A complex question: How to explain bad decisions in business?
Making decisions is complicated. In this article, we try to understand the mechanisms behind making bad decisions in business.
Making decisions is often a struggle, especially when they are important, and information is not available or is incomplete. Even so, we make a lot of decisions. According to academic studies, the average person makes upwards of 2,000 decisions per hour.1 However, not all of these 2,000 decisions need thorough deliberation. Discussions only occur when complex issues have a significant impact on the present or the future.
In business, strategic decision making affects the company at all levels. That is why leaders constantly strive to make the best assumptions and choices, and why it is a large part of their core job. However, on a day-to-today basis, decision makers face a number of obstacles that make this task extremely difficult. As a result, in this increasingly complex world there is often a lack of clarity in problem-solving and decision-making, and bad decisions are made.
Bad decisions are a widespread phenomenon in organisations and their consequences are obvious. This article presents and examines some of the main reasons for bad decisions in business, in the hope that it enables leaders to make better decisions. Because, as Albert Einstein explained, "If I had an hour to solve a problem, I'd spend 55 minutes thinking about the problem and five minutes thinking about solutions." Understanding the reasons behind a problem is often the most important step towards solving it.
Five key factors that lead to bad decisions in business
Decisions are the result of many processes that must fit together as efficiently as possible. There are, however, factors that prevent this from happening. Let's look at the main reasons that lead to bad decisions:
The steps that advance strategic initiatives, problem solving, and the development of new approaches require a high level of concentration. However, decision makers have to fulfil a range of responsibilities simultaneously. The paradox is obvious: with an overwhelming number of tasks, the potential for reaching the desired quality in each diminishes.
The quantity and variety of technological developments in recent years have made many aspects of leadership both easier and more efficient. At the same time, they have also made it difficult for individuals, executives and employees alike, to concentrate on a specific task in isolation. An overwhelming flood of information is washing over us: Researchers assume that our brains have to process five times more information today than in 1986.2 This clearly increases the likelihood of bad decision-making.
But where does this constant flow of information come from? It comes from asynchronous communication, which takes place all the time, especially for executives working remotely, or in a hybrid model. It also comes from email communication, collaboration tools, and social media, which - similar to meetings - are now an integral part of modern work. All of these stimuli are disruptive factors that can hinder productivity and lead to suboptimal decision-making. A possible solution to this would be optimising the various flows of information.
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Lack of information
Just like diluted information flows, insufficient information also leads to bad decisions. This occurs when only part of the information is available to validate decisions, even when the executive assistant, who has an important support role in the decision-making process, has done an excellent job in preparing the necessary resources. When this happens, the available material is often incomplete, inefficiently presented, or poorly organised.
In this situation, decision makers find it difficult to follow up on past decisions, and therefore risk duplicating effort when deliberating the matter at hand. This wastes time, increases stress levels, and only contributes further to the vicious circle of bad decisions.Tracking past decisions is a major problem in effective meeting preparation and decision making.
Even in meetings, participation can fall well below optimal levels. For example, in a brainstorming meeting, the goal is to develop creative solutions and ideate new initiatives. In practice, however, participants can often feel excluded from conversations. Introverts especially, who often consider things deeply whilst speaking less, and who are heard very little or not at all. It therefore goes without saying that optimisation of meetings is needed. After all, leaders depend on the inputs of their team, as these are extremely valuable for decision-making.
Burnout and meeting fatigue are becoming serious problems in the corporate world. In addition to "meeting fatigue", many managers also suffer from fatigue when it comes to making decisions.3 Fatigue and lack of engagement however are not the only elements that lead to bad decisions. Even highly energetic people reach their mental limit at some point. In other words, it is the amount of decisions that people make, and the effort they require to make, that pushes individuals to an unsustainable level.
There is no doubt that individual mental energy decreases with exposure to continuous stress. Fatigue is primarily observed as a result of decisions that have a high impact on others.
The most common factors that lead to decision-related fatigue include:
- Too many decisions to make
- High effort required for each decision
- Lack of identification and prioritisation of key issues
- Decisions to be made simultaneously or sequentially
- Incorrect and unnecessary actions or initiatives
Decisions require a vast amount of intellectual work and, as a rule, this mental effort increases as the scope of the decision increases. As a result, fatigue sets in over time and compromises the quality of decisions.
Scattered means of analysis
Simple, logically-structured practices combined with fast, goal-oriented analysis methods facilitate decisions. These practices have an added power to justify the decisions in the cases in which the actions taken based on them do not yield to the expected results. The decisions can still be justified, followed-up on, and used as a valuable learning experience.
Unfortunately, the reality is often quite different: The volume of information available on certain decisions often exceeds our capacity to absorb it. This leads to the need to filter information, which slows down the decision-making process, and makes it increasingly scattered. Decision makers can view challenges from a range of different angles, but while doing so, it can be difficult to form a comprehensive view.
This is especially true with respect to new business challenges, where there is little precedent to follow. Moreover, structures, analysis models, and peoples’ views can diverge. It's often the case that the more a problem is examined and discussed, the more complicated it becomes. The result: Time passes by without leaders and their teams getting closer to a decision. And with every unproductive work meeting, there is also an unshared responsibility.
Lack of clarity, lack of structure, and too much information are clearly leading to bad decisions.
Emotions and decisions are inevitably connected. In large-scale initiatives, feelings play a central role. Nonetheless, in order to be able to make decisions as objectively and rationally as possible, it is important to separate yourself from emotions as much as possible.
Needless to say, emotions can't simply be switched on and off. With every decision, people can be overwhelmed with joy, excitement, anger, annoyance, or frustration, and this can have a positive or negative impact on the decision-making process, and cause the loss of the ability to make clear and objective decisions.
People retain greater control over their decision-making when their minds are clearer and freer. Pausing before each important decision, rather than giving into emotions, can be conducive to making good decisions.
People retain greater control over their decision-making when their minds are clearer and freer.
When decision makers spend their working time stressed and time-pressured, even the decisions that seem trivial are hard to reach. This only yields bad decisions. And even though emotions are usually positive and reveal personality, they also influence judgment and can counteract logic. However, the other extreme - pure rationality - is not beneficial either. Leaders must differentiate between rationality of a decision, and that of strong emotions, feelings, and empathy.
Leaders can optimise decision making
Decision making is a key fundamental of leadership. In today's highly connected world, decision makers play an important role in their organisations. This article has presented and evaluated a range of factors that can lead to bad decisions, many of which seem to be out of a leader’s control.
It's hard to disagree with the statement above, as making good decisions constantly is a utopia. Decision-making, however, can be consistently optimised. Leaders can become more aware of the reasons and triggers for bad decisions, and that is an important first step on the journey to better judgement.
Making good decisions in business is a process that can be optimised: Reflection, iteration, and perseverance are the key practices for this to be able to happen.
1 ‘6 Reasons We Make Bad Decisions, and What to Do About Them’, Harvard Business Review, 2019.
3 From the English concept “Meeting Recovery Syndrome”, by meeting expert Steven Rogelberg.