Cognitive Decision Traps
A recent McKinsey study* of 1048 strategic decisions by different companies in different industries has found that their success depended on three key factors. (Success was measured by revenue, market share, profitability and productivity increases.) Interestingly, the quantity and detail of analysis performed contributed only 8%. This suggests most companies have the tools, the knowledge and dedication for conducting good data analysis - so competitive advantage is hard to gain this way alone.
39% was due to company and market variables, such as industry trends or internal resources. And a full 53%, the largest impact, was by having the right ‘decision architecture’ for making decisions. The right processes, participants. The right model to filter out cognitive decision making traps which cannot be eliminated at the individual level.
Olivier Sibony further studied the effects and found that 25 cognitive biases (from among the 180 or so identified) are mostly responsible for leading decision makers astray. They form 5 well defined ‘families’ of biases, giving rise to 9 decision making traps present everywhere. To filter their impact out we need to work at the ‘architecture level’ because individual biases are hard to detect and even harder to counter.
A 40-question ‘yes-no’ template can be used to define and build such an architecture. And this is the template CodeBreakers is using.
* Dan Lovallo, Olivier Sibony: “The case for behavioral strategy” - McKinsey Quarterly, March 2010
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