Why Do We Make Bad Decisions?ByRaymond D. Matkowsky
“No decision-making system is going to guarantee corporate success. The strategic decisions that corporations have to make are of mind-numbing complexity. But we know that the more power you give a single individual in the face of complexity and uncertainty, the more likely it is that bad decisions will get made.” – James Surowiecki, The Wisdom of Crowds
People make many decisions every day. Research indicates that the average driver makes seventy decisions per minute while his or her car is moving. Marketers and technical people must also make many decisions a day and millions of dollars may ride on those decisions. Many times they turn out a bust, but why? My forty five years of experience in research, development, and technical service has given me some insight as to the answer to the above question.
Gut Feelings
In my opinion, the number one cause of failure is “gut feelings.” Some feel that they know what other people want, do, and how they live. They project their own life style on others. I will give you a real life example.
During the dot com era, many people tried to sell anything and everything across the internet. In Boston USA a couple with no marketing experience (read: just out of school) started a high fashion clothing business. Their first order of business was to create a website featuring their wears and allowing orders to be placed.
They immediately found that their website was so encumbered with photos that it was very slow in loading. The website would only load well on very fast broadband connections. This was a time when only a very small portion of the population had such a connection.
They left the website as is because their “gut feelings” told them that the people they were trying to attract had such a connection. The company was one of many dot com failures.
Another example is the mergers of equals that appear to occur weekly. Much of the time these are weak companies looking to get out of their downward slide. You constantly hear about how the “synergy” of the two will reverse that. For the most part, history shows that when you merge two weak companies together you do not get a strong company. You get a larger weak company.
Failure To Get The Right Information
Many times we fail to do proper “due diligence.” At one time I was on a mock jury that was hearing a case in which the purchaser was suing the seller for concealing equipment flaws in a plant that they purchased. The suit stemmed from an explosion with one of the plant’s boilers seven months after purchase. In the opinion of the jury, the purchaser’s engineers did a “lazy” and superficial inspection of the plant. The purchaser did not do a proper “due diligence” review was the verdict and therefore the seller had no responsibility. Failure to do a thorough “due diligence” can have very severe consequences. The same is true for marketers. You must find out what the customer wants and likes. Good ideas have died on customer perceptions.
The United States Government disseminates a series of economic reports every month. Many business people base their economic analyses on the headline declarations of each report. However, this data is manipulated and many times only bear a scant relationship to reality.
For example, the third quarter 2016 Gross Domestic Product was heralded as increasing 3.5% over the previous quarter. The theme was that the economy was accelerating at a rapid rate. In reality the third quarter only increased 1.7% from the third quarter of 2015. The intention was to make the economy look better than it really was.
The unmassaged raw data are available in the reports. However, they are buried way down in the text. A marketer needs to seek them out if he or she wants to make a good decision based on this information.
Another difficulty stems from having the wrong person handling a problem. There are some things in industrial processes that are counter-intuitive, not normally reported in the literature, but still reasonably known in the industry. One such problem came up several years ago. A very conscientious person was assigned to help a client with a startup problem. This was a new business for the client. His idea was to speed up the process, however the problem only got worse. The answer was to slow the process down until a certain point and then speed it up. It wasn’t until this problem was casually mentioned to a person with experience in the area that the answer was put forth.
Failure To Try To Anticipate Unintended Consequences
Every decision that is made has unintended consequences. Much of the time these are trivial, but not always. Certainly, not all situations can be anticipated. But, failure to try to do so can result in very bad and costly decisions.
“We Have Always Done It That Way”
Marketing executives have sought the 18 to 49 year olds for the last 35 to 40 years. This age group was the backbone of spending in the United States. They were the reason behind consumer spending accounting for 70% of the United States Gross Domestic Product. If this inclination continues, I believe that marketing personnel will be making some horrible decisions.
I have outlined my reasoning for this belief in this column over the last two months. There is no purpose for me to go over it again except to say the reasons behind this and other “we have always done it that way” decisions may not be any longer valid.
A Dynamic System
The economy both nationally and globally is a dynamic entity. It is always changing. You have billions of people acting individually for their own benefit. However, history shows that the overall behavior of people repeats itself every one or two generations depending on the stimulus.
A marketer would do well if he or she would look to the historical outcomes of economic shocks in the past to make better predictions about the behavior of people now. For example and according to the February 10, 2017 issue of USAToday® a full 20% of the population of the United States believes that they still haven’t recovered from the Recession of 2007. Marketers need to take note of this. Historical data dates all the way back to commerce during Roman times and human nature is very slow to change.
Avoiding Bad Decisions
How do we avoid making bad decisions? If you ask 100 people, you will probably get 101 or more answers. There isn’t an answer that fits every person and every decision. I am probably what McKinsey Quarterly and The Harvard Business Review calls a “Guardian.” A “Guardian” tries for fact based choices and plans carefully. I strongly believe that one should spend a great deal of time doing fact based planning upfront before starting hands on work. I feel that in the long run you make decisions that allow you to spend less time overall. However this is my way, but I am sure not the only way. You have to “decide” what you are most comfortable with.
If you have any further suggestions, do not keep it to yourself. Help your fellow readers!
If you have any questions, comments or suggestions drop me a line at rdm@datastats.com.
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