by Pawel Motyl
There is some dispute over whether or not this experiment ever actually took place, and the source most often cited in support of it is, in fact, about something else entirely. 8 However, as sixteenth-century philosopher Giordano Bruno so beautifully expressed it, se non è vero, è molto ben trovato. 9 Even if the experiment with the monkeys and the ladder never happened, the actual learning mechanism for specific group behaviors is widely applicable and affects every single one of us.
The underlying phenomenon is called acculturation—or the assimilation of a new model of behavior. In a business context, this means a new employee must quickly learn and adopt the typical behaviors, attitudes, and beliefs of their colleagues in order to fit in and be accepted.
While the topic of organizational culture modeling has been popular in recent years and genuinely translates into more effective functioning of a company, it can have a dark side when it comes to decision-making. It involves unifying not only behaviors and attitudes, but also the manner of thinking of a team or organization. Such unification can be a truly bad advisor in the decision-making process for the same reason as the authority trap: it hinders the objective assessment of a situation.
The problem of conformity frequently begins at the recruitment stage. How so, you might ask? Imagine you’re looking for a new person for your team. The final shortlist comprises four candidates, all of whom have an impressive résumé and relevant experience and are equally competent and highly professional. During the interview, though, you realize that while you get on fine with three of the candidates, you seem to be on the same wavelength as the fourth one. You get on like a house on fire, think alike, and even use similar expressions.
So who should you employ?
The fourth person seems the obvious choice, and the majority of recruiters fall into this trap—known as cloning—of employing someone who matches their own cognitive mechanisms, who views reality similarly, processes data in the same way, and draws similar conclusions to themselves. Companies enhance the trap of conformity by encouraging employees to conform and become a cohesive group. All this comes from a fundamental misunderstanding that
a harmonious group = a tight group = an effective group
The smoother the discussion, the quicker the conclusion, the more satisfied the company is, even though the price of that harmony is poorer decisions.
Rule #4
The more everyone around insists something is impossible, the more you should check it yourself. Several times.
These two bad advisors together make one of the worst (and most commonly met) decision-making combinations. Namely, facing a black swan event that we are trying to deal with while being led by a charismatic leader of a conformist team that has recently enjoyed numerous successes (and so is highly respected and regarded within the company). For such a group, breaking away from the status quo is incredibly difficult. Above all, there seems no justification for changing the existing vision and modus operandi, because it’s been laid out by an exceptional authority and is backed up by the team’s achievements to date—a team that is additionally characterized by unanimity, where everyone agrees with everyone else. In such a setup, you won’t find constructive disagreement and the open discussion that results from it anywhere. There’s only one way the situation could be worse—if the sunk cost effect is added to the mix.
Please let me introduce our third bad advisor.
Despite what most people commonly think, Concorde wasn’t the world’s first supersonic passenger aircraft to take flight. On December 31, 1968—more than two months before the maiden flight of the Anglo-French version—the TU-144, designed by Andrei Tupolev and produced by the Voronezh Aircraft Production Association of the USSR, took to the air. The Soviets can also take credit for the first passenger aircraft to go through the sound barrier, in June 1969, four months before Concorde did the same.
Despite losing that particular race, though, Concorde ultimately won the fame, completely eclipsing the TU-144, which, despite all its initial success, was rapidly withdrawn from the commercial market. There were many reasons behind this decision, not least that the aircraft was seriously underdeveloped and therefore unreliable, which led to two catastrophes, the first of which occurred during the 1973 Paris Air Show and resulted in long-term damage to the aircraft’s public image. Furthermore, the Soviets, basking in the propagandistic success of having beaten two countries from the capitalist bloc, were aware of the high costs of maintaining and commercially exploiting the plane. They therefore waved goodbye to the TU-144 in 1978 with few regrets, after barely three years’ operation and only fifty-five scheduled flights completed.
The situation with Concorde was totally different. Lavishly financed by the governments of the UK and France, the manufacturers—the British Aircraft Corporation and Sud Aviation—consistently promoted their aircraft as heralding a breakthrough in transatlantic flight and rapidly attracted around seventy orders from over a dozen airlines. In addition to Air France and BOAC (British Overseas Airways Corporation, renamed British Airways in the 1970s), Lufthansa, Japan Airlines, American Airlines, Air Canada, and Singapore Airlines, among others, wanted Concorde in their colors. However, the 1973 oil crisis sent fuel prices rocketing. That, combined with the cost of Concorde and the ever-increasing environmental concerns about its exhaust emissions and the noise created by the engines, meant that almost all the potential buyers withdrew from their options to buy.
The collapse in demand brought into question the rationale for the entire enterprise, and costs spiraled. In the mid-1970s, they were already six times the figure initially estimated, and pressure mounted in both France and the UK for the suspension of the Concorde program. Giving up at this point, though, would have meant losing the money already invested and, worse still, would have inflicted a severe blow to the image of both countries and their governments. So, work continued and the aircraft finally joined the fleets of the French and British airlines, thanks in part to generous subsidies via public funding. Regular passenger flights commenced in 1976.
In later years Concorde was the source of both admiration and controversy. On the one hand, the airplane was a symbol of outstanding technical achievement; 10 on the other, it was an example of spending enormous sums of taxpayers’ money with no chance of recovering the investment. The flames of controversy were further fanned by the constant discussions about environmental issues—one country or another was always either banning Concorde from flying through its airspace or restricting it to subsonic flight because of the excessive noise it produced. Many airports refused to accept it on their runways, for fear of lawsuits from local residents.
Yet Concorde remained in operation until the beginning of the twenty-first century. The proverbial nail in its coffin was delivered by the catastrophe in Paris on July 25, 2000, in which all one hundred passengers, nine crew, and four people on the ground were killed. Flights were halted for several months, and in 2003 both airlines retired the beautiful, ingenious, but extravagantly costly beast, which ended up in aviation museums around the world.
However, its legacy lives on, not only in museums but also in social psychology, where the term Concorde fallacy is a colloquialism for the phenomenon more formally known as sunk costs effect.
The sunk costs effect rests on the irrational continuation of an action that has no chance of success, but in which we have invested significant finances, time, or effort. A person caught in this trap thinks that, because they have already incurred serious costs, they can’t withdraw, as this would essentially confirm their losses to them. We’ve all encountered numerous examples of this behavior. Someone who’s invested money in a bad business is prepared to continue investing, keeping their illusory hopes of success alive. A gambler in a casino who’s lost all his money will think nothing of pawning his watch in hopes of recouping his losses. A car that keeps breaking down despite countless repairs (and that you should really sell as quickly as
you can) continues to be a drain on your finances, much to your mechanic’s delight. We find it hard to make a decision that is tantamount to admitting we were wrong, and we therefore continue to throw good money after bad.
A particularly dangerous form of sunk costs is the image trap, as our reputation is also a kind of investment. The more we’ve backed a venture, the more we feel emotionally tied to it. The more emotionally engaged we are, the harder it is to remain neutral about it. One of my friends from the high-tech sector observed many years ago that there’s nothing more difficult than dropping a project you’ve put your name to.
It’s no accident, then, that the sunk costs effect acquired