#574              Innovative Leader     Volume 12, Number 4                    April 2003

Blunders Leading to Failure
by Paul C. Nutt, Ph.D.

Dr. Nutt is professor of Management Sciences and Public Policy and Management at Ohio State University.  He is author of Why Decisions Fail: Avoiding the Blunders and Traps That Lead to Debacles (Berrett-Koehler, San Francisco, 2002).  

Have you experienced many failures recently?  Probably so.  The startling rate of failure prompts questions.  Why is there so much failure?  What causes the failure?  Is corrective action possible?  Answers can be found in three blunders:  failure-prone decision-making practices, premature commitments, and time and money spent on the wrong things.  Bad practice, rush to judgment, and poor allocation are called blunders because they are made so often, with so little reflection. Let’s see how blunders arise.

1. Failure-Prone Practices

Two of every three decisions use failure-prone practices.  Decision makers seem oblivious to the poor track record of these practices.  Top managers can recall their decision-making successes, and their failures, but they seldom, if ever, systematically study them.  Lacking this analysis, the connections of decision-making practices to results are apt to be misunderstood.  Perfectly good ways of making decisions are discarded, and others with a poor track record continue to be used.  People spend little time thinking about how to make a decision.  Without help in identifying what does and does not work, the widespread use of failure-prone practices will continue.  There are several reasons for this.  Let’s consider a few.

Decision-making practices with a good track record are commonly known, but uncommonly practiced.  Nearly everyone knows that participation prompts acceptance, but participation is rarely used.  There are subtleties.  Managers often look for the cause of a jump in cost.  Telling people what is wanted as a result, such as lower cost, produces better results than seeking the cause of the cost increase.  Managers drawn to finding and removing problems elicit blame.  The problem, such as labeling costs as unacceptably high, alerts people that blame will be dispensed and prompts them to take defensive action.  Energy is directed away from finding answers and funneled toward protecting one’s back.  Managers that indicate what is wanted (lower costs) liberate subordinates to look for answers. 

Failure is often placed at the doorstep of things beyond a manager’s control: draconian regulations imposed by government, unexpected budget cuts by higher ups, or loss of market share due to fickle customers.  Failures can result when regulations run up costs, when budget flexibility is lost, and when customer preferences shift and wreck a marketing plan.  But the decision-making practices followed, such as issuing and edict or using a self-managed group, are more important.  Contingency theory, as it is called, in the management literature, argues for the selection among decision-making practices when certain situations arise, such as using an edict to take rapid action in a crisis.  But is best practice contingent upon the decision situation such as decisions that prove to be difficult, rushed, or particularly weighty?  In a word: No.  Best practices work regardless of the situation being faced. 

2.  Premature Commitments

Decision makers often jump on the first idea that comes along and then spend years trying to make it work.  This is a key cause of failure, which decision makers fail to see that they fail to see.  Decision makers, like most people, fear the unknown and seek self-gratification.  Decision making can be a lonely endeavor in which a longing to meet one’s responsibilities and the failure to do so elicits fear.  When answers are not readily available, grabbing onto the first thing that seems to offer relief is a natural impulse.  This helps one set aside fears but encourages a rush to judgment.  Self-gratification is fed by ego, lust for power, and greed.  This push from fear and pull toward reward make it difficult for a decision maker to step into the unknown and to remain there until insight emerges.  These urges mount as time pressure increases.  Decision makers take shortcuts when this pressure gets intense.  Looking for a good idea is set aside for homilies, such as, “Why rediscover the wheel when someone may have done it for you?”  One response is to copy the practices of a respected organization to “get on with it.”  This is rationalized as being timely and pragmatic.  But shortcuts lead to unanticipated delays as decision makers attempt to convince onlookers that the company’s interests, not their own, are being served and as retrofits are made.  A rush to judgment is seductive and deadly and can be headed off.

3.  Wrong-Headed Investments

Blunders are made when decision makers use their time and money for costly evaluations and little else.  To make matters worse, these evaluations are often defensive—carried out to support an idea someone is wedded to, trying to show that it will work.  The urge to demonstrate the value of your idea can get intense.  Expensive evaluations are then needed to show that your idea is useful or doable or both, stressing economics.  Critics see such evaluations as pointless, carried out to sanctify what you want to do or must do to satisfy others.  This creates an impression that your motives are less than pristine.  Others, suspecting a hidden agenda, become suspicious.  The appearance of a vested interest, even if there is none, raises questions.  To fend off these questions, evaluation expenditures increase as more justification is demanded.  This persists even when the defensive evaluation is avoided.  Decision makers spend vast sums to uncover the cost of an idea, but little on anything else.  Little time or money is spent to investigate claims, set objectives, search for ideas, measure benefits and risk, or manage social and political forces that can derail a decision.  Decision makers blunder when they fail to see any of this as a worthy undertaking.

Illustrating the Blunders

In a medium-sized firm with strong growth over a ten-year period, key managers focused on sustaining this growth and spent little on their internal systems designed during an earlier, simpler time.  Customer complaints about tardy shipments, caused by items that were out of stock, were dismissed as “growing pains.”  This changed when a vice president received a phone call from an important customer blasting the company for its lax attitude toward filling orders.  The caller claimed that a well-run company would have an up-to-date production planning system and that such systems never have stock-outs.  The vice president, stunned by a respected customer being so dissatisfied, became a missionary for this type of system.  After some lobbying, the CEO asked for a briefing and the VP sold the idea to the CEO.  Both saw the vehemence expressed as demanding action.  The CEO suggested that someone outside the company be hired as soon as possible to revamp the ordering system, and this directive was given to the VP.

To act quickly, the VP contacted the complaining customer and asked for a recommendation about whom to recruit.  The recommended individual was hired the same day, at a very competitive wage, and named “manager of production planning.”  The new hire received a generous budget to set up a new department and make the needed changes.  The new manager analyzed the current system to uncover problems and solved each problem by adapting business practices that he had used successfully in his prior job.  The new manager then wrote memos to people telling them what to do to make the plan work.  Despite all this, the stock-outs continued.  The CEO was furious about the lack of results, the cost incurred, and the disruption that the company had endured.

Further study revealed that stock-outs were caused by delays in the flow of information due to unnecessary hand-offs between layers of management when filling orders, which slowed down order filling and increased the chance of error.  What could have been done to uncover this and find a corrective action?  Company officials failed to investigate the claim prompting action.  Lingering here to look for the causes of the stock-outs, company officials could have discovered that inefficient and unneeded steps were causing delays and errors in the flow of information—a very different arena of action from that selected. 

What about setting objectives?  No targets were set.  “No stock-outs” was believed to be an inherent part of an up-to-date system.  Note the subtlety here.  Decision makers thought they were clear about what they wanted as a result, but they were not.  A single complaining customer had prompted action.  Note the premature commitment.  Artificial time pressure got the best of company managers, and they rushed to make a judgment.  As pressure appeared to mount, behavior became even more bizarre.  The need for a quick fix by hiring someone new was never questioned.  Was there a better way to get an up-to-date system?  How about a vendor search?  Decision makers knew about this but went for the quick fix instead.  Commonly known, uncommonly practiced. 

The new hire used his newfound power to tell people what to do.  He knew about participation but saw things as too urgent to have committees sitting about when things needed to be done.  This actually slowed things down.  His use of an edict to take action prompted resentment that derailed the adoption of his ideas.  Through it all, little time or money was spent on anything but trying to make the customer’s idea work.

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