A growing body of research reveals that our behavior and decisions are influenced by an array of strong psychological undercurrents, all of which are more powerful and pervasive than we realize.

By charting these undercurrents and their unanticipated effects, we can identify our faulty thinking that lead us to make irrational decisions.

Despite a great need for them, judgment and decision-making skills are only beginning to appear in better business schools’ curricula. But studies show we still don’t know enough about how good decisions occur.

Rational versus Emotional?

Psychologist and political scientist Herbert Simon in 1957 laid the groundwork on the limits of rationality when he attacked classical economics and game theory. Simon’s work made it clear that we must take the real world’s messiness and irrationality into account when making decisions.

“Research indicates that people are myopic in their decisions, may lack skill in predicting their future tastes, and can be led to erroneous choices by fallible memory and incorrect evaluations of past experiences,” wrote psychologist and Nobel Prize laureate Daniel Kahneman.

Neuroscientific research also proves that the brain is influenced by subconscious emotional reactions from its more primitive centers. We’re not in control of our reasoning capabilities as much as we’d like to think.

Scientists have identified several flaws in how we think when making decisions. Because they’re hardwired into our thinking process, we often fail to recognize them. This means they can undermine everything from new product development to acquisitions and divestiture strategy to succession planning.

This article examines 5 biases that lead to bad decisions and how we can avoid their traps.

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The complete 2,000 word article includes these important concepts:

• Rational versus Emotional?
• Loss Aversion
• Commitment
• Value Attribution
• Diagnosis Bias
• Too Much Information
• Decision Effectiveness
• Rate Your Company
• Leaders Can Improve
• The Certainty Bias

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Are you the type of leader who’s dealing well in these trying economic times?

• Who confronts reality?
• Who figures out what needs to be done?
• Who communicates with confidence?
• Who finds opportunities in chaos, despite uncertainty, inevitable change and unpredictable sales?

If you’re like most, you’ve never before experienced a downturn like this. Reports about the end of the recession mean little if your company continues to fight cash-flow problems.

You cannot allow yourself to be afraid. Others look to you for strength and guidance. You must give the best you have and move quickly, even when faced with incomplete information.

Leading in uncertain times is not for the faint of heart. Some management teams navigate these challenging times well, while others fail miserably. It’s not just the CEO and CFO who are responsible; everyone has an important role to play. Indeed, those who lead well during the recession will emerge as shining stars for tomorrow’s top teams.

In his new book, Leadership in the Era of Economic Uncertainty, bestselling author Ram Charan identifies the key rules to follow if you want to get the right things done in difficult times. This article discusses Charan’s best advice.

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This is a brief synopsis of a 2000 & 1000-word article suitable for consultants’ newsletters for executives and leaders in organizations. It is available for purchase with full reprint rights, which means you may put your name on it and use it in your newsletters, blogs or other marketing materials. You may also modify it and add your personal experiences and perspectives.

The complete 2,000 word article includes these important concepts:

• The Call for Leadership
• Uncertain Data
• Shrinking Business
• Management Intensity
• Ground-Level Intelligence
• Controlling in Real Time
• Build Confidence
• Authenticity Is Critical
• What You Can Do
• Six Essential Leadership Traits for Hard Times
• A note from Ram Charan

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“In my fifty-two years in business, I’ve never seen an issue galvanize people in a company like sustainability.” Ray Anderson, founder of Interface, Inc.

Sustainability is at the very core of survival. No company or society can last unless it cares for its resources and capital — human, financial and environmental. (Photo: Shutterstock)

Consumers are going green. Their support for sustainable products and practices is growing worldwide. Some companies are wondering if now’s the time to adopt sustainability practices as part of their corporate strategy.

In the most basic terms, greening a business is about doing more with less, which can quickly save you money. Going green also means overcoming several mental hurdles, foremost of which is the expense involved in embracing environmental practices.

