Why do good companies and smart leaders sometimes make bad decisions Viewpoint careers advice blog

Why do good companies and smart leaders sometimes make bad decisions Tesco, previously a star, has had a rough time of it recently. The stock price has declined from a high of 450p to under 300p. Watching its decline brings to mind the many stories of hubris in the business world (not to mention the worlds of politics, leadership, the military and life in general). Attempts by retailers to expand internationally provide plenty of examples, including Marks and Spencer, Carrefour and Walmart. Risky decisions to expand are made. The international ventures disappoint. Meanwhile, the domestic base is milked and potentially neglected, risking fundamental problems that are hard to shake off. Hopefully this is not the situation in your organisation â€" but hubris can creep into decision processes at any time. So, why do good companies, and smart leaders, sometimes make such bad decisions? Of course, there are many possible answers, and the purpose of a blog is to start a debate â€" so please provide your personal views. As a stimulus to the discussion, here are four situations under which my research suggests there is an increased risk of a bad decision: Misleading experiences. This occurs when we are faced with an unfamiliar situation which feels familiar. Under these conditions we can think we recognize something when we do not. For example, many UK retailers have gone to the US taking their experience of successful UK business models with them â€" only to find that they don’t work in that market. Misleading prejudgments. This occurs when our thinking has been primed before we begin to evaluate the situation, by previous judgments or decisions we have made that connect with the current situation. For example, Tesco has done well in the UK by acquiring sites where they could build large stores. But, such stores are less appealing to today’s shoppers â€" who are more interested in convenience stores and discounters offering a limited range at low prices. Nevertheless, Tesco kept investing in bigger stores. Philip Clarke, their CEO, admits, “I probably should have stopped more quickly their (large stores) expansion”. Inappropriate self-interest. Of course, people are self-interested, and often this drives them to be successful in their careers. However, our brains are particularly influenced by short term consequences â€" to the point where we can make decisions that damage our interests in the long term. For example, it appears that the UK has been used by Tesco to prop up its profits and shareprice while losses mounted in some international investments. This has provided a price umbrella for competitors in the UK, resulting in a long term problem that will be painful to fix. As one analyst put it, “Tesco did not deal with the issue of discounters and increased competition five years ago, and it’s going to be more expensive to deal with it today.” Inappropriate attachments. Self-interest is a powerful emotional driver of decision making â€" but so is the love of other people, places and things. Making the cutbacks necessary to put Tesco back on a firm foundation may mean writing off some long term growth opportunities and may damage the careers of some managers and employees. This may be difficult for someone such as Philip Clarke, who has been at Tesco for 40 years. To spot whether there is a particularly high risk of a flawed decision, consider whether any of these four factors might be at play. If you spot that there is a high risk of a bad decision, the next step is to think about what you can do about it. But that should be the topic of another blog! For more information on my research and book in this area, you can download an article here. Engage with fellow HR professionals across the globe and stay up to date with the latest HR news, by joining our LinkedIn group. Join the conversation // Want to further hone your leadership skills? Our leadership tips and advice will help you become the leader you want to be