Why Strategy Fails...and How You Can Make it Work

Why strategy fails...and how you can make it work

strategicplanning

the state of

Bain & Company Management Tools Survey, 2013

Strategic planning today

most used business tool

- globally!

but just 45%of organizations use it.

Bain & Company Management Tools Survey, 2013

58% of leaderssay it’s extremely or

very important in their

organization’s success.

Forrest Consulting Strategic Leader Survey, 2013

but 42% of leaders say

planning is not important

to the success of their

organization.

74% of leaders say

their organization doesn’t

use a formal planning

process to make

strategic decisions.

70% of organizations

with a plan fail to

implement it.

Balanced Scorecard Collective

planningCASE FOR

“Doubles likelihood of SURVIVAL.”Noel Capon and James M. Hurlburt, Columbia University,

and John U. Farley, University of Pennsylvania, 1994

“Increases company LONGEVITY.”J. Berman, D. Gordon, and G. Sussman, study of 555 small firms, 1997

“12% greater increase in SALES”

when “top management had a high

commitment to planning.”M3 Planning, study of 280 companies

The case: survival and growth

“Strategic planning has a positive effect on PERFORMANCE, both in quantitative and qualitative terms.”

Correlation coefficients with strategic planning:

Earnings per common share +0.79 Attainment of profit objectives +0.51

Return on invested capital +0.64 Community acceptance +0.48

Return on owner’s investment +0.58 Service efficiency +0.47

Change in return on invested capital +0.56 Attainment of corporate objectives +0.44

Return on net worth +0.42

Anders McIlquham-Schmidt, Aarhus University, 2010. A meta-analysis of 45 years of

research involving 88 studies representing a total sample size of 32,472 observations.

The case: performance

Evidence showsts strategic planningalso brings INTANGIBLE BENEFITS.

Optimizes growth and developmentLooks aheadAnticipates threatsCapitalizes on opportunities

Sets priorities

Identifies resources needs

Focuses resources

The case: other benefits

modeland a

process

Gap planning model

“Fast Track” process

strategy success

secrets

to develop strategy

useplanning

The first secret

leaders who say planning ismore important in their

give it greater significancein developing their

success

The first secret

strategy

The first secret

For greater success,

The second secret

use best practices

when leaders rate planningmore important in

the organization is more likelyto use best practices in

The second secret

success

planning

The second secret

for planning success

bestpractices

treat planning and

implementation as

not an event.

a process

For planning success

- external and internal.

get input

use an outside

Facilitator.

to plan.team

enlist a diverse

develop a shared

for the organization’s future

based on strengths and

opportunities.

vision

identify weaknesses and

threats to find the

blocking the way

to the vision.

many strategy ideas.

brainstorm

process to narrow

consensus

strategies to a handful.

Develop annual

with measures,

action steps

timelines and accountabilities.

implement!

sell the plan

and communicate progress.

measure

progress and results.

plan again

schedule re-planning and

(remember, it’s a process,

not an event)

Why planning

Bad practices

failsstrategic planning

because organizationsuse bad practices.

69% form a planning team of

eight or fewer individuals.

Bad practices: Planning team

34% don’t include Directors or

other stakeholders on the team.

57% say strategic decisions are

made by the CEO or a small group.

Bad practices: Involvement

64% say their process doesn’t

ensure those who carry out strategy

are involved in making it.

Bad practices: Involvement

47% say planning discussions

don’t include the most knowledgeable

and influential participants.

47% don’t report on planning

progress and the final plan to the

wider organization.

56% don’t gather pre-planning

input from stakeholders.

Bad practices: Input

49% don’t develop information

on the external environment.

39% want better use of market

and competitive intelligence.

Bad practices: Input

58% don’t believe their process

assesses risks as well as benefits.

Bad practices: Process

47% don’t develop specific action

steps for implementing each strategy.

64% say their organization has

too many conflicting priorities.

Bad practices: Strategies

46% don’t include plan review,

reporting and adjustment.

Bad practices: Implementation plan

46% don’t assign responsibility for

implementing tactics to individuals.

41% don’t include the next plan

update/ re-planning time.

Bad practices: Implementation plan

28% don’t assign responsibility for

implementing tactics to individuals.

