Whether it’s Volkswagen, Deutsche Bank or Bayer – if companies get into rough seas, the verdict is quickly stated: Management failure! But managers are only human beings. They are not the rational decision-makers they claim to be – and they act much more emotionally than they are aware of. Distorted perceptions tempt managers like everyone else to judge, decide and act irrationally. But at the top, the consequences can be dramatic. To avoid dangerous navigation errors, top managers and their teams should pay special attention to six biases.
Why managers act irrationally?
It`s Human – One Psyche, Two Systems
To avoid misunderstanding – let us state clearly: Errors of perception or biases are not weaknesses of individual managers or „manager failure“, but simply human. These distortions are caused by our highly efficient, automatically and unconsciously working mental „routine system“, which judges quickly and based on incomplete information. Exactly this is the everyday life of a manager, exactly this is what his personal routine system has optimized perfectly in the course of his career. The problem with this intuitive system? It is susceptible to errors and tempts managers to act only in routines. Doubt, uncertainty, self-criticism and reflection, on the other hand, are the domains of a second, conscious, deliberate system. Managers who succeed in deliberately slowing down their highly trained, fast system and giving command to the second, slower system can cleverly avoid these biases or perception traps. So, what biases to watch out for? Here are six biased most often observed by us in top management.
1. The Overconfidence Bias
„We’ve never done a project perfectly in terms of time, quality and budget, but this time we’ll make it… – definitely!“
There is a thin line between self-confidence and overconfidence. Managers usually assess their own knowledge and personal abilities better than they actually are. The optimistic distortion often occurs where people have to decide under high risks and uncertainty – therefore the top management is particularly receptive. Classic examples are the overconfidence regarding potential success of a new product or the underestimation of time and investment in complex projects. And in strategic planning, too, the overconfidence bias strikes – never before there have been so many sales and profit warnings in Germany as in 2018.
2. The Self-Serving Bias
„The new product is a failure? Our problem is not the product! Here is the real problem: our customers just haven’t understood it yet.“
The self-serving bias is deeply anchored in the mental model of successful managers: they overestimate the influence and power of the individual. The inner logic is captivating: Managers attribute success to their own competence, but failures are the result of adverse circumstances. Once the company has had an excellent financial year, the CEO pats himself and his team on the back – success is the direct result of far-sighted decisions and effective leadership. If the year was bad, customers did not understand the product, the economy cooled down or managers and employees did not follow suit. Management in the self-serving bias lays the foundation for decay.
3. The Confirmation Bias
„The synergies are not achievable? Impossible – the glass is half full, not half empty! Our decision was and is the right one…we simply have to go through it even more consistently!“
The psychological automatism of the confirmation trap unconsciously filters and interprets information in such a way that people see themselves confirmed – in their own convictions, their behaviour or their own decisions. The top team only finds evidence that confirms the joint decision: „Visible synergies“ from the acquisition, „early wins“ from the new strategy or green lights in important future projects. Warning signals that could indicate potential failure do not fit in with this positive overall picture. They are unconsciously but systematically ignored as special cases or irrelevant to the success as such.
4. The Narrative Fallacy
„I have been successful – I am successful – and I will be successful.“
Our personal past is nothing objective – it is something that we have individually defined. And so every manager has constructed, seemingly consistent stories about his successful career. He has a firm opinion about what behaviour was the reason for his own success. These stories create deceptive security because they involve a risk: the illusion of inevitability. In retrospect, personal success seems to follow a compelling inner logic based on a combination of one’s own foresight, competence and leadership strength – not on favourable circumstances. The dangers are arrogance and false predictions. The fallacy tempts managers to repeat mistakes and apparently apply success models from the past under completely different conditions.
5. The Authority Bias
„Our CEO will know what he’s doing – I don’t understand it, but I’m not throwing myself in front of the train here.“
In complex situations people turn to authorities – managers in top teams are no exception. Especially with dominant CEOs, there is a danger that the authority bias will snap shut. The team members bend openly or covertly to their authority and surrender their co-responsibility. The CEO receives allegiance and loyalty – the team members in return receive security and avoidance of conflict. A practical deal with devastating consequences for the company: The fact that a CEO makes better decisions alone than the entire team has often proven to be a false hope.
6. The Action Bias
„We’ll decide – and we’ll decide NOW! After all, we get paid for acting, not for not acting!“
Acting in case of doubt – this is the unspoken motto among managers. Especially in complex situations, the impulse of the manager as a man of action dominates at the top of the company – regardless of whether acting is right or whether waiting and understanding would be better alternatives. The logic behind it is striking: Owners and supervisory boards hardly consider it a success if a manager does the right thing by not acting. The top management in particular is urged to visibly keep the reins of action in their hands in every situation and to demonstrate determination by making decisions.
6 Antidotes & Methods
There are pragmatic, simple methods to arm oneself against these most common biases or perception errors:
(1) Managers should consistently create a culture of dissent and disagreement, thus encouraging themselves and others to doubt and facilitate constructive debate. Bart Becht in his times at Reckitt Benckiser was a master in this, establishing the rule „Disagree and Commit“.
(2) Enabling a culture of failure – doing a joint „Autopsy without Blame“ – creates the basis for openly addressing one’s own challenges and mistakes and systematically encourages the top team to jointly learn from wrong decisions. When the CEO is able to create Psychological Safety based on trust, our experience shows that this exercise can develop into a positive, healthy team routine.
(3) In order not to fall into intuitive patterns, the top team can appoint a member as a „Devil’s Advocate“ – with the explicit mandate to fundamentally question decisions.
(4) A „Pre-Mortem Session“ in which the team hypothetically anticipates failure and analyses its potential root causes upfront prevents blind actionism. We experience this in our client cases as an always revealing discussion about positive and unproductive patterns within the team.
(5) Or the team analyses an imminent decision in two „Red and Blue Groups“ – from opposing perspectives.
(6) And finally, the team can systematically check its behaviours using a „Bias Checklist“. What perceptual error could have influenced our decision and how?
With these tools and techniques, managers can easily analyze one’s own individual or collective perception. A top team will be able to avoid these traps and significantly improve the quality of its decisions. This is the only way for top teams to develop a quality of collaboration that enables effective leadership at the top.
We wish you a reflective day!
Sincerely yours, Anke Houben + Kai W. Dierke
This Article is based on our book „Gemeinsame Spitze. Wie Führung im Top-Team gelingt“, Campus; Completely Revised English edition forthcoming in 2020: „Executive Rivals. How to Build Great Leadership Teams where Collaboration is Hard.”
Dr. Kai Dierke and Dr. Anke Houben are founders of DierkeHouben Leadership Partners – C-suite Coaches and Advisors with more than 17 years of experience in counseling and developing Top Executives and their teams. In addition to their consulting work they offer open enrollment programmes for Senior Executives. As Adjunct Professors they teach Leadership at HHL Graduate School of Management.