Why Do Companies Make So Many Bad Decisions?


I had the opportunity to spend this past weekend at the Kellogg Miami campus in Coral Gables teaching my class “Executive Perspectives in Leadership” to EMBA 107, a great group of executives who will graduate this December. I really enjoyed spending time with them.

Harry and EMBA 107

One of the topics we discussed was “Why do companies make so many bad decisions?” I find it to be an interesting question on which to reflect.

The immediate response to the question is usually, “Well, the boss simply made a mistake. It just happens because people are human.” However, I don’t think that is the real answer. Why? Well, when the boss was about to make a bad decision, what happened to all of the people on his team? Did they all make the same mistake? Did no one on the team realize this was not the right decision? Was this simply a case of classic “group think”? I don’t think so.

I always tell students and executives that I have very few answers, but MANY opinions. So here’s my opinion:

I think there are two reasons that cause so many companies to make bad decisions. The first reason is a result of how the boss articulates what he wants to do. When the boss says, “Here’s what I want to do”, does he make it clear that is what he wants to do ONLY if is the right decision and makes sense? Does everyone on the team know that the boss wants to be challenged? My experience is that the boss often does not make it clear he wants to be challenged, and in fact, sometimes he truly doesn’t want to be challenged.

But I believe this is only half of the problem. Now let’s look at the second reason companies make bad decisions:

How do the people working for the boss define their jobs? If they define their jobs as “making the boss happy”, no wonder mistakes are made! And let’s not forget the frequent comment made by someone on the team, “Well, it doesn’t seem to make sense, but the boss must know more than we do.”

My experience is the boss often does not know more than his team. In fact, usually the people closest to the action know a lot more. In order to significantly reduce (there is no way to eliminate) the number of bad decisions, two things must happen:

1) the boss needs to make clear that he only wants to make a decision if it makes sense, and he expects his team to challenge him if they don’t think it is the correct decision. He needs to make clear he is not trying to be right and have his way, but rather, he wants to do the right thing with the help of the team.

2) Everyone on the team must understand that their job is not to make the boss happy, but rather to respectfully challenge the boss if they think he is making the wrong decision.

You may be thinking that this should be common sense, and it is…but never forget Mark Twain’s quote: “Common sense ain’t so common!”

4 comments

  • Great post! I think all bosses should read this 🙂

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  • I agree that it is everyone’s job to respectfully challenge the boss if they think he is making the wrong decision. But, that only works in companies where the culture encourages that. Some companies today have a culture where blind obedience” is more the desired behavior. This is not a good culture. Bosses can only make good decisions if people give their best to them, including when they believe they are making a wrong decision or when some process is not working properly. Good bosses understand and encourage respectful conversation and dialogue about this. Unfortunately, some companies today do not have this kind of corporate culture or these kind of bosses. People must work where they are a fit–fit with their skills/talents, faith/values and finances. Cultural fit is important too. Thanks for raising this important issue.

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  • As a leader I encourage my team to point out when ‘the emperor has no clothes’ – to speak up when their viewpoints are different. With different viewpoints (likely much closer to the action than mine) their view is extremely valuable!
    Amazon has a leadership principle that addresses this, ‘Have Backbone; Disagree and Commit’.
    Employees are “obligated to respectfully challenge decisions when they disagree, even when doing so is uncomfortable or exhausting. Leaders (employees) have conviction and are tenacious. They do not compromise for the sake of social cohesion. Once a decision is determined, they commit wholly”.
    I think this meshes well with Professor Kraemer’s Values Based Leader principles – encourage all employees to express their ideas, communicate why a leader is making a specific decision, and have all employees support the decision!

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  • Great definition of followership 🙂

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