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June 28, 2014

HBRs 10 Must Reads on


Making Smart Decisions
Harvard Business Review

2013 by Harvard Business School Publishing Corporation


Adapted by permission of Harvard Business School Publishing
Corporation
ISBN: 978-1-4221-8989-4

Key Concepts
Even great leaders make bad decisions, in large part 3. Near misses are not lucky breaks; they are critical ele-
due to unconscious biases, overlooking critical factors, ments in driving future decisions. All too often near
or the lack of a proven, effective, systematic decision- misses in which a catastrophe is avoided are con-
making process. Decision making can be improved by sidered good luck and are not incorporated into
being aware of the following principles: the decision-making process. In reality, near misses
can provide critical information that when paid at-
1. The unconscious workings of the brain can lead to poor
tention to can drive changes that will avoid catas-
decision making. Thought patterns can be helpful in
trophes in the future.
making sense of the world but can get in the way of
making objective and informed decisions. Under- 4. Decision making is not an event; it is a process. As long
standing and avoiding the hidden traps and subtle as decisions are viewed as singular events, owned
influences routine thought patterns create can lead by one person, there is little hope that good deci-
to better decision making. sions will be made on an ongoing basiswhich is
a requirement to succeed in todays environment.
2. Bias comes in many forms and can strongly influence
Great leaders work with their organizations to
decision making. Everyone has biases, some they are
develop informed and repeatable processes with
aware of and others they are not aware of. Those
clear roles and responsibilities that drive good de-
biases come into play in decision making. When
cisions over and over again.
making decisions, leaders need to evaluate not
only themselves but also others involved in the de- 5. Strategic planning alone will not result in good deci-
cisions, as well as the entire process itself, to bring sions. Traditional strategic planning has proven
bias to the forefrontthen work to eliminate it. itself to be very ineffective at driving decisions

Business Book Summaries June 28, 2014 Copyright 2014 EBSCO Publishing Inc. www.ebscohost.com All Rights Reserved
HBRs 10 Must Reads on Making Smart Decisions Harvard Business Review

that meet the needs of todays fast-paced and fre- tion, people give more weight to the information they
quently changing business environment. While de- receive first. They anchor in it, and that information
cisions must have a strategic foundation, strategic influences subsequent decisions. Comments from
planning and decision making need to be compli- others, biases, or past events are all forms of anchor-
mentary and consecutive, operating in parallel. To ing. Anchoring can be avoided by open-mindedness,
meet this challenge, successful organizations are developing alternate perspectives, and thinking
transforming strategic planning from review and through a problem before asking others what they
approve to debate and decide. think.

Introduction Status-Quo
People like to stick with what is familiarin other
Decision making is a leaders most important respon- words the status quo.
sibility. Good decisions can lead an organization to
excellence. Bad decisions can lead to failure. And all Anything that deviates too far from the familiar and
too often, even the best and most well-intentioned routine feels risky. The more choices one is faced with,
leaders make bad decisions that are life changing for the stronger the pull to stay close to the status quo.
both their organizations and for their careers. Typi- Decision makers can avoid this trap by keeping their
cally, bad decisions result from unconscious bias, focus on objectives, considering multiple alternatives,
overlooked information, or poorly constructed (or and asking themselves if they would choose the status
non-existent) decision-making processes that do quo path if it were not the status quo.
not take into account the critical factors that go into Sunk-Cost
good decision making. In HBRs 10 Must Reads On
When people have already heavily invested in some-
Making Smart Decisions, leading experts expose the
thing and it is not going well, their tendency is to
unconscious and conscious elements that lead to both
continue to invest rather than acknowledge the invest-
good and bad decision making, and in doing so help
ment is a mistake. Understanding that good decisions
leaders and their organizations avoid the decision
can later yield bad results, and then moving on with-
-making pitfalls, improve decision-making capabili-
out blame, is a method for getting out of this trap.
ties, and ensure more good decisions are made on an
ongoing basis.