It’s a mistake to believe that becoming eco-friendly means unnecessary expenses as we face a global economic slump. Many experts assert that organizations should meet financial challenges by turning sustainability into innovation’s new frontier.

In fact, becoming eco-friendly will soon be a necessary cost of doing business. It’s no longer enough to meet minimum legal compliance for environmental standards. A true competitive advantage lies in influencing economic recovery with forward-thinking sustainability practices.

People at all corporate levels must focus on the following keys:

• Understand what climate change means for business (which is very different from everyone agreeing on the science).
• See the long-term constraints in natural resources and nonrenewable energy.
• View the business in the context of the full value chain, from suppliers to customers and beyond.

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The complete 2,000 word article includes these important concepts:

• Corporate Social Responsibility vs. Bottom Line
• Stage 1: Viewing Compliance as Opportunity
• Stage 2: Making Value Chains Sustainable
• Stage 3: Designing Sustainable Products and Services
• Stage 4: Developing New Business Models
• Stage 5: Creating Next-Practice Platforms
• Green Recovery
• Green Engagement
• Green Thinking
• Green Hiring

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“It’s an environment the likes of which managers have never seen—a Great Disruption in which the old rules for success become recipes for failure, and ‘doing more with less’ will not be nearly enough to survive.”—Scott D. Anthony, The Silver Lining: An Innovation Playbook for Uncertain Times, Harvard Business Press, 2009

The inevitable constraints this tough economy imposes on companies provide fertile ground for innovation because necessity truly is the mother of invention. Companies that learn to innovate more quickly, cheaply and with less risk will emerge from the downturn stronger than ever.

To succeed, smart executives will need to adopt a different mindset and effective frameworks to determine what to start doing, stop doing and do differently. Consultant and author Scott D. Anthony, who earned his MBA at Harvard Business School, prescribes a disruptive-innovation mindset. His book is well-worth the read for historical perspectives and inspiration.

Over the last decade, technological improvements have made starting and scaling businesses easier than ever. Brazil, Russia, China, India and other emerging markets prove U.S. leaders have more competitors at home and abroad. Industries are frantically converging and colliding.

These changes make it more difficult for great companies to maintain success—a problem that has caused leaders to lose sleep for some time (even before the 2008 financial market collapse).

Tough business environments force companies to take a hard look at innovation. While output may shrink and unemployment is sure to rise, companies that master these challenges have a chance to thrive. Those that don’t are sure to struggle.

A Historical Perspective

While no one can predict with certainty how the global economic crisis will play out, many companies face serious challenges:

• Should they cut costs and streamline innovation projects until business picks up?
• Should they play it safe until the current storm passes?

If history is a guide, the answer is a definitive “no.” We can restore hope and gain a better perspective by taking a step back and considering how past downturns were resolved.

Many successful companies have been launched during recessions. Grim economic times can highlight previously hidden problems or cause old problems to intensify. When a deep-seated customer problem emerges, search for novel ways to address it.

A number of game-changing products, services and business-model innovations were developed or launched in daunting economic climates.

Thirteen of the 25 companies on the Dow Jones Industrial Average, as of December 2008, were formed during an economic downturn, including 3M, General Electric, Microsoft and Walt Disney.

Disruptive Innovations

Instead of trying to best their competitors, disruptors change the game. They typically transform existing markets or create new ones by focusing on convenience, simplicity, accessibility or affordability.
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• Bad Times, Good Times
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Decision making is a critical function in our personal and professional lives. None of us would be in positions of authority without demonstrated abilities to discern issues and make good choices. Our reputations and livelihoods depend on it.

Each day, however, intelligent people make mistakes, with devastating consequences. Why do good leaders make bad decisions? How can we reduce our margin of error?

Our daily decisions are generally small and innocuous. Others are incredibly important, affecting people’s lives and well-being. The daunting reality is that smart people make enormously important decisions with the best information and intentions, and they sometimes go terribly wrong.

