How do you protect businesses from the brilliant decision makers who end up getting it all wrong?
The human mind is a pattern recognition engine. It is an excellent learning tool. When you spot a situation you have been in before, the mind tells you “oh yeah, I know this, here is how we moved through this situation the last time”.
There are positives to this, and also negatives.
The positives are that we learn rapidly from each other. Spend an afternoon trying to learn a video game on your own, and then try it with your 14 year old son beside you. With the benefit of his experience, and his bank of knowledge, built from games played by his social network, you very quickly pick up the things you need to know, and learn the distractions that you can safely ignore.
In business it is vital to have people in the room who have been there before, who saw the situation before, and can tell the strategies they used to work through it. That is not to say you should slavishly follow an old strategy. Remember, the competition also have a guy in the room who was there last time around. If they lost the last “match” chances are they are going to adjust strategy this time round. But the starting point is to know what happened in the last war.
The biggest danger in the “pattern recognition” engine is the way it craves order in chaos. The human mind abhors uncertainty. When faced with pure chaos it scrambles for anything that might make sense. Derren Brown, the UK “magician”, illustrated this with a very funny episode “Trick or Treat” where he wired a sensor to a goldfish tank. Each time the goldfish swam past the sensor a counter added a score.
In a separate room he assembled a group of people, who were told they could win an amount of money if they managed to get the counter to 100 in a given time. They did not realise that they had no control over the counter. They jumped, shouted, ran about, organised themselves, disorganised themselves, and sometimes it seemed to work. The counter moved. So they would repeat what they did, and fail. Their brains were trying to make order out of chaos.
It is this struggle to make order from chaos that has led to some of the worst episodes in human history. When things are at their worst, the pressure to find an answer is more acute, and we do some really bad things or make some really bad decisions. Aztecs harvesting thousands of heads, Celts burning people in wicker men, burning witches, self immolation, sacrificing virgins, anything that might work.
Then into this space you get people with an agenda, who see that the time is right to lay blame on a section of the community. God is displeased with us because we tolerated Jews/Gays/Irish/Blacks/Dancers/Gamblers/Alcohol whatever. Now the time is rife to rid ourselves of this evil and set ourselves straight with some made up divinity who seems to have a pretty nasty and narrow minded agenda.
Of course this would never happen in the business world. When we operate in the workplace we make rational decisions, based on logical analysis of events, and we don’t allow demagogues to hijack the agenda and drive us collectively to construct a new tower of Babel…..do we? Well, sadly we do. We see success and we see the guy who causes the success and we assume that he must have the “secret”. OK he isn’t slicing off heads and rolling them down the front steps, but he may be doing the business equivalent. Look at Enron, Nick Leeson in Barings Bank, Lehman Brothers, Bear Stearns, securitization of sub-prime mortgages, contracts for difference. The truth is, the more confusing a derivative is, the more magical it seems to those who cannot understand how it works. Many senior managers in banks failed to spot the magic tricks for what they were, because they were working at first.
In World War 2 both Churchill and Hitler interfered with military strategy. The lucky thing for the British was that some of Churchill’s early interventions were disasters, and he bowed to sound military analysis later in the war. The unlucky thing for the Germans was that all of Hitler’s early interventions were successful. His cabinet believed that he had a magic touch, and his interference became more pervasive and more damaging
In the workplace if you have senior managers who are seen as having a magic touch, that in itself should be a warning sign. These managers should be subject to MORE monitoring and analysis to ensure they are making commercially sound decisions. Instead the opposite holds true. The manager who delivers a big win is given more latitude than his non-performing counterparts. He may buy into the belief that he has that bit of magic, and he may carry out less and less analysis on his own decisions. He is given more and more resources to “gamble” on the next big move. If he is given enough rope he will ultimately make the bad decision that costs the company dearly.
A worse situation is that the manager is someone with an agenda. His agenda is not aligned with the corporate goals. His decisions are being made to line his own pocket, at the ultimate expense of the business itself. The greater the flux in the market, the greater the uncertainty, the easier it is for this person to make the call that can collapse the business.
In Ancient Rome a triumphant general was made up to look like a God for the day of his triumph. He rode through the city in a chariot at the head of his army. A priest in the chariot had the job of repeating constantly, in his ear, “Remember, you are only a mortal”. In business we need those kinds of priests.
What can we do to protect businesses?
- Operate the same decision control procedures for all managers.
- Ensure that charismatic “stars” have grounded detail analysts on their teams.
- Make sure everyone understands how an investment works, there is no magic money.
- A solicitor on the decision team to ask “is this legal?”
- Post-decision analysis. Something that appears in every textbook, but seldom exists in reality. We are all focused on the next big thing and it seems wasteful to analyse what is over. We should bring in a cold resource, from outside the decision team, who will demonstrate what elements of the success were due to team decisions, and what elements were down to general market movements. The winning teams hate these guys, but they can separate the myth from the reality, and greatly change the way you will approach the next opportunity.