The Hidden Traps in Decision Making Further Information


by John S. Hammond, Ralph L. Keeney, and
Information about this book and other business titles:
Howard Raiffa
hbr.org
Bad decisions are sometimes based on the circum-
stances of the decision making process; for example,
Click Here to Purchase the Book
not enough time, the wrong information, or an imbal-
ance in assessing costs and benefits. However, bad Related summaries in the BBS Library:
decisions can also be attributed to the way the
Sidetracked
human brain operates. The decisions people make
Why Our Decisions Get Derailed, and How We
are influenced by routine patterns of thinking, or
Can Stick to the Plan
psychological traps, that can undermine the deci-
By Francesca Gino
sion making process. Understanding and taking the
following deliberate steps to avoid the following psy- Judgment Calls
chological traps is an important part of improving the 12 Stories of Big Decisions and the
decision making process: Teams That Got Them Right
By Thomas H. Davenport and Brook Manville
Anchoring
When presented with multiple pieces of informa-
Business Book Summaries June 28, 2014 Copyright 2014 EBSCO Publishing Inc. www.ebscohost.com All Rights Reserved
HBRs 10 Must Reads on Making Smart Decisions Harvard Business Review

Confirming-Evidence others, and introspection combined with honesty are


methods for avoiding this trap.
Every individual has opinions, and individuals tend
to look for evidence that confirms those opinions. Framing
However, this can result in unbalanced information
How a problem is presented, or framed, can
and ill-informed decisions. Rigorous examination of
strongly influence decisions about resolving that
all the evidence, garnering opposing opinions from
problem. For example, solutions to positively framed

About the Authors


Mahzarian R. Banaji is the Richard Clarke Cabot consultancy The Greatest Good. He was awarded
Professor of Social Ethics at Harvard University. the Nobel Prize in Economic Sciences in 2002 for
his work (with Amos Tversky) on cognitive biases.
Max H. Bazerman is the Jesse Isidor Straus
Professor of Business Administration at Harvard Ralph L. Keeney is a professor emeritus at Duke
Business School. Universitys Fuqua School of Business.

Marcia Blenko is a Bain partner in Boston and Dan Lovallo is a professor of business strategy at
leads the firms global organization practice. the University of Sydney and a senior adviser to
McKinsey & Company.
Andrew Campbell is a director of Ashridge
Strategic Management Centre in London. Peter M. Madsen is an assistant professor at
Brigham Young Universitys Marriott School of
Ram Charan is a business author and adviser. He Management.
was on the faculties of Harvard Business School
and Northwesterns Kellogg School. Michael C. Mankins is a partner at Bain &
Company. He is based in San Francisco and heads
Dolly Chugh is an assistant professor of the firms North America organization practice.
management and organization at New York
Universitys Stern School of Business. Howard Raiffa is the Frank Plumpton Ramsey
Professor of Managerial Economics (Emeritus) at
Thomas H. Davenport is the Presidents Harvard Business School.
Distinguished Professor of Information Technology
and Management at Babson College. Michael A. Roberto is the Trustee Professor of
Management at Bryant University.
Robin L. Dillon is an associate professor at
Georgetowns McDonough School of Business. Paul Rogers leads Bain & Companys London
office.
Sydney Finkelstein is the Steven Roth Professor
of Management at the Tuck School of Business at Olivier Sibony is a director in the Paris office of
Dartmouth College. McKinsey & Company.

David A. Garvin is the C. Roland Christensen Richard Steele is a partner at The Bridgespan
Professor of Business Administration at Harvard Group and heads the firms New York office.
Business School.
Catherine H. Tinsely is a professor of management
John S. Hammond is a consultant on decision and head of the management group at Gerogetowns
making and a former professor at Harvard Business McDonough School of Business.
School.
Jo Whitehead is a director of Ashridge Strategic
Daniel Kahneman is a senior scholar at the Management Centre in London.
Woodrow Wilson School of Public and International
Affairs at Princeton University and a partner at the

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HBRs 10 Must Reads on Making Smart Decisions Harvard Business Review

problems are more often adopted than solutions to and is it credible?


those framed negativelyeven though the problem is
8. Is there a halo effect in operation, where the so-
essentially the same. Decision makers can avoid this
lution looks better than it really is because of past
trap by framing problems several different ways or
successes?
creating neutral frames.
9. How attached to past suc-
Organizations need to realize that a disciplined decision-making cesses are those recommending the
process, not individual genius, is the key to a sound strategy. solution?

