How we regularly make poor strategic decisions without even realising, and what to do about it (4/4)

In the first three posts of this four post series we described ten "cognitive traps": ways in which we think that can cause us to make damaging decisions without realising it.

The good news is that there are some decent tools to challenge these traps. We explain our two favourite approaches below, as lessons from science and sport.

1. A lesson from science – treat your beliefs as a hypothesis to be challenged

True science is not about test-tubes, double-blind tests and professors with moon-shaped glasses and speech impediments. It is about starting with a premise that you believe may be true – a hypothesis – and challenging it to see if you are right, or more likely, where you are wrong. Under this definition, you are more likely to see science from a good plumber trying to work out why your central heating makes a knocking noise than you are from a PhD nutritionist with research sponsored by High5, trying to persuade you that High5 is better than Powerade. The plumber is the scientist, challenging his hypothesis in search of the truth; the nutritionist is no more than a fundamentalist seeking and selecting evidence to support his initial position. Unfortunately, when we get attached to our ideas, the cognitive traps make us act more like the nutritionist than the plumber.

This is why the true scientist needs to adopt a mindset of challenging the hypothesis with data, and to have no belief that the hypothesis is true until the challenges show it to be so. Some practitioners even go as far as setting up a formal challenge in the form of an antithesis, an alternative hypothesis that is posited as a more accurate or insightful version of reality. This approach isn’t confined to the material and commercial – the Catholic Church appoints a devil’s advocate to provide the rigour of challenging its most important decision, the legal system applies the rigours of having separate representatives of both sides of the case.

So, how to apply this? Treat your belief as a hypothesis and challenge it, if necessary with your own devil’s advocate, to whom you give the seniority and power to challenge your decisions. And honestly expect your hypothesis to change as the evidence emerges.

Applying this lesson from science stops us being blind to the evidence at hand, but it doesn’t help us predict a future that is much more random that we think it is, or stop us being over-confident in our ability to predict it. To prepare for this, we take a lesson from sport.

2. A lesson from sport – prepare for a range of scenarios

A lesson learned by those of us who have been on the wrong end of a drubbing on the sports field or, more seriously, have experienced military action, is that no plan survives contact with the enemy. Whether you are a batsman facing a spin bowler about to treat you to one of his box of tricks, or a tennis player trying to decide if your opponent is stretched enough for you to approach the net without being passed or lobbed, you have to be able to cope with a range of scenarios. It doesn’t mean that your core game plan needs to be dictated by the opponent and environment, but it does mean that you need to be prepared for the range of scenarios that might play out. If you can’t deal with the high ball, you can guarantee that a good opponent will be sending up bombs for you to panic under all afternoon.

In business, the normal corporate downside scenario is maybe a 5% or 10% decline versus base case, which isn’t really a scenario at all, but more of a smaller version of the base case. A more useful scenario is to work out how we would still thrive if sales fell by 30% or 50%, or how we would grow if competitive substitute product X gained critical mass. How would we deal with costs? Where would we still invest, or even increase investment? Which divisions would we let go? What resources would we try to acquire? What we are not doing here is trying to create a plan for every single situation that might come about. What we are doing is stretching our thinking, in order to understand those common things we need to do to thrive in whatever scenario might come about, and preparing ourselves to respond to the inevitable unpredictability.


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For the full text of this series email steve@latitude.co.uk