exciting and energizing. My students loved hearing the stories of people like Colin Powell, Rudy Giuliani and Rick Belluzzo. The stories heard by these remarkable leaders show us that great leaders have never been handed success on a silver platter. The road to great leadership is steep and full of dangerous drop-offs.  My students learned that while life may be hard for them, it has been even harder for many of the most successful leaders in the world. These are people who overcame hardship and adversity through a positive belief in themselves and their ability to make a difference. There is no truer statement than that every one of us has the power to change the world, both for the better or for the worse.

Before I attended this “motivation” seminar, I was very skeptical about the power of motivation. I thought of “motivation” as a sort of cheap candy. Full of high calories and carbs but with little lasting energy. You hear a great speaker, get pumped and then in three or four hours you are deflated again. You have all heard the comments that these motivational seminars are like Chinese food. You eat it and are hungry three hours later. Then I heard the famous motivational speaker Zig Zigler say: “Well, you will bath and eat today, but if you do them regularly you will live longer and smell better.” How true, I had never realized that being positive, staying motivated, pursuing my vision and making a difference in the world is not something I can be committed to once and forever. Every day, I must recommit to my goals and vision. We will all have ups and downs in the daily struggles of life. The tomorrows of life are simply our next chance. It’s like we get a lottery ticket each day when we get up. Today is your chance to make a difference. Will you use your lottery ticket or will you simply throw it in the garbage pail.

If you told me that you were on the Mount Everest of cynicism when it came to business ethics, I would have a hard time blaming you. The papers are full of leaders who have defaulted on their obligation to display even a modicum of ethical leadership.  If you told me that “Business Ethics” was an oxymoron, I would be embarrassed to try to mount a counter argument. Hundreds of business people feel that their only obligation to corporate ethics is to improve their company’s stock price. If you told me that “greed was good” and the only thing that counts is the bottom line, how could I find a pragmatic argument. People all over the country cheered at this line from the movie Wall Street. If you trotted out the roll call of current business and professional leaders who are on trial, in jail or out on bail, I would have to display great forbearance while you read the roll call, no doubt it would try my patience to listen to all of the names on your list.   Would I dare cite anyone as an exemplar of business ethics? No doubt, you would find a flaw in their personality or business practices. You might even counsel me to “wait” a week until they have a chance to get caught.  Oh, does cynicism overwhelm me?

How can I with a straight face teach “Business Ethics” at a university? Where do I find the system of ethics that can survive the empirical challenges to its validity?  Does any system of ethics hold sway in the daily lives of business people? Can there be any foundation for a system of ethical behavior that is not built on the sands of relativity?  Woe to the world if we leave ethics out, but are part-time ethics helping us to build a better nation?  Are we expecting our leaders to be saints?  Should we expect that all leaders are really sinners? Do we need to cut everyone more slack and tolerate a little hypocrisy and crookedness at least once in a while? Should we not have a system that expects and overlooks a modest amount of fraud, malfeasance and chicanery?

You may have noticed that though I stare at today’s newspaper and its current headlines ring with the latest business leader to go to jail, I have not mentioned any names. This is not due to my graciousness or forgiveness, but simply that the papers and reporters will have announced these transgressions until we are all sick of hearing the stories and minute details. “Sexual escapades results in CEO being fired.”  “COO caught sending millions to private off shore accounts.”  “Noted financial adviser defrauds investors of millions in assets.”  “Company executives hid negative results of tests showing harm to consumers.”   The headlines beat us down each day with their litany of “Bad” news by “Bad” people.  Are we all monsters are in bed with monsters?  It might appear so.

Never, never, never though give up.  Cynicism is the death of idealism and idealism is the hope of the future. The world and all of us will be and can be better tomorrow. Whoever promised any of us a perfect world?  Whoever promised that most of us would not be subject to mistakes, stupidity and errors of judgment? Progress never has and never will be a straight line. We take one step back, and two steps forward. Sometimes you take two steps back and only one forward. It is the sum totals of the steps that count and the direction that you are going.

My case for teaching ethics and indeed expecting and demanding ethical behavior in our leaders rests on my assumption that we can and will build a better world tomorrow. And if not tomorrow, then the day after tomorrow or the day after that!  I previously outlined the six traits of great strategic leaders. Some of you might argue with my picks based on their ruthlessness and outright brutality. However, I noted from the start that ethics was not a characteristic or attribute required to be on this list. That is the unfortunate direction that history has chosen in the past. Leaders who were successful regardless of the ethics of their actions have been followed and immortalized.  We need a new metric of strategic leadership that puts as much emphasis on the morality and ethics of behavior as on the results.