38% don’t report implementation

and performance to the executive team

at regular intervals.

Bad practices: Reporting

61% don’t report regularly to the

wider organization on plan

implementation and performance.

36% don’t track plan performance

against measurable objectives.

Bad practices: Tracking

53% don’t track implementation

against a pre-set timeline.

60% don’t link strategy

and budgeting.

Balanced Scorecard Collective; Forrest Consulting Strategic Leader Survey, 2012

Bad practices: Resource allocation

42% are challenged to

allocate resources in a way

that really supports the strategy.

problems16 planning

1. Only top management is involved.

PROBLEMEmployees and stakeholders know little about the plan: It’s not theirs. Little or nothing happens.

REMEDYMake the planning process inclusive. Use surveys, town meetings, drafts, representation and sounding boards.

2. Not looking externally.

PROBLEMThe plan produces sub-optimal results, is not transformative, and can put the organization on a bad course.

REMEDYConduct an environmental scan to find relevant trends and forecasts. Use results in visioning, gap analysis, strategy making.

3. Execution resources are lacking.

PROBLEM Implementation is ineffectual or dies because people, funds and other resources are not in place.

REMEDYAssess resources. Develop strategies and action steps based on resources. Link execution to the annual budget.

16 strategic planning problems

4. Little or no progress after initial efforts.

PROBLEMImplementation starts with a bang, but then fizzles. “Don’t we have a plan somewhere?”

REMEDYUse progress reviews and communication. Spotlight execution so employees don’t fall back to operational activities.

5. No bounds.

PROBLEMIn the name of the vision everything becomes important. People go on tangents, wasting energy, attention and resources.

REMEDYRein in any initiative not on the lists of strategies and action steps, unless it should have been listed or is essential for operations.

6. Grandiosity.

PROBLEMThe vision sees a grand future, but the organization can’t reach it. Strategies can't produce needed results.

REMEDYGround the plan on stakeholder input and an environmental scan. Seek input on the draft plan and stress test it.

7. No commitment.

PROBLEMLeaders pretend to embrace planning, but don’t think real change is needed. The resulting plan sits on the shelf.

REMEDYUse credible sources and cases, benchmarking, trends and forecasts to stress the need for change and planning.

8. Complexity.

PROBLEMThe plan is filled with strategies and action steps. It’s unclear what's most important. Execution falls short.

REMEDYKeep it simple! Limit the number of strategies to a handful. Prioritize and phase action steps.

9. No coordination.

PROBLEMUnits implement using their own lenses. No coordination. Execution is disjointed and results are unintended and poor.

REMEDYShow dependencies and communicate among units. Coordinate through meetings, reports, cross teams and a dashboard.

10. The leadership is clueless.

PROBLEMLeaders have no insight on execution and results. Implementation goes off track; the organization drives off the road.

REMEDYSet up measures, a dashboard and reporting. Track execution and its effect and results through regular review sessions.

11. Habit.

PROBLEMThe habits and rhythm of people and organizations are hard to change. In spite of the plan, direction and results don’t change.

REMEDYApply an “unbalanced force.” Implementation is organizational change management. Build commitment to execution.

12. Pretending.

PROBLEMThe plan exists only to deceive others. No real plan is being executed. No change or improvement results.

REMEDYStakeholders need to appraise the plan to assure it isn’t “window dressing.” Speak up if the plan is only for "show."

13. Resisting new activities and roles.

PROBLEMKey people resist changing activities and roles. Implementation actions don’t occur, despite general buy-in.

REMEDYAssign responsibility for action steps. Visibly track implementation by party. Don’t let naysayers block needed change.

14. No marching orders.

PROBLEMPeople, teams and units are unclear about their role in execution. Strategies that look good on paper don’t get implemented.

REMEDYDevelop and cascade specific action steps for all organizational levels and units.

15. The unexpected.

PROBLEMSomething big and unanticipated occurs, e.g. 9-11. The plan won’t work or the vision is not obtainable or desirable.

REMEDYUse scenario planning to game out responses to likely situations. Restart planning from where the current plan is derailed.

16. One and done.

PROBLEMImplementation stops after the first year. The investment in planning is squandered. The level of change is minimal.

