Why Decisions Fail

WHY DECISIONS FAIL This page intentionally left blank WHY DECISIONS FAIL avoiding the blunders and traps that lead to debacles Paul C. Nutt Why Decisions Fail Copyright © 2002 by Paul C. Nutt All rights reserved. No part of this publication may be reproduced, distributed, or transmitted in any form or by any means, including photocopying, recording, or other electronic or mechanical methods, without the prior written permission of the publisher, except in the case of brief quotations embodied in critical reviews and certain other noncommercial uses permitted by copyright law. For permission requests, write to the publisher, addressed “Attention: Permissions Coordinator,” at the address below. Berrett-Koehler Publishers, Inc. 235 Montgomery Street, Suite 650 San Francisco, California 94104-2916 Tel: (415) 288-0260, Fax: (415) 362-2512 www.bkconnection.com Ordering information for print editions Quantity sales. 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First Edition Paperback print edition ISBN 978-1-57675-150-3 PDF e-book ISBN 978-1-60509-149-5 2008-1 Interior Design & Illustration: Gopa Design & Illustration Copy Editor: Kay Mikel, WordWorks Proofreader: Henrietta Bensussen Indexer: Paula C. Durbin-Westby Production: Linda Jupiter, Jupiter Productions Cover design: Richard Adelson For Frank, Margaret, Charles E., Isabel, Nancy, Richard, Suzi, Charles A., and Tim This page intentionally left blank Contents Preface The Decision Debacles Chapter 1: Chapter 2: Chapter 3: Chapter 4: Chapter 5: Chapter 6: Chapter 7: Chapter 8: Chapter 9: Blunders that Launch a Decision Debacle Traps that Catch Decision Makers Decision-Making Processes Prone to Success and Failure Traps in Failing to Lead the Effort with Agreed-Upon Claims The Traps in Unmanaged Social and Political Forces Traps in Misleading Directions Traps in Limited Search and No Innovation The Traps in Misusing Evaluation Ethical Traps ix xv 1 23 41 61 87 111 131 165 197 227 253 265 276 Chapter 10: Learning Traps Chapter 11: The Lessons: Avoiding the Blunders and Traps Appendix 1: The Decision-Making Research Project Appendix 2: Estimating Risk vii Appendix 3: Citations for the Debacles References and Selected Readings Index About the Author 291 305 319 331 Preface eople fear a decision that can turn into a debacle—a decision riddled with poor practices producing big losses that become public. This book reveals how a decision can turn into a fiasco and how to prevent this from happening. For more than twenty years I have been studying how decisions are made, writing about what works, what doesn’t, and why. The key finding is startling—decisions fail half of the time. Vast sums are spent without realizing any benefits for the organization. Failures are traced to three blunders and seven traps that ensnare decision makers. Avoiding these blunders and the traps that they set will cut the failure rate significantly. Thoughtful managers, students of management, and others providing advice and services to managers should find the lessons derived from my two-decade-long research effort useful. The book is directed toward a practitioner audience of midlevel to upper level managers in for-profit and nonprofit organizations, those who aspire to these positions, and others who serve these groups. Those in executive education and master’s of management programs, such as MBA, MHA, MPA, may also find the book useful. The book is very different from those found in the market today. The scope of the research effort that stands behind the recommendations is unprecedented. To draw conclusions, four hundred decisions made by top managers in private, public, and nonprofit organizations across the United States, Canada, and Europe were collected and analyzed over a period of twenty years. Appendix 1 provides a description of this research effort along with a list of the papers drawn upon to fashion my recommendations. To ensure that the list of things to do and things to avoid are both real and compelling, my research is limited to important decisions top managers frequently encounter. The research spotlights decisions made by real people who experience real consequences for their actions. The decisions ix P x ▼ W H Y D E C I S I O N S FA I L involve choices top managers often face—what to do about products or services, pricing and markets, internal operations, personnel policy, technology acquisition, reorganizations that stem from mergers and acquisitions, and control systems. Fifteen decision debacles, costly decisions that went very wrong and became public, are pulled from my database to illustrate key points. The debacles provide vivid illustrations of what went wrong and what could have been done to turn things around. A list of the debacles follows the preface. Some of the myths about decision making that have crept into the folklore of management are dispelled. Failure cannot be put at the doorstep of events we cannot control, such as fickle customers who are constantly changing their buying habits. Failure stems from blunders that point unsuspecting decision makers toward traps that ensnare them. A key blunder is using failure-prone decision-making practices, called tactics. Failure-prone tactics are used in two of every three decisions. Some decision makers do quite well, and the tactics they apply provide exemplars that argue against some well-accepted decision-making practices, such as problem solving. Best practice tactics and how these tactics can be substituted for commonly used tactics that have a poor track record are offered. Failure also stems from the order in which these tactics are used and which is emphasized. Most decision makers stress economic rationality in the tactics they employ—what things cost—and some stress political rationality, putting a positive spin on things. The book will show you how tactics that stress logical rationality and ethical rationality can be added to the mix, how to blend political considerations with logical and ethical ones, when economics misleads you, and how to include economics in useful ways. Each chapter describes the tactics that are used in one process stage. The stages follow the sequence found to work best in my research. Chapters begin with the description of a debacle, followed by a discussion of what went wrong and why, probing to find causes and remedies. Then tactics that have a good track record are offered, documenting their success and how to apply them to decision making. Chapter 1 presents the three blunders found in all debacles: rushing to judgment, misusing resources, and applying failure-prone tactics. Each blunder is illustrates with five decision debacles: EuroDisney’s location, the new Denver International Airport, Nestle’s marketing of infant formula, P R E FAC E ▼ xi Ford’s unwillingness to recall the Pinto, and BeechNut’s misrepresentation of its apple juice product. Chapter 2 shows how the three blunders set traps that unsuccessful decision makers fell into and successful ones dodged. The EuroDisney, DIA, Nestle, Pinto, and BeechNut debacles are drawn upon to show how the seven traps waylaid decision makers. Each of the seven traps is discussed in a subsequent chapter. Chapter 3 illustrates two decision-making processes—one that points toward success and one toward failure. An