Dr. Deming was one of the most ethical business leaders I have ever known. His 14 principles were a manifesto of ethics for corporate leadership.  Principle number 8 “Drive out Fear” is a testament to his beliefs in how workers should be treated. Even as I sit here, hundreds of workers will be given their termination notices with little or no warning. Honest loyal workers who have devoted many years of their lives to helping their companies become successful will be treated as common criminals.  Each of us knows someone who on a Friday, perhaps late in the day, received their pink slip and under guard by a supervisor or security agent was escorted out the door. How can we treat people like this and say we believe in ethical behavior. Too many companies have never thought about what ethical behavior really is or means. 

We do not spend nearly enough time on ethical behavior in organizations. If I trained one hour a week for the Olympics, you would laugh and say I don’t have a chance in the world of making the team. Most organizations spend less than one hour a month dealing with, discussing, understanding or sorting out the implications of ethical behavior for their organizations. How can we have ethical behavior if we don’t know it, don’t practice it and don’t reward it? Show me a company that rewards employees for ethical behavior?  My case for ethics is that we treat it like a sideshow or appetizer. It needs to be a main dish. It needs equal time with the other training for leadership and it needs to be more than just theoretical. Most of my students think ethics is a nice idea, but not practical when the hard times come. Profits are still the main driver of organizational theory and not business ethics. Ethics is not even in the back seat, it is mostly in the trunk.  We cannot afford to continue with the present relegation of efforts as a secondary function in organizations.

Yes, you can still make a profit without ethics, yes, you may still make a list of great business leaders, but at what cost to humanity do we continue to ignore the repercussions. How many of us want our children to grow up with no ethics? How many of want a generation of future leaders who base everything on the bottom line? How many of us want our children to live in a world where profits are more important than ethics? As someone once told me, you are either part of the problem or part of the solution. Ask yourself today, are you helping us out of the ethical problems facing our nation and businesses or are you part of the problem?

 When the city of Thebes revolted against Alexander the Great, he force marched for 13 days to put down the revolution and destroyed the city.  Genghis Khan massacred entire cities that refused to submit and pay tribute to him.  When Michael Eisner took over as head of Disney, he swept 20 top executives out of office and replaced them with handpicked people.  While Eisner was not quite as draconian as Alexander or Genghis Khan, his actions today may seem almost as ruthless. How many managers do you know who will not or cannot bring themselves to replace incompetent people? 

Bill Walsh, coach of the 49ers said in a Harvard Business Review interview, that there is always one or two players on any team who “do not fit in and whom you need to TRADE.”  I have students in almost every one of my classes who will earn an F.  I once gave five out of six students an F and the sixth received a D for not doing the work.  

You can say I am a poor teacher if that many received an F, but in fact most of my classes do much better work. However, there sometimes seem to be groups that just negatively feed on each other. This was a group that wanted to do as little as they could and pass. I kept talking to them but they did not believe I would fail them. With the current grade inflation in academia, many students think that all they have to do is show up and they will get a passing grade. My students quickly learned that they must earn a grade in my class and if they do not, I will not hesitate to give them an F.

A typical dictionary definition of the word ruthless (Merriam Free Dictionary, Wikipedia, Dictionary on Line) is “without pity or compassion; cruel, merciless, adamant, relentless.”  When studying the history of great strategic leaders we see a pattern, they did what they had to do to succeed.  They were at times undoubtedly ruthless. We can judge the ethics of actions today and decide whether they are right or wrong and indeed, it is essential for leadership to consider the ethical dimensions of its actions. However, it is more difficult and problematic to judge the actions of leaders in the past. We are no longer in the same context and culture that they found themselves in. 

Was Truman right to drop the atom bomb on the Japanese? Did the Allies make the right decision when they firebombed Dresden? Should the US have invaded Iraq and hung Saddam Hussein? To some such ruthless actions may seem to lack compassion but to others it is freedom.  George Washington ordered the execution of deserters to maintain discipline in the continental army. In 1862, Abraham Lincoln declared martial law and ordered the suspension of the constitutionally protected right of American citizens to writs of habeas corpus.  Ruthless actions by two of our most revered leaders which have long since been forgotten.