And they will have to create a culture of open debate in which 10. Has the proposal been evaluat-
such processes can flourish. ed with external criteria, or is it too
internally focused?
Estimating and Forecasting 11. Has the worst case scenario been described real-
People are not very good at making accurate and istically, or is it too good?
reasonable estimates and forecasts in unfamiliar 12. Is the recommendation not ambitious enough? In
situations. Overly confident, overly prudent, or other words, is it overly cautious because the team
unbalanced judgments based on past events are often is risk averse?
what results. By deliberately striving for very realistic
and justifiable assessments based on clarity and wider How to Avoid Catastrophe
parameters, decision makers can avoid these traps. by Catherine H. Tinsley, Robin L. Dillon, and
Peter M. Madsen
Before You Make That Big Decision
by Daniel Kahneman, Dan Lovallo, and Near missesthose close calls that could have been
Olivier Sibony disastrousare more than lucky breaks. They have
the potential to play a valuable role in informing deci-
Bias on the part of those recommending specific deci- sions in the future. However, their root causes often
sions can unduly influence the proposals that are go unnoticed or are ignored until an enabling con-
presented to executives. Decision makers must be on dition (conditions that were absent during the near
the lookout for this. By answering the following 12 miss) turns them into a tragedy.
questions, executives can help remove bias from the
decision-making process: There are seven strategies for recognizing and pre-
venting near misses that every company should
1. How significant is the risk of errors motivated by implement:
the self-interest of the proposal developers?
1. Pay close attention to high pressure situations.
2. Are the developers too in love with their pro- High emotional pressure distorts perceptions and
posal? compromises good decision making.
3. Was dissent encouraged and resolved productive- 2. When some factor of operations deviates from the
ly in the proposal development process? norm, resist the temptation to simply recalibrate
4. Are any of the analogies presented in support of acceptable risk.
the proposal truly relevant to the proposal, or are 3. Avoid the tendency to treat symptoms. Look for
they skewed? root causes instead.
5. Have other credible alternatives been evaluated? 4. Hold managers accountable for their assessments,
6. A year down the road, what information would be particularly their support for potentially risky
valuable to know about the proposal in advance, situationsincluding people they do not hold ac-
and can that information be unearthed now? countable.

7. Where did the supporting data come from, 5. Realistically consider worst case scenarios, and

Business Book Summaries June 28, 2014 Copyright 2014 EBSCO Publishing Inc. www.ebscohost.com All Rights Reserved
HBRs 10 Must Reads on Making Smart Decisions Harvard Business Review

base operations on those. seated in special interests, and easily antagonistic.


Objectivity typically falls by the wayside in favor of
6. Evaluate every project, both successful and
factioning. Information is often withheld and selec-
unsuccessful, at every stepsuccesses can be near
tively presented. This frequently results in poor
misses in disguise.
decisions and a demoralized workforce. On the other
7. Motivate and reward employees for speaking up hand, an inquiry-based approach encourages disparate
to expose near misses, even when it is due to their views, fosters a climate of open and non-threaten-
mistakes. ing dialogue, and leaves egos at the door. Conflict is
encouraged, but it is not destructive. Inquiry is about
Conquering a Culture of Indecision
inspiring critical thinking and teasing out the best
by Ram Charan
ideas, not winning the game.
While a leader might appear to be decisive and
Debate is a key component in the inquiry process.
respected, laying out mandates that everyone
Leaders can encourage constructive debate through
agrees with, what is often at work instead is a cul-
proper framing, guiding the conversation toward
ture of indecision in which decisions presented are
issues rather than personalities, and asking that
applauded but ultimately undermined by contrary
people argue for the opposing view.
behavior. Decisive organizations are those in which
open, honest, and informal dialogue drives engaged A sense of fairness, where everyone has been heard
interactions that further executive decisions. Creating and understood, is characteristic of the inquiry pro-
this culture is a leadership responsibility. cess, as is proper closure on the decision, which is not
too early (before all possibilities have been consid-
Decisive dialogue is foundational to a decisive orga-
ered) or too late (out of a fear of risk).
nization. It is characterized by openness, candor,
informality, and closure. It must
be modeled by the CEO and
Decisions are the coin of the realm in business. Every success,
become pervasive throughout
the organizations social operat- every mishap, every opportunity seized or missed is the result
ing mechanisms. Follow-through of a decision that someone made or failed to make.
and feedback are also inherent to
a decisive culture, ensuring directness, understand- Who Has the D?
ing, and improved performance. by Paul Rogers and Marcia Blanko
While driving a transformation to a decisive culture is Not knowing who is responsible for making which
not an easy task, the rewards are great: an energized, decisions can stall the decision-making process in
empowered, and engaged workforce. even the most decisive companies. One of four bottle-
What You Dont Know About Making necks is usually to blame:
Decisions 1. Global versus local
by David A. Garvin and Michael A. Roberto
2. Center versus business unit
Most leaders do not do a very good job at decision
3. Function versus function
making. This is primarily because they consider deci-
sion making an event, rather than a process. Good 4. Inside versus outside
decision makers are those who design and manage an
By assigning clear roles and responsibilities, compa-
effective decision-making process. A process approach
nies can avoid these bottlenecks and improve their
is either inquiry-based or advocacy-based. The two
decision-making acumen. The RAPID approach
might appear to be similar, but they are fundamen-
(recommend, agree, perform, input, and decide) is
tally different and have very different outcomes.
an effective way to determine roles and responsibili-
An advocacy-based approach is inherently competitive, ties and avoid bottlenecks in any or all of these areas.

