How to outsmart your biases in business decision-making
Everyone has biases, from the newest entry-level employees to seasoned CEOs. It’s crucial that business leaders are aware of their biases. CEOs who are unaware of their own biases can easily encounter lost opportunities and devastating miscalculations. Remaining neutral is an active role that a leader has to take; it is something that takes hard work, self-awareness, and determination. So what are the most common biases, and how can you learn to defeat them?
Bias 1: False pattern recognition
A coin has been flipped three times and always lands on heads. Surely, tails is next…right? In fact, the chance of a coin landing on tails is still as it always has been: 50/50. Humans are predisposed to finding meaningful patterns, often when there aren’t any at all.
Anytime you tell yourself, ‘This has to happen because…’, you need to question your core assumptions. There’s no reason to believe that a previous coin toss would affect the outcome of a future coin toss. Likewise, there may not be a reason to assume that a business deal is going to go poorly or negatively solely based on past results. Instead, you need to drill down to the fundamentals.
Becoming susceptible to false pattern recognition will, over time, actually make it impossible to reliably predict your results.
How to avoid it: Pay attention to not only the conclusions you are drawing but also why you are drawing those conclusions. Is it rooted in fact — or superstition?
Bias 2: Falling prey to groupthink
37 out of 50 subjects will willingly give a fake answer when confronted by a question — as long as they believe that their peers believe the answer is true. People are under enormous social pressure to agree with others, and it’s easy to see why: a group that is harmonious is a group that is effective. Unfortunately, this leads to a groupthink bias, in which it’s easy to assume that you are in the right because everyone agrees with you.
In truth, many decisions in business are not black-and-white. Most decisions you will make as a CEO will have both negative and positive consequences. If all you’re hearing from your team are positives, you may have inadvertently created a culture of ‘yes men and yes women.’ And this isn’t always derived from cowardice or ignorance: it may simply be a well-meaning intent to get along.
When this happens, there’s no one to give you a reality check on your decision-making. Everyone has valuable input in a team, and some may have knowledge or experience that other team members do not. When they feel as though they need to be silent, you lose this valuable resource.
How to avoid it: Encourage a culture of questioning — and adopt it yourself. Instead of asking, ‘Is this a good idea?’ ask yourself, ‘What could go wrong?’ When employees do come to you with potential issues, encourage it and never take anything personally.
Bias 3: Selfishness
As a CEO, you already understand the importance of putting your company ahead of yourself. But a selfishness bias isn’t necessarily conscious. Instead, it can be very easy to assume that something that is desirable for oneself is desirable for the whole. If a business proposition appears to be rosy to you, the individual in charge, it can be easy to overlook disruption that can occur at lower levels.
When you’re receiving pushback from others, it’s likely it’s because your goals are no longer aligned. They see something negative in a decision that you simply do not — and that may not be because the negativity isn’t there, but instead because you aren’t yet privy to it. As an example, a business may stick with older technology or legacy equipment long past its usability simply because the C-suite doesn’t wish to change.
This can lead to decisions that aren’t good for a business and — perhaps most direly — lead to departments that are operating in conflict with each other rather than in harmony.
How to avoid it: Always pay attention when decisions are unpopular with key staff; there may be a reason that you aren’t able to see. Resting critical decisions with a diverse team from all sectors of the company can be an excellent way to self-check for this bias.
Bias 4: Trying to predict the future
It’s very easy to get into the habit of predicting the future within a very narrow band. You may, for instance, be able to say with 90% certainty that it is likely that you will meet a certain revenue goal. But out of the S&P 500, these types of forecasts were correct only a third of the time. This is primarily because they often rely on assumptions and data that simply aren’t available.
Anytime you are stating with some confidence that a specific outcome is likely to happen, you’re likely overlooking other factors. While it’s possible that this is going to be the outcome, it’s also possible that it isn’t — and an organisation requires a contingency plan.
By relying too much on predicting the future, an organisation can easily find itself blind-sided by unexpected turns of events. Much of this is due to an abundance of optimism and the need to produce positive results for shareholders.
How to avoid it: Don’t predict the future — model it. Simulate the outcomes of your company’s success based on multiple models, such as a total of three estimates for low, average, and high earning potential. This will give you far more leeway when reacting to the actual outcomes.
Bias 5: The need to take action
Everyone feels more comfortable when they have taken charge. In fact, when a company has been stable for a while, it can often be confused as stagnation. Every event that occurs appears to require some form of response, but that’s not necessarily a good thing.
There should never be the assumption that taking action is always preferred over inaction. This is a bias that CEOs are particularly susceptible to because they are called upon to take immediate action and to take risks. But there are times when it’s wisest to actually let the seas settle before making any decisions. Identifying these moments is a major hallmark of a good leader.
A propensity to take action immediately can easily lead to poorly thought-out actions with very negative consequences. These decisions can easily snowball to create a problem that is larger than the one they were originally intended to solve.
How to avoid it: Remember that inaction is always a choice. Consider all possible outcomes before taking an action and avoid making spur-of-the-moment decisions.
Outsmart your biases
You and you alone are able to counter and outsmart your own biases. From making decisions based purely on your own perspective to making decisions based on the cheerful agreement of your team, all of your assumptions need to be constantly questioned. With time, this can become natural.
But sometimes you need some outside help. Not everyone is able to self-check for their own biases; they need a neutral, unbiased third-party. That’s where TEC comes in. TEC provides a supportive CEO peer-to-peer network, through which you can share tips on managing biases, check on your own biases, and drive more responsible business decisions. Contact TEC to start connecting with others today.