Ruthlessness!  Doing what needs to be done!  We do not always have the luxury of not stepping on peoples toes.  An egg shell must get broken before you can fry an egg.  This does not mean that we can or should go out of our way to hurt others or to ignore the impact that our actions will always have on others. Today more than ever, we need a seventh trait for great leadership.  We need a strong moral and ethical sense to add to the other six traits. We need leaders who understand and think about the ethical dimensions of their actions.  

Ethical leadership must be guided by both law and compassion. We cannot afford leaders of any stripe who ignore the issues of morality that are often a hidden part of every great decision. Great strategic leaders today must make the moral and ethical dimensions of leadership decisions transparent. Decisions must always be made with consideration for their impact on the lives of others not only in the US and the rest of the world but also for future generations.  Ethical leaders will still need to be ruthless in their ability to pursue a course of action, but it will be a course of action that has been selected only after the ethical and moral impact on society has been considered.

Think of the visions that great leaders have had. Alexander the Great wanted to create a world where Greek democracy was the norm. Genghis Khan wanted to unite all of the Asian people from the Pacific Ocean to the Black Sea. Napoleon wanted a united Europe. Thomas Jefferson wanted a land where every citizen had the right to pursue his or her own vision of life, liberty and happiness. Martin Luther King had a dream that little black children and little white children could someday tread the streets of Atlanta and Birmingham hand in hand as equals. Mother Teresa had a vision of feeding the hungry and the poor in one of the poorest nations on the earth. Dr. Edward W. Deming believed in a vision of quality enabled by an enlightened management that used data and statistics as the backbone of process control.

Each of these visions was founded upon an imagination that went well beyond what anyone could have dreamed possible. Great visions are based upon great imaginations. An imaginative mind is the foundation for all new endeavors and enterprises. Just think how many great leaders have been told “It’s impossible, you cannot do that.” “Look Hannibal, you cannot cross the Alps with elephants.” “Caesar, your men will not follow you across the Rubicon.” “Shaka, you are an outsider, you will never be accepted within the Zulus much less ever be a leader.” “Dr. Deming, management will never accept your ideas, they are too entrenched in their own way of doing things.” Only a mind willing to accept the impossible and absurd is able to conjure up a vision that the rest of humanity laughs at.

A great imagination is founded on being able to change the absurd into reality. When great leaders are confronted by the absurd, they marshal the resources to make the absurd plausible. The Free Online Dictionary defines the absurd as: “Ridiculously incongruous or unreasonable.” People flying, living under the sea, walking on the moon, wearing artificial prosthetic devices and a rocker named Lady Gaga who is listed as one of the 100 most influential people in the world by Time magazine. None of these things are possible without an imagination that can transcend reality. Imagination spurns the commonplace to embrace the absurd. Einstein put it well when he said:

 “Imagination is more important than knowledge. For knowledge is limited to all we now know and understand, while imagination embraces the entire world, and all there ever will be to know and understand.”

Most organizations are not designed to either foster or sustain imagination. Organizations are built on a foundation of conformance to existing specifications. The typical organization expects members to follow rules and procedures and to fit in with established corporate norms. People are hired because they fit in. To become a part of most organizations, applicants must run a gauntlet of interviews by as many as fifteen different people. Anyone standing out, looking odd, expressing creative ideas or willing to challenge the “way we do things around here” will not get through the gauntlet. Once onboard, most organizations cannot recognize imagination let alone reward it. As Thomas Kuhn showed in his book “The Structure of Scientific Revolutions”, new paradigms are rejected by the existing structure and establishment. Rewarding imagination in a corporate setting is like yelling fire in a crowded theater. The result is chaos and pandemonium. Anyone foolish enough to try such a tactic is relegated to the status of crazy sick person or outsider.

Fortunately, history is full of examples of great leaders who have imagination and were not afraid to challenge the system. However, the really sad part of the story is that everyone (every employee) has a great imagination and the lack of use costs American industry billions of dollars each year. Compare the corporate Japanese suggestion programs wherein thousands of ideas tendered by employees are acknowledged, rewarded and implemented each year. In America, we have suggestion boxes on the walls wherein barely one or two ideas are submitted each week. Among those that are submitted, the usual tendency is to try to weed out as many as possible, since their implementation will just disrupt the status quo and make more work for management. I am not talking theoretically here. I have seen this situation in many companies from 1980 until the present time. When will it change?