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HBRs 10 Must Reads on Making Smart Decisions Harvard Business Review

Recommend applies to those who are responsible 4. Conflict of interest is favoritism toward results that
for making a proposal. Those who agree are those benefit the individual making the decision.
with sign off authority, allowing the proposal to move
While education and ethics programs might help
forward. Input applies to consultants who judge
leaders and organizations become more aware of
the viability of the proposal. Perform applies to
these biases, what is more important is developing a
managing the proposals execution, once it has been
strong mindfulness of these biases, then taking delib-
decided on by the ultimate decision maker.
erate and proactive steps to eliminate them from the
The assignment of roles and responsibilities in each decision-making process. A few such steps are:
situation is based on who provides the most value to
Collecting data through specific tests that reveal
the business in relation to those roles and responsi-
bias as well as systematically analyzing decisions
bilities. Good judgments in making assignments will
for bias
result in much better decisions and the elimination of
bottlenecks. Shaping the environment by removing bias-provok-
ing cues
Managers who aspire to be ethical must challenge the assump- Broadening the decision-making
tion that theyre always unbiased and acknowledge that vigi- process by extending the parameters
lance, even more than good intention, is a defining characteris- to reach beyond possible sources of
bias and taking a more analytical
tic of an ethical manager. They must actively collect data, shape
approach
their environments, and broaden their decision making.
Most important is adopting a vigi-
lant recognition that bias exists even in the most
How (Un)ethical Are You?
well-intentioned people, and making an equally vigi-
by Mahzarian R. Banaji, Max H. Bazerman, and
lant attempt to eliminate its sources by deliberately
Dolly Chugh
working to create a level, unbiased playing field for
No matter how ethical people might perceive them- every decisionespecially those involving staffing
selves to be, there are four sources of unconscious and interpersonal relations.
bias at play that influence decisions to be less than
Make Better Decisions
ethicalwithout any conscious ill intent on the part
of the decision maker. The following biases can lead by Thomas H. Davenport
managers to unwittingly make bad decisions, often in There is a rampant decision-making disorder plagu-
the area of human resources and to the organizations ing both the public and private sector. This disorder is
detriment: attributable to two factors:
1. Implicit prejudice stems from thought processes 1. The tendency for decisions to be made by individ-
that lead people to make unconscious associations uals, typically at high levels
between things, thereby developing patterns that
2. The failure of organizations to create solid and
seem to make sense and are repeated over and over
effective decision-making process that meet the
again. However, these unconscious patterns can be
needs of todays world
wrong.
Creating a strong framework for effective decision
2. In-group favoritism means helping those one has
making is achieved through the following four steps:
positive associations with (such as friends and
family) over others. 1. Identifying the decisions that need to be made and
then prioritizing them to make sure the most im-
3. Overclaiming credit is the tendency people have to
portant ones get done.
overestimate their own contributions to a particu-
lar success or effort while underestimating the con- 2. Inventorying all the required factors that need to be
tributions of others. addressed to make the decision (who, what, when,