REMEDYTreat strategic planning and implementation as a core process. Build annual assessment and re-planning into the plan.

decision making

the biggestproblem:

Rational Decision Making

Decision making process we were taught

"Satisficing" Decision Making

Area of bounded rationality

A more realistic decision making process

Epistemic arroganceWhat we know influences decisions

Limits to our knowledge

Undecidability

Leap of faith needed because

we never can know enough

Decisions are always a leap of faith

Undecidability

“Strategic decisions are always about action undercontingency and uncertainty” Andreas Rasche

UnknowabilityWe can never know enough

Unknowability

“Not only must the person taking the decision not know everything… the decision must advance towards a future which is not known,

which cannot be anticipated” Jacques Derrida

Problems seeing the futureDecisions are about the future

Problems seeing the future

Problems seeing the futureMental traps lead to bad decisions

Errors, biases, shortcuts,

fallacies and traps that lead us into making bad decisions

Psychological

Perception

Memory

Physiological

Social

Problems seeing the futurePsychological traps

“Processing problems”

Errors occurring as a result of our

cognitive biases and mental shortcuts

that can lead to systematic deviations

from logic, probability or rational choice.

Problems seeing the future165 psychological trapsAdaptation level Ambiguity effect Anchoring effect Anecdotes before data Availability Heuristic Backfire effect Bad news avoidance Belief bias Belief bias butterfly effect Buyer's Stockholm Syndrome Categorization Choice blindness Choice overload Choice-supportive bias Cognitive dissonance avoidance Commitment heuristic Confirmation bias Conflicts Create Productive Change

Trap Conservatism (Bayesian) Consistency bias Cumulative advantage Current Moment Bias Decision paralysis Decoy effects Default option Denomination effect Denominator neglect Disconfirmation bias Distinction bias Distinction bias Dunning–Kruger effect Duration neglect Egocentric bias Ellsburg paradox Emotion Endowment effect Epistemic arrogance Escalation of commitment Exaggerated expectation Experimenter's or expectation bias

Fading affect bias False causality Familiarity heuristic Focalism Focusing effect Force Can Do It Trap Forer effect or Barnum effect Forever Changeless Trap Framing Frequency illusion Functional fixedness future blindness Hard–easy effect hindsight bias Hostile media effect Hyperbolic discounting IKEA effect Illusion of certainty Illusion of control Illusion of external agency Illusion of truth effect Illusion of validity Immune neglect Impact bias Impulsivity inability to predict impact on self and

others Inability to self assess Information bias investment trap Irrationality Isolated Problem Trap Leniency error Loss aversion Loss avoidance Matthew effect Medium-maximization Mere exposure effect Money illusion Moral credential effect Moral luck More Is Better Trap

Myopic loss aversion Naïve diversification Naive realism Narrow framing Negativity Bias No Limits Trap Normalcy bias Not invented here Not using the unconscious Observational Selection Bias Observer effects Observer-expectancy effect Omission bias Opportunity costs Optimism bias Order effect Ostrich effect Outcome bias Overconfidence effect Paradox of choice Pessimism bias Placebo effect Planning fallacy Positive expectation bias Positivity effect Post hoc interpretation Post purchase rationalization Power Preferential attachment Present bias Primacy effects Priming effects Primus inter pares effect Probability matching Probability neglect Process-Event Trap Pro-innovation bias Pseudocertainty effect Recency effects Reframing Regret Relativity trap

Representativeness Heuristic Restraint bias Rewards Rhyme as reason effect Risk blindness Risk averse Risk compensation / Peltzman effect Risk seeking Scandal of prediction Scarcity Scarcity heuristic Scope neglect Selective perception Self deception Self-serving bias Semmelweis reflex Serial position effects Similarity matching Single Effect Trap Solve It by Redefining It Trap Status-Quo Bias Stereotypes Subject-expectancy effect Subjective validation Suggestibility Survivorship bias System justification Telescoping effect There's Got to Be a Winner Trap Time-saving bias Tournament effect Unawareness of cognitive process Unawareness of thought Underestimating the importance of

luck Unit bias Unknowledge Useless introspection Vivid representation Well travelled road effect Zero-risk bias Zero-sum heuristic

Problems seeing the futureExamples of psychological traps

•When we are trying to determine how likely something is, we often base such estimates on how easily we can remember similar events happening in the past.

