PoS Jan 2013 | Intution: Boon or Bane?
Why do we make decisions that are not in our best interest? Why do we drive faster when running late to catch a plane? Why don’t we realise that the probability of an accident increases at higher speeds? Why do firms, in spite of many rounds of interviews, at times hire the wrong person for a job? Why are most strategies me-too?
When judgements go wrong – Error of judgement is a characteristic of individuals and organisations.
In January 2006 Jet Airways announced they would acquire Air Sahara, another Indian airline. Months of acrimony and legal battles later the deal was consummated.
High acquisition price, mismatched fleets and corporate cultures, among other things, eroded Jet’s stock price for seven straight years. In the early months of 2009 and 2012 prices tanked to nearly a tenth of the high in January 2006; now it is trading at half. Why didn’t the Board foresee the mismatch?
By 1994 Sterling Holiday Resorts, the Indian timeshare pioneer had been growing at nearly 80% CAGR. Free cash flow was piling up rapidly. Instead of aggressively building more resorts for target customers, the Board decided to invest in grand, long gestation five-star hotel and real estate development.
When the market sentiment changed and business slowed sharply the Company had a near death experience. Why did the Directors believe good times would never end?
The role of Intuition
Perfectly sane people sometimes make bad decisions because intuitive thinking comes naturally. Intuition is a powerful faculty that enables rapid assessments, often in the blink of an eye, especially when data is scarce.
Sony Walkman, iPod, iPhone, Facebook, etc. are examples of intuitive decisions that created iconic brands and leaders. Unfortunately, it comes with baggage: bias. Bias is insidious because we remain oblivious of it even as we make poor choices. That is why it is necessary to vet intuition with rationality.
Fortunately, there are proven ways! Contemplation, Consultation, and Challenge can improve strategic thinking.
Contemplation aided by research and analysis encourages us to question assumptions and test beliefs. Reflection leads to deeper understanding of issues and helps clear confusion and resolve dilemma. Second thoughts are better because they give rationality a chance. That is why organisations should foster critical thinking.
Consultation is another option. Dispassionate advice, especially from an expert, brings fresh perspective because it rarely shares the same bias. An expert’s deeper insight and broader world-view can illuminate shadows. Advice helps us discover flaws we might not find ourselves. But seeking guidance requires courage and humility. This we must develop.
Challenge through discussion and debate is the third strategy. It uncovers bias, fallacious assumptions, and inappropriate analogies. It helps discover fresh approaches.
Debate interspersed with contemplation and consultation leverages collective insight.
Pre-mortem, the formal process of finding weaknesses in a plan, is a powerful method that is best employed for major decisions. It can be bruising but is immensely helpful if the organisation assigns the best people to do it.
Recognising the need to improve strategic thinking and fostering the culture of thoughtful decision-making is one of the most important levers of change. It is the work of leadership.
Business Strategy Consultant
For more on this subject, read Overcoming Decision Flaws from Framing.