Even great leaders make bad decisions:

• President Kennedy is famous for the Bay of Pigs blunder.

• President Hoover failed to inflate the economy after the Wall Street Crash of 1929.

Authors Sydney Finkelstein, Jo Whitehead and Andrew Campbell have studied how smart leaders make catastrophic decisions. In Think Again: Why Good Leaders Make Bad Decisions and How to Keep It From Happening to You (Harvard Business School Press, 2008), these experts show how the brain’s thinking processes can distort judgment. Think Again identifies four errors of thinking and four safeguards to help us avoid bad decisions.

Neuroscientists and experts in decision making now understand more about how the brain works and how we are prone to several types of faulty thinking when faced with a set of circumstances that require a decision.

The brain uses two processes that enable us to cope with complexities:

• Pattern recognition

• Emotional tagging

Both help us make excellent decisions most of the time. They have survived evolutionary selection precisely because they give us distinct advantages over lesser animals in the food chain.

But in certain conditions, these processes can mislead us, resulting in poor judgments and bad decisions.

Complex decisions always involve personal interpretations and judgment. That’s what makes them difficult to get right. You need debate and consensus — but even with both, two important questions arise:

1. How do you know when you or those debating your premise are coming from a biased position?
2. How do you know when your consensus is nothing more than groupthink?

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The complete 2,000 word article includes these important concepts:

Flaws of Decision Making
Old-School Decision Processes
The Brain Science of Decision Making
Pattern-Recognition Flaws
Emotional Tagging
Safeguards
Identify Biases and Implement Safeguards

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Before making an important decision, prudent managers evaluate the situations confronting them — and often fall into one of the eight traps of faulty thinking.

Some managers are too optimistic and overconfident: They overestimate success and underestimate the range of potential outcomes. On the flipside, other managers are cautious to a fault: They take costly steps to defend against unlikely outcomes.

These are just two of the well-documented psychological traps that ensnare most managers at some point in their careers. Other pitfalls that distort our reasoning abilities and cater to our biases are identified:

• We have a tendency to stick with the status quo.
• We only look for evidence that confirms our preferences.
• We are likely to throw good money after bad to defend our position and avoid admitting a mistake.

The way a problem is framed can influence how you develop solutions. To avoid this trap, you need to reframe the question in various ways to see how your thinking may change based on each version.

We can’t always avoid the distortions ingrained in the way our minds work, but we can build in tests to make our decision-making processes more reliable, thus improving the quality of the choices we make.

There are two versions of this article: 2000 words and 1000 words (approximate word counts). The full article covers the following sub-topics:

The Brain Science of Decisions
The 8 Traps:
The Anchoring Trap
The Status-Quo Trap
The Sunk-Cost Trap
The Confirming-Evidence Trap
The Framing Trap
The Estimating and Forecasting Traps:
The Overconfidence Trap
The Prudence Trap
The “Recallability” Trap
There Are No “No-Brainers”

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As opportunities for global expansion increase, so does the trend toward more
diversity in the workplace. Successful companies are recruiting professionals
with different backgrounds, cultures, styles and motivations. Yet this great
resource presents increased possibilities for misunderstanding and cultural
blunders.

It is obvious that organizations will need to expand the capacity for people to
handle the challenges of working with other cultures if they are to participate
successfully. Those companies that continue to struggle with domestic diversity
will find themselves even more challenged.

People must move beyond simply accepting cultural identities and differences to
a place where they can be leveraged for competitive advantage, superior
performance and creative growth. There is tremendous creative energy and
innovation that can be harnessed when people from different perspectives work
successfully together.

Global business is challenging in large part because cultural habits and
attitudes blind people to other ways of doing things and make them unwilling or
unable to change.

The full 2,000-word article includes the following concepts:

Six dimensions to consider when doing business with a foreign culture
Different Ways of Doing Business
One Size Does Not Fit All
Leveraging Cultural Diversity
A List of Resources

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