Availability Heuristic

•We subconsciously begin to ignore or dismiss anything that threatens our world view, since we surround ourselves with people and information that confirm what we think.

Confirmation Bias

•We tend to make risk-averse choices if the expected outcome is positive, but to make risk-seeking choices to avoid negative outcomes.

Pseudocertainty Effect

•We tend to overweigh or underweigh evidence based on the order in which it is presented. But if the order is meaningless, it should not affect our strength of belief.

Serial Position Effects

•Being apprehensive of change, we often make choices that guarantee things will remain the same, or change as little as possible. This leads to the often unwarranted assumption that another choice will be inferior or make things worse.

Status-Quo Bias

Problems seeing the futurePerception traps

“Input problems”

Effects and errors in the organization,

identification, and interpretation of sensory

information we use to represent and

understand the environment around us.

Problems seeing the future15 perception traps

Change blindness

Cheerleader effect

Contrast effect

Diminishing sensitivity

Epistemic opacity

Fundamental cognitive error

Illusory correlation

Inattention blindness

Inverse problem

Pareidolia

Pattern recognition

Peak–end rule

Platonicity error

Salience biases

Vivid descriptions

Problems seeing the futureExamples of perception traps

•Sometimes we don't recognize that we've made an interpretation of information that could have been interpreted in many other ways.

Fundamental Cognitive Error

•We tend to perceive not the sum of an experience but the average of how it was at its peak (e.g. pleasant or unpleasant) and how it ended.

Peak-End Rule

•Colorful, dynamic, or other distinctive stimuli disproportionately engage our attention and accordingly disproportionately affect our judgment.

Salience Biases

• We often fail to notice unexpected stimuli in the world around us.

Inattention blindness

•We have difficulty recreating a past state from current results. We tend to think that the form we have in our mind is the one we are observing, yet multiple theories and distributions can fit a set of data.

Inverse Problem

Problems seeing the futureMemory traps

“Storage and recall problems”

Errors from the process in which

information is encoded, stored, and

retrieved from our brain.

Problems seeing the future25 memory traps

Bizarreness effect

Change bias

Conservatism or Regressive bias

Context effect

Cryptomnesia

Deese–Roediger–McDermott

paradigm

False memory reconstruction

Generation effect (Self-

generation effect)

Humor effect

Lag effect

Leveling and Sharpening

Memory bias

Misinformation effect

Modality effect

Mood-congruent memory bias

Next-in-line effect

Part-list cueing effect

Picture superiority effect

Rosy retrospection

Self-relevance effect

Spacing effect

Von Restorff effect

Zeigarnik effect

Zipf's law

Problems seeing the futureExamples of memory traps

•Confidence is not a good indicator that our memory is accurate. False memories can be expressed with confidence, detail and emotion, with the same characteristics as true memories, and can mislead us into thinking that something is real when it's not.

False Memory Reconstruction

•We tend to remember high values, likelihoods, probabilities and frequencies as lower than they actually were and lower ones as higher than they were. Often, memories are not extreme enough.

Regressive Bias

•We remember self-generated information best. We are better able to recall memories of statements we have made than similar statements made by others.

Generation Effect

•Our predictions of future experiences are often based on memories of related past experiences. Because memory is fallible, this creates biases in our predictions.

Memory Bias

• Our memories of the past often paint it as better than it really was.Rosy Retrospection

Problems seeing the futureLogic traps

“Reasoning problems”

Errors arising from making fallacious

arguments that are deductively invalid or

inductively weak or that contain an unjustified

premise or ignore relevant evidence.

