Why smart people with great data still make bad decisions.

Written By Marina Hop

Think about a major business decision your company made recently, an acquisition, a product launch or a big investment. It probably involved:

  • Data gathering and performing analysis

  • Insights and the judgment of executives

  • A process that turned the data and judgment into a decision

Most people assume that good analysis + smart leaders = great decisions. But research* shows that isn’t the case.

Here’s why:

Executives who project great confidence in a plan get approval more easily than those who acknowledge risks. But that’s a trap.

Overconfidence and overoptimism shut down discussion and ignore uncertainties. But simply being aware of this is not enough to fix it. That’s why a robust decision-making process can help.

In fact, the decision-making process matters six times more than good analysis.

A strong decision-making process can uncover poor analysis, provide alternative points of view and search for evidence that contradicts incorrect but commonly held beliefs.

The authors of the study offered this analogy:

Imagine walking into a courtroom where the prosecutor clicks through a series of PowerPoint slides. He presents a flawless case. The judge asks a few questions, but the prosecutor has well prepared answer to the questions. The judge delivers the verdict and the accused is sentenced. No defence, no cross-examination, no debate. If you find this process shocking in a courtroom, why is it an acceptable way for a company to make decisions?

But this is exactly how many companies make major decisions. One team builds the case, picking which facts to highlight and which to ignore, while the final decision-maker plays both challenger and judge. The result is often a poor decision. Only 28 percent of executives in the McKinsey Quarterly survey said that the quality of strategic decisions in their companies was generally good.

You can improve strategic decision making with a process that:

  • explicitly discusses uncertainties around the decision

  • encourages perspectives that contradict the senior executive’s point of view

  • includes input from a range of people who had different views

Improving organisational decision making requires us to be more deliberate in the process we follow to reach a decision.

*McKinsey studied 1,048 major decisions made over five years, including investments in new products, M&A decisions, and large capital expenditures.

Marina Hop
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