Business Book Summaries June 28, 2014 Copyright 2014 EBSCO Publishing Inc. www.ebscohost.com All Rights Reserved
HBRs 10 Must Reads on Making Smart Decisions Harvard Business Review

where, why). Imposing governance structures that remove sole


responsibility for decisions
3. Intervening in each decision to establish the best
way to make that, and similar, decisionsthereby Stop Making Plans; Start Making
creating an ongoing process. Decisions
by Michael C. Mankins and Richard Steele
4. Institutionalizing a formal methodology for decid-
ing how to decide to be used as a criteria for man- While a strategic planning process is necessary, the
agers whenever they are faced with a decision. traditional strategic planning process has long been
under fire as a useless and time-consuming effort. Not
An equally important part of improving the decision-
only that, it has been demonstrated over and over that
making process is performing a post mortem on all
the typical strategic planning process does little to
decisions madethe good ones as well as the bad
nothing to address the decisions businesses are faced
ones. This effort both informs the process and helps
with on an ongoing basis. This is due in large part to
guide future decisions.
the once per year strategic planning cycle and the
Why Good Leaders Make Bad Decisions emphasis on individual business units. A more timely
by Andrew Campbell, Jo Whitehead, and Sydney and holistic approach that meets todays business
Finkelstein needs is required.

Even the most highly effective, intelligent, and experi- Savvy businesses are adjusting both the timing
enced leaders make bad decisions, often due to errors and the focus of their strategic planning processes
in judgment that have their roots in neuroscience. The to transform them from review and approve to
brain guides decision making through the uncon- debate and decide. In decision-focused strategic
scious processes of: planning, strategy development runs in parallel with
decision making. There is a thematic focus on impor-
Pattern recognitionin which past experiences cre-
tant and common issues across the business, strategy
ate assumptions that people then apply to similar
reviews take place continually throughout the year,
situations
authentic dialog and debate are encouraged, and
Emotional taggingin which emotions connect planning reviews result in real-time decisions. This
with experiences to drive action in future similar approach tends to unearth hidden strategic issues as
situations well as drive many more decisions, offering up addi-
Compounding these influences are red flag condi- tional opportunities for growth and increased profits.
tions that further distort the decision-making process
by fueling emotions: g g g g

Inappropriate self-interest can skew pattern percep-


tion toward what is more beneficial to the self. Features of the Book
Distorting attachments refers to emotional bonds Estimated Reading Time: 34 hours, 175 pages
from the past applied to the current situation. HBRs 10 Must Reads On Making Smart Decisions
Misleading memories can distort the perception of is a collection of articles written by well-known lead-
the current situation, making it appear to be more ership experts. The book is intended for leaders in any
similar to a past situation than it really is. industry or occupation. The book can easily be read
While people can learn to recognize biases, no one cover to cover, but each article is a standalone piece,
can always completely understand nor control their so readers can also pick and choose what most inter-
biases. Therefore, safeguards need to be applied to ests them. Each of the ten articles includes an Idea
the decision-making process, such as: in Brief section summarizing the key points in the
article. A few articles include an Idea in Practice
Presenting new information or novel approaches section that provides practical steps for the reader to
Increasing and expanding debate use in applying the key principles. Also included are
Business Book Summaries June 28, 2014 Copyright 2014 EBSCO Publishing Inc. www.ebscohost.com All Rights Reserved
HBRs 10 Must Reads on Making Smart Decisions Harvard Business Review

charts, checklists, and many specific and enlightening copyright holders express written permission. However, users
case studies to further illustrate key concepts. This may print, download or email summaries for individual use.

book has value for any leader who wants to improve Business Book Summaries is a service of EBSCO Publishing,
his or her own decision-making capabilities and for Inc. For more information about BBS, to subscribe to BBS, or
to provide us feedback, visit our Web site.
those interested in driving new decision-making pro-
www.ebscohost.com
cess within an organization.
EBSCO Publishing Inc.
Contents 10 Estes Street
The Hidden Traps in Decision Making Ipswich, MA 01938 USA
by John S. Hammond, Ralph L. Keeney, and Howard
Raiffa
Before You Make That Big Decision
by Daniel Kahneman, Dan Lovallo, and Olivier Sibony
How to Avoid Catastrophe
by Catherine H. Tinsley, Robin L. Dillon, and Peter M.
Madsen
Conquering a Culture of Indecision
by Ram Charan
What You Dont Know About Making Decisions
by David A. Garvin and Michael A. Roberto
Who Has the D?
by Paul Rogers and Marcia Blanko
How (Un)ethical Are You?
by Mahzarian R. Banaji, Max H. Bazerman, and Dolly
Chugh
Make Better Decisions
by Thomas H. Davenport
Why Good Leaders Make Bad Decisions
by Andrew Campbell, Jo Whitehead, and Sydney Finkel-
stein
Stop Making Plans; Start Making Decisions
by Michael C. Mankins and Richard Steele
About the Contributors
Index

g g g g

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