Problems seeing the future80 logic traps

100% effect

A priori problem

Ad hoc rescue

Affirming the consequent

Anecdotal evidence

Appeal to ignorance

Appeal to money

Base-rate neglect

Be fair….in the middle

heuristic

Begging the question

Biased generalizing

Black Swan blindness

Certainty bias

Circular reasoning

Clustering illusion

Common cause

Concorde fallacy

Confusing an explanation

with an excuse

Congruence bias

Conjunction fallacy

Converse Accident

Denying the antecedent

Exclusive alternatives trap

Expert problem

Explosive forecasting

difficulty

Fallacy of origins

Fallacy of silent evidence

Fallacy of virtues

False analogy

False dilemma

Faulty comparison

Faulty generalization

Fooled by randomness

Gambler’s fallacy

Genetic fallacy

Group think

Guilt by association

Hasty generalization

Hot-hand fallacy

Inconsistency

Inductive conversion

Insensitivity to sample size

Insufficient statistics

Interview illusion

Irrational escalation

Jumping to conclusions

Lay rationalism

Less-is-better effect

Line-drawing

Ludic fallacy

Narrative fallacy

Non Sequitur

Not averaging

Not thinking statistically

Opposition

Persistence of commitment

Prediction with limited

experience and information

Pro rata bias

Problem of induction

Prosecutor's fallacy

Regression

Regression toward the mean

Retrospective distortion

Reversing causation

Reversion to the mean

Round trip fallacy

Rule-based decisions

Sample bias

Selection bias

Selection factors

Self reference problem

Source confusion

Statistical regress argument

Subadditivity effect

Subjective probability

Sunk-cost fallacy

Texas sharpshooter fallacy

Traditional wisdom

Type 1 error

Type 2 error

Undecidability

Problems seeing the futureExamples of logic traps

•We are vulnerable to overinterpreting facts and prefer stories. We find it difficult to look at a set of facts without seeing an explanation for them or forcing a logical relationship among them. This wrongly increases our impression of understanding.

Narrative Fallacy

•When we assess the probability of a future event, we tend to ignore less conspicuous background evidence in favor of the case-specific information obvious at the moment.

Base-Rate Neglect

•We engage in faulty reasoning when we require or accept that a choice must be made among a short menu of options.

False Dilemma

•We tend to persist in achieving a goal due to our already committed investment, even when the prognosis is poor. By continuing, we justify our previous decision and avoid loss based on the confidence we made a good bet, whether or not this is the case.

Sunk-Cost Fallacy

•We don't reconize that systems involving luck revert to the mean for the group over time. An extreme outcome is more likely to be followed by one closer to the average.

Reversion to the Mean

Problems seeing the futurePhysiological traps

“Limbic system problems”

Mental processing and judgment

shortfalls caused by physical factors that

affect the function of our brain, such as

arousal, depression and fatigue.

Problems seeing the future5 psychological traps

Chemical arousal

Decisions fatigue

High stress

Sleep deprivation

Stimulated limbic system

Problems seeing the futureExamples of physiological traps

•Our brain gets tired just like a muscle. When our brain is exhausted, we tend to make worse decisions.

Decision Fatigue

•Use of alcohol or drugs (prescription, over the counter, in food - such as caffeine in coffee - or recreational) can lead to a higher than normal rate of perception errors and bad decisions.

Chemical Arousal

•Stress releases chemicals into our blood stream that cause us to make greater than normal perception errors that can lead to bad decisions.

High Stress

•Getting too little sleep can lead to a higher than normal rate of perception errors and bad decisions.

Sleep Deprivation

•A stimulated limbic system, whatever the cause, can lead to a higher than normal rate of perception errors and bad decisions.

Stimulated Limbic System

Problems seeing the futureSocial traps

“Interpersonal problems”

Biases and errors stemming from how we

view and interact with the people around us,

with causes including social categorization,

in-group favoritism, prejudice,

discrimination, and stereotyping.

Problems seeing the future45 social traps

Above average effect

Actor–observer bias

Authority

Availability cascade

Bandwagon Effect

Bias blind spot

Bystander apathy

Curse of knowledge

Defensive attribution

hypothesis

Egocentric bias

Empathy gap

Essentialism

Extrinsic incentives bias

False consensus effect

Foot-in-the-door technique

Fundamental attribution error

Group attribution error

Group polarization effect

Halo effect

Identifiable victim effect

Illusion of asymmetric insight

Illusion of transparency

Illusory superiority

Independent Self Trap

Inevitable Antagonism Trap

Ingroup bias

Just-world hypothesis

Lake Wobegon effect

Liking

Low-ball procedure

Naïve cynicism

Negativity effect

Outgroup homogeneity bias

Projection Bias

Reciprocation

Sense of relative superiority

Shared information bias

Social comparison bias

Social desirability bias

Social proof heuristic

Spotlight effect

Superiority bias

Trait ascription bias

Ultimate attribution error

Worse-than-average effect

Problems seeing the futureExamples of social traps

•We tend to bond with our in-group and to be suspicious, fearful, and disdainful of others. We overestimate the abilities and value of our in-group members over others.

