Why You Get Things Wrong (And What You Can Do About It)
Quake, if you must, at the prospect of a robot rebellion. At least mechanical overlords won't succumb to the errors of logic and perception so pervasive in human beings.
In her new book Sidetracked: Why Our Decisions Get Derailed, and How We Can Stick to the Plan, Harvard Business School professor Francesca Gino explains the myriad reasons people stray into poor choices. They fail to recognize change when it happens slowly. They overestimate to what extent others also believe the same information or feelings. They respond differently to identical incentives depending on how those incentives are framed. They underestimate the effects of emotion.
I presented Gino with a few quandaries familiar to entrepreneurial leaders and asked her to identify potential pitfalls and--where possible--preventive measures. Her over-arching insight: when making decisions, the most important thing to know is yourself.
1. 'Should I start my company alone or with a partner?'
Perhaps the greatest human decision-maker error is imagining you are a great decision-maker. Also great salesperson, great leader, great innovator…
People believe they are smarter and more competent than others, according to numerous academic studies. (They also believe they're more likely than Mother Teresa to get into heaven, reports one brow-raising survey.) "If you are too confident in your own abilities, you are more likely to go solo when you might have benefited from having another person onboard," says Gino. She recommends aspiring entrepreneurs "raise their awareness" of their own potential weaknesses, perhaps by consulting with experienced founders. Such veterans will be more realistic about whether new founders' skills are sufficient for the task.
Partners supply missing expertise. They also provide perspective. Particularly in the crucible of company building, CEOs may become so fixated on whatever crisis, challenge, or opportunity is waiting that they fall prey to what Gino calls "narrow focus." A partner can remind you of the big picture. Entrepreneurs also fall in love with their own ideas, which impairs judgment. "We get very emotional about things we created, like a company, and emotions can direct our decisions," says Gino. A more level-headed partner can refocus the entrepreneur on facts.
If you don't want a partner, you can always seek new perspectives and expertise by employing a consultant. Or not. People are more likely to follow advice they pay for than advice they get for free, even if the expensive kind isn't the best. "We become less focused on the quality of the advice and more on the money we spent for it," says Gino.
2. 'I am choosing between two candidates for my new sales associate. Should I go with older-and-experienced or young-and-hungry?'
Proven performance makes the more-experienced candidate seem reassuring. But it is dangerous to infer such attributes as intelligence and work ethic without knowing the context in which a candidate performed his great feats. Maybe he racked up big numbers at his last job because he had a territory with unusually high demand, or inherited a passel of high-volume accounts from a predecessor. "We tend to discount information about the situation the person is in and focus just on the individual," says Gino.
The CEO may misattribute a candidate's previous performance to innate talent. So may the candidate. To get closer to the truth, Gino suggests asking applicants to talk through some past successes and failures. "People often attribute their successes to their skills," she says. "They don't pay attention to the fact that they were in a very easy situation or had wonderful colleagues helping them out." People may also exaggerate their own contributions. "If you ask each member of a team how much they contributed to a project and add up the numbers, the sum is way above 100 percent," Gino says. Conversely, when people fail they tend to blame the situation. Even when candidates aren't consciously elaborating or obfuscating, thoughtful questions cast a different light on their experiences.
CEOs should also avoid being swayed by the experienced candidate's confidence. "This is a difficult one because we like people who are confident," says Gino. "We find them more credible and are more likely to listen to what they say." But confidence can be unearned and--in some instances--treacherous if it prevents the candidate, once hired, from doing things differently to suit his new circumstances. To detect overconfidence, Gino recommends asking candidates how they would handle difficult scenarios on the job. "You can learn a lot by whether they think through all the obstacles they might encounter or just say, 'I will accomplish this, I will accomplish that'," says Gino.
There are also reasons to be cautious when hiring a newbie. A CEO who considers herself a sales genius may choose a neophyte because he doesn't threaten her standing. "When people are hiring they often choose someone who doesn't compete with them on their own strengths," says Gino. "They are thinking more of their ego than the good of the company."
3. 'How should I weigh price against quality when selecting a new supplier?'
First, avoid conflating price with quality. As Gino pointed out earlier, people are more likely to heed advice when they've paid for it. Similarly, you tend to attribute greater value to things for which you pay more.
Gino tells the story of consulting on a market research project for a large organization. Asked to find a vendor who could put together panels of potential customers, she came back with two quotes. One was from a company that would supply all the people needed for the research for $5,000. Another was from a company that would supply far more people for far more money. "The management wanted to go with the higher priced one on the bias that if they are collecting all that information, it must be helpful," says Gino. "That's not necessarily the truth."
Another mistake leaders make when evaluating suppliers is focusing too much on inputs rather than outcomes. If we believe a company is putting in lots of effort, we assume it must be doing a good job. Under that logic, a long time spent on product development is testament to a product's quality. "I know of a bicycle company that would actually delay the shipment because they wanted to give customers the sense that they were putting a lot more work into the manufacturing," says Gino.