HALF OF BUSINESS DECISIONS FAIL BECAUSE OF MANAGEMENT'S BLUNDERS, NEW STUDY FINDS
COLUMBUS, Ohio - With the rash of recent corporate scandals, investors and others wonder if company managers are able to make sound decisions.
The answer will not soothe your nerves. About half of all business decisions end in failure, according to a new book that summarizes a multi-decade study of real-life organizational decisions.
"Vast sums of money are spent to make decisions that realize no ultimate value for the organization," said Paul Nutt, professor of management sciences at Ohio State University's Fisher College of Business, "and managers make the same mistakes over and over again as they formulate the decisions."
Nutt said his research found that failed decisions share three common blunders. Managers rush to judgment, misuse their resources, and repeatedly use failure-prone tactics to make decisions.
Nutt is author of the new book Why Decisions Fail: Avoiding the Blunders and Traps that Lead to Debacles. (Berrett-Koehler, 2002).
The book reports on Nutt's unique database of more than 400 actual decisions made by top managers in private, public and nonprofit organizations across the United States, Canada, and Europe. For more than 20 years, Nutt collected decisions, selected by the top officials of the organizations he studied, and systematically analyzed them. His research includes a wide variety of decisions, from purchasing equipment to renovating space to deciding which products or services to sell.
Nutt found that about half of the decisions were not fully used after two years - one of his key indicators of failure. One-third were never used. Nutt believes these failure figures would be even higher if it were possible to study a random selection of decisions.
The common theme in failed decisions is that most seem preventable, according to Nutt. "Failure cannot be blamed on events we can't control such as fickle customers and bear markets," he said. "Failure stems from blunders that point unsuspecting decision makers toward traps that ensnare them."
In the book, Nutt reviews decisions that turned into debacles - decisions riddled with poor practices that lead to big losses and public notoriety. His book offers the story behind the story of EuroDisney, the Firestone tire recall, the Denver International Airport, Quaker's acquisition of Snapple, Shell's disposal of the Brent Spar oil platform, and many other equally devastating decision debacles. The garden-variety failures made at organizations every day - including several examined in the book -- were found to have the same features as the debacles, except the notoriety.
Nutt's book identifies the three deadly blunders that led to failed decisions and debacles.
The rush to judgment blunder crops up when managers identify a concern and latch upon the first remedy that they come across.
Managers seem to believe that concerns and solutions come in pairs. They fear the threat of an unresolved concern -- with good reason as higher-ups are quick to question them and pressure them for an answer," Nutt said. "As the pressure mounts, managers find it nearly impossible not to grab the first solution that they find."
However, Nutt found that failure is four times more likely when decision makers embrace the first idea they come across without taking the time to investigate what is motivating action and possible remedies.
The second blunder -- misuse of resources - occurs when managers spend their time and money during decision making on the wrong things, he said. For example, decision makers may spend millions of dollars to defend a hastily selected idea with an evaluation and little or nothing on other aspects of decision making, such as gathering intelligence about the concerns prompting action, finding who may block action, setting expectations, and uncovering actions that can meet their expectations.
The third blunder is applying failure-prone tactics to make decisions. Nutt found that two-thirds of all decisions are based on failure-prone tactics and success will increased by as much as 50 percent when better tactics are used.
For example, most managers are aware of the importance of getting others to participate in the decision-making process. And in fact, decisions that draw on participation to foster implementation succeed more than 80 percent of the time. However, his research found that participation is used to implement only one of five decisions.
Less successful decision-making tactics - when a manager simply uses power or persuasion and expects employees to follow - were successful in only one of three decisions. But such tactics are the most-used forms of implementation, being applied in 60 percent of the decisions he studied.
Nutt's research shows that managers who make any of these three blunders find themselves caught in one, and sometime several, traps. The managers got ensnared by traps that arise from:
"When caught in any of these traps, managers are apt to make a bad call that makes failure likely and can become a debacle," he said.
Nutt said many managers make bad tactical choices because they believe following recommended decision-making practices would take too much time and demand excessive cash outlays.
"Following good decision-making practices actually costs very little, especially when you compare it to the costs of dealing with the consequences of a debacle," he said.
Editor's Note: To request a review copy of Why Decisions Fail, please contact Ken Lupoff at Berrett-Koehler Publishers, (415) 743-6469 or firstname.lastname@example.org