Reducing Bad Decisions

from Linked In 7/13 enhanced by Peter/CXO Wiz4biz 8/13

When we make a choice that doesn’t work out, we find it remarkably difficult to cut our losses & walk away.
Example: You hired an employee who struggled to master the key skills for the job, and after several months of training & coaching, things hadn’t improved. You rotated him to two different positions that seem like a better fit, and he under-performed there too. Months later, it’s time to encourage the employee to start looking elsewhere, but after putting so much energy into him, can you really give up on him? You’re hurting him & everyone else if you hang on to someone that doesn’t fit.

Consequences: If you kept working with that employee (trying to make a round peg fit into a round hole) , you fell into a trap of “knowing when to give up”. It’s throwing good money after bad, and we see it all around us. Escalation occurs whenever we invest our time, energy, or resources in a choice that falls short of the desired return, and we succumb to the temptation to invest more. Sometimes it merely costs us a few hours, but in other cases, the consequences of escalation are more disastrous. Polaroid pioneered Digital Camera technology in the early 1980s, but top executives were so invested in the strategy of making money on selling their expensive “film”, that they stuck to their guns. They ended up releasing their major Digital Camera in 1996, four years after the prototype was ready, and by that time, more than three dozen competitors had already launched theirs. Sticking to a commitment to a losing strategy sent Polaroid on the road to bankruptcy, costing many employees their jobs. How can we all escape these escalation traps?

Why we do it. To stop decision “procrastination”, we need to understand what causes it. One factor is “sunk” costs (which can turn into “skunk” costs). Economists have known for years that we’re irrationally attached to the time, energy, & money we’ve invested in the past decisions. It’s already gone, so it should no longer figure into our judgments, but it does. It’s like the money the Polaroid executives spent on producing instant film was still burning a hole in their wallets. We’re also sucked in by the desire to finish what we started and the worry that we’ll regret missing out. After all, persistence is a virtue – or is it? New research reveals that the biggest culprit behind escalation is “ego” threat. We don’t want to be seen—or see ourselves—as failures. If you just invest a bit more in that under-performing employee, you can save face and protect your ego, convincing your colleagues (and yourself) that you were right all along.

NBA Example. Research found NBA Coaches ignoring players’ performance on the basketball court (ie, those who were picked earlier in the draft were given more playing time & were less likely to be traded). Regardless of players’ offensive and defensive success on the court, when Coaches & Team Managers made bigger bets on players, they had a harder time giving up on them, as that would mean conceding a blunder. So what we can do about it? Rigorous studies support four antidotes to sticking to bad decisions:

[ 4 Anti-dotes (Separation, Accountability, Shifting Attention, Compliments) and more in Premium Content ]