When will American industry realize that the backbone and foundation of every great strategic decision, every new product or service, every great business idea, every quality improvement, every innovation and every strategic vision is imagination. Without imagination, we can only keep doing the same things over and over again. Imagination is the key to success in the 21st century economy. Organizations that can harness the power of imagination will survive and grow. Those that ignore the power of imagination will become footnotes in history.

Creativity is about solving problems. The creative person uses convergent thinking as opposed to divergent thinking to develop novel solutions to puzzles and dilemmas.  Imagination involves divergent thinking and deals with fantasy and play. Creation is about production and development. The creative person uses resources to remove roadblocks. Creativity is goal oriented and is focused on results and solutions. The creative person uses creative ideas to remove barriers that would thwart his/her actions and goals. 

For instance, Shaka Zulu developed new weapons and new tactics that enabled his warriors to be more effective.  He introduced a shorter ‘stabbing’ spear, the ‘iklwa’ that replaced the traditional long and awkward ‘throwing’ spear. On the battlefield, he developed the now-famous “horns of the bull” formation (a two-pronged attack).  He was also smart enough to understand the value of a strategic alliance with the European settlers as well as with other tribes that were initially more powerful than the Zulus. These alliances enabled him to engage in divide and conquer strategies with opponents that were much stronger than his tribe.

Adolf Hitler had a “malevolent” creativity which allowed him to devise strategies and tactics that surprised and defeated many of his enemies. Hitler’s creativity was harnessed to his goal of developing a great Aryan nation that would dominate the world. His battle tactics and political strategies were unfettered by conventional patterns of morality and compassion for humanity.  His total lack of ethics enabled him to find solutions that removed barriers to his dominance over the German nation. Hitler had no qualms about lying, stealing, torture or murder if he thought they would further his goal of Aryan supremacy.  Were Hitler’s strategies and tactics creative?  Wikipedia defines creativity as: “the ability to generate innovative ideas and manifest them from thought into reality. The process involves original thinking. By this definition Hitler was creative although without any morality, I would define it as a brand of “malevolent” creativity. 

The creativity that is expressed in business strategies are legend. Google’s adoption of a search engine that dominated the playing field; Amazon’s “one click” marketing and Apples IPod and IPhone are examples of products that have revolutionized the market place. The power of creative products and services not only drives new business development and new jobs; it also creates new paradigms that radically change existing business rules. Email is not simply a new method for transferring messages and post-it notes are not simply small sticky pieces of paper. These products and services have fundamentally changed the way we do business. The internet is not simply a new market place, it is a radical new world that has changed the way people eat, sleep, relate, purchase products and services, marry, date and even die. 

Many organizations pay lip service to the God of Creativity. How often have I heard managers say “we value creativity in our employees.”  On the other hand, they make sure to hire employees who fit in.  Or they say they want to give their employees time to be creativity and productive, but then they don’t trust them to work at home on their own schedule.  How often I have seen managers who neither trust their employees nor feel that there is any other way to do things but their way. I once asked an employee why she did not go in to see her boss to deal with a problem she had since I noted that the boss had an “open door” policy. She looked at me and said “Yeah, open door but closed mind.”  

Dr. Deming used to say that the job of managers was to remove barriers so employees could do a better job. The job of managers should be to provide resources and support so that employees can be creative. Instead, most managers are a major impediment to creativity as are most management control systems. Employee performance measures, bonuses and reward systems, progressive discipline programs, results based management and MBO systems all guarantee that you will drive creativity and innovation out of your system. 

Most companies do not know how to foster creativity and innovation because most companies want conformance and control over their employees. The most creative and innovative people in the world become robots when they join a company. Can you imagine Lady Gaga, Picasso, Mozart, Walt Disney, James Cameron, Leonardo Di Vinci or Einstein working for a large corporation? Can you imagine what they would have produced?  The very thought is demoralizing.  Yet how many young people come out of a university only to be run through the grinder of corporate conformity.

Strategic leaders know that creativity emerges when people are truly valued as assets and not simply as resources. Creativity emerges when people and problems are brought together without time constraints or threats.  Creativity is not something that can be produced on a time clock or a 9-5 schedule. When Corporate America learns this last fact, it will again start a walk towards creativity and innovation. America became the most powerful country in the world because we were the freest country in the world. Organizations will never have creative employees when they treat them like captives in a zoo. Employees must have freedom and responsibility to be creative. The two traits can and do go together.

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