Debiasing Organizational Decisions-A

Step Towards Organizational Excellence

Evelina Sahay, PhD. scholar,

Birla Institute of Technology, City Centre, Ranchi

Guide: Dr. Somnath Mukherjee

 Agenda

• Organizational excellence through quality decisions

• Decision quality and cognitive biases

• Steps to reduce biases for good decisions

 Introduction
• “A company’s value is just the sum of the decisions it makes and
executes” - Harvard Business Review,2010

• Research and experience confirm the tight link between performance

and decisions. - Harvard Business Review,2010

• “Decision effectiveness and financial results correlated at a 95%

confidence level or higher for every country, industry, and company
size”-HBR,2010
[The Decision-Driven Organization- Blenko, Mankins, Rogers, HBR, 2010]
Organizational
Decisions
Strategic M&A, Reorg,
Expansion,
Infrastructure…
Non-Programmed

Resource Acquisition,
Structuring
Tactical Workflow, Divisional
Plan…
Semi-Programmed

Operational Day to day

operational decisions
Programmed
Organizational Excellence and Decision
Making
• Its assets, capabilities, and structure are useless unless executives and
managers throughout the organization take the essential decisions and
get those decisions right more often than not” (Blenko, Mankins and Rogers 2010).

• “The daunting reality is that enormously important decisions made by

intelligent, responsible people with the best information and
intentions are sometimes hopelessly flawed” (Campbell, Jo Whitehead, and Sydney
Finkelstein, HBR, 2009).
Decisions and biases
“Our thinking is riddled with systematic errors known as cognitive
biases.” - Khanmann and Tversky (1971)
Cognitive Biases
“A cognitive bias refers to a systematic pattern of deviation from norm or
rationality in judgment, whereby inferences about other people and situations may
be drawn in an illogical fashion.”
- Haselton, M. G., Nettle, D., & Andrews, P. W. (2005)

• The term “Cognitive Bias” was introduced by behavioral economists Amos Tversky and Daniel Kahneman in
early 1970s

• Cognitive bias describes the inherent thinking errors that humans make in processing information.
Dual process theory – System 1 & System 2

System 1 System 2
Automatic Reflective
Fast
Slow
Doer
Never turned off Planner

Therefore, the intuitive reasoning will always interfere with your reflective processes
(replacing logical thinking with intuition). And that is how biases creep into
decisions.
Common biases that affect business
• Groupthink
• Excessive
• Overconfidence
Optimism
• Overconfidenc
e
Action Judgement
Oriented and
Bias perception

Stability Framing of
alternatives

• Status quo bias • Loss aversion

• Present • Sunk-cost fallacy
Why Debiasing?
• “Left unchecked, subconscious biases will undermine strategic
decision making.” - Dan Lovallo and Olivier Sibony, 2010
• “Reducing biases makes a difference!” - Khaneman, Lovallo &Sibony, 2011
• A recent Mckinsey report revealed that raising a company’s game from
the bottom to the top quartile on the decision-making process
(through process of debiasing) improved its ROI by 6.9 percentage
points. The ROI advantage for top quartile versus bottom quartile
analytics was 5.3 percentage points. - The case for behavioral strategy,
McKinsey Quarterly, march 2010
Literature Survey/Gap Identification
• Once heretical, behavioral economics is now mainstream and is evident with the
plethora of work available

• Research Area
• Psychology
• Economics
• Decision Theory
• Information Management
• Supply Chain Management
• Judiciary
• Medicine
• Accounting
• Finance
• Investments
Literature Survey/Specific work
• “Reducing biases in cross cultural top management team decision making
processes” - by David Strutton and William Carter, 2013
• “The Decision-Driven Organization”by Marcia W. Blenko, Michael C. Mankins,
and Paul Rogers,(Harvard Business Review,2010)
• “Why Good Leaders Make Bad Decisions” by Andrew Campbell, Jo Whitehead,
and Sydney Finkelstein (HBR,2009)
• “Flaws in strategic decision making”by Renee Dye, Olivier Sibony and Vincent
Truong,(McKinsey Global Survey,2009)
• “The case for behavioral strategy” by Lovallo & Sibony,(Mckinsey Quarterly,2010)
 Debiasing
• Biases are hard wired to our brain
• It’s impossible to “remove” them completely.
• There are effective techniques/frameworks to reduce the effect of
biases by carefully changing the environment and processes where the
decisions are formed.
 Debiasing frameworks.
A. Debiasing framework by Kaufmann, Carter, & Buhrmann (2010)
• Expanding an individual's bound of rationality,
• Reducing the dynamism of a decision-making environment, and
• Reducing complexity of a decision-making environment

B. 12 Question checklist by Kahnemann, Lovallo & Sibony (2010)

• A 12 question checklist [28] intended to unearth and neutralize defect in
thinking of recommenders
 Debiasing frameworks..
C. Debiasing Framework by Dan Lovallo, Olivier Sibony (2010, Mckinsey)
• Decide which decisions warrant the effort
• Identify the biases most likely to affect critical decisions
• Select practices and tools to counter the most relevant biases
• Embed practices in formal processes

D. Debiasing framework by Andrew Campbell, Jo Whitehead, and Sydney

Finkelstein (2009, HBR)
• Safeguarding Against Your Biases
• Injecting fresh experience or analysis.
• Introducing further debate and challenge
• Imposing stronger governance
 Conclusions/Managerial Significance
Significantly contributes towards achieving organizational excellence.

Huge scope of testing these techniques and frameworks in Indian contexts.

Will help avoid blunders

Improve the quality of decisions

Will result in higher ROI as observed by Mckinsey (2010).

It will also improve employee morale as decisions will be seen unbiased and goals and targets are more likely to be achieved.
Thank you!