Ingroup Bias

•We find it difficult escape the bounds of own consciousness and preferences. We tend to assume most people think just like us — even without justification for it.

Projection Bias

•Most of us demonstrate flawed self-assessment skills. We tend to overestimate our own abilities, competencies and characteristics, and underestimate our undesirable qualities, especially as compared to how others assess us.

Illusory Superiority

•Our collective belief in something can gain more and more plausiblity through a self-reinforcing process of increasing public repetition - even without more evidence.

Availability Cascade

•A group tends to focus more on discussing information that all members are familiar with and less on discussing information that only some members are aware of.

Shared Information Bias

Problems seeing the futureTraps led Yahoo to spurn Google – twice!

Problems seeing the futureTraps set the stage for a disaster

Problems seeing the futureTraps caused Custer’s catastrophic loss

Problems seeing the futureTraps doomed a Mars mission

Problems seeing the futureDecision making tools

• We use two mental systems to make decisions: System 1- Quick, primitive, and automatic, e.g. fight or flight reaction. System 2 - Careful, calculated and conscious. Performs complex computations, exercises self control.

• For strategy, slow down and engage System 2. Impulsive, reactive decision making has no place in strategy creation and execution.

Use System 2 to make strategy decisions

• Our natural tendency is to immediately fit facts to a simple story: the "narrative fallacy."

• "Favor experimentation over storytelling, experience over history, clinical knowledge over theories" (Taleb)

• Seeking more evidence in lieu of forming an opinion of the situation can avoid jumping to the wrong conclusion and over-reliance on anecdote.

• "It is a capital mistake to twist facts to suit theories, instead of theories to suit facts." (Sherlock Holmes)

Look for evidencebefore hypothesizing

• Question your intuition. "The voice of reason may be much fainter than the loud and clear voice of an erroneous intuition.” (Kahneman)

• Find another scenario to explain the evidence. Seeking alternative explanations can help avoid traps such as group think and hasty generalization.

• "We know…that for people to let go of information they have initially encoded, the best way to achieve that is to provide them with an alternative explanation for the same situation." (Lewandowsky)

Look for an alternative explanation

• We can be "primed" by an initial piece of information (valid or not) in making comparisons and decisions.

• Comparing an anchor value to options only shows the differences between options, not each one’s worth.

• Recognize anchoring to avoid bait and switch, decoy effects and other framing traps.

• Anchoring on "a likely initial elementary event...leads to unwarranted optimism in the evaluation of the likelihood that a plan will succeed or that a project will be completed on time.” (Kahneman and Tversky)

Recognize and eliminate anchoring

• We avoid averaging in decision making, in part due to traps such as authority (leader knows best), false consensus (we think alike), and illusory superiority (I'm smarter).

• Averaging multiple judgments "yields an estimate more accurate than its individual components, on average." (Krueger and Chen)

• Accuracy is better even when averaging two estimates by the same person. “As aggregation raises accuracy, “correspondence rationality” is enhanced and the risk of being wrong is reduced." (Krueger and Chen)

Average multiple judgments

• The base rate is prior knowledge about the probability of something (e.g. 50% of all commercial airline crashes with fatalities were caused by pilot error).

• "Base rate neglect" is ignoring the base rate in making assumptions and predictions (e.g. assuming Malaysian Airlines flight 370 crashed due to sabotage ignores the base rate: The first assumption should be pilot error).

• In decision making, people often focus on irrelevant information rather than considering prior knowledge of the probability that something will occur.

Use the base rate

• In systems involving luck (think investing), results over time cluster around the mean (average) outcome.

• Not looking for "reversion to the mean" is a trap: We see an outcome that in reality is extreme and unlikely to occur again, but we tend to predict it will recur.

• We don't recognize that with some luck involved the next outcome will most likely be "average," not extreme (e.g. above average performance for three years will more likely be followed by average performance the next year, all things equal).

Consider luck

• When developing a vision or strategies, avoid the false dilemma trap - requiring or accepting that a choice must be made among limited options. Use a technique such as brainstorming to develop more options.

• But beware of the paradox of choice: Too many options can inhibit decision making (e.g. when seniors are offered many Medicare drug plans, they may “choose on the basis of irrelevant features, because relevant features are too complex to evaluate”). (Schwartz)

• Use a multi-voting technique such as N/3 to narrow a long list of options.

Generate options, but don't overload

• “…the smartest thing you might ever do is bring people together who will inspect your thinking and who aren't afraid to challenge your ideas." (Fast)

• Power can lead to bad decision making. It's "a self-esteem enhancing drug that surges through the brain telling you how great your ideas are. This leaves the powerful vulnerable to making overconfident decisions that lead...to dead-end alleys." (Galinsky)

• Having others inspect our thinking can counter traps such as naive realism, self deception, the Dunning-Kruger and ostrich effects, as well as logic errors.

Have others challenge your thinking

• The meaning of a situation or set of circumstances comes from the frame in which we view it. Reframing the "facts" gives the situation new meaning.

• Reframing shifts reference points (e.g. anchoring) or presents a situation or choices differently. It changes our approach and offers new possibilities for action.

• To reframe, look at it another way. Reverse the meaning (e.g. "empty" means "ready to fill"). Redefine, emphasize or downplay words and actions (e.g. an impossibility can become a possibility).

Reframe for change

• A sunk cost is already paid: It can't be recovered.

• In the sunk cost fallacy, we consider past costs - not future costs and benefits - to decide if we will continue an activity or invest more, even in a losing proposition.

• It's "a wasteful loop of behavior because of your fear of loss."(McRaney) "People tend to have a much stronger preference for avoiding losses than for acquiring gains." (Kahneman and Tversky)

• Escalation of commitment to an activity based on sunk costs can block needed change and limit innovation.

Discount sunk costs

• We often don't recognize that when we do anything we are paying an “opportunity cost” for our choice, because we could have done something else instead.

• Opportunity costs are not only financial; they can involve output, time, pleasure - any benefit or value.

• We don't ask: “Do we want to do something else?”

• The opportunity cost of a choice is the value of the next best alternative, given our limited resources.

• Considering opportunity costs in strategy decisions helps ensure wise use of scarce resources.

Consider opportunity costs

• Statistical analysis can give false conclusions due to loose confidence intervals, skewed distributions, bad assumptions and data, and unrepresentative samples.

• Instead, use Bayesian inference: Identify probabilities with degrees of beliefs (e.g. If rain has 0.9 probability, consider the possibility of rain extremely likely).

• Bayesians revise predictions in light of new evidence. Bayesian analysis assigns a probability to each possible outcome using available evidence. With more evidence, the probability for each outcome is revised.

Be a Bayesian

• "Leaders must direct a learning process from which they also learn." (Beer and Eisenstat)

• Strategy creation and execution is a major exercise in learning and change.

• Planning as group learning combats shared information bias and narrow framing (evaluating options singularly rather than as part of a portfolio).

• "Learning in the process of strategic planning leads to increased effectiveness of anticipation and implementation." (Schäffer and Willauer)

Lead a learning process

• Use a checklist to assure the quality of strategy decisions. Assess the quality and independence of information, the possibility of group think, the leader's influence and how group consensus was postponed and judgments were kept independent. (Kahneman)

• Simulate or “war-game” proposed strategy "to identify risks and opportunities and facilitate change." (Paton)

• Do a plan pre-mortem to see how it might fail. (Klein)

• Learn from your mistakes: Keep score on the quality of your strategy decisions. (Kahneman)

Check it off, simulate, keep score

Lee Crumbaugh, SMP

President, Forrest Consulting, Glen Ellyn, IL, USA (Chicago)

President, Association for Strategic Planning (2014-2016)

leec@strategicbusinessleader.com

www.forrestconsult.com

Presenter

Why Strategy Fails...and How You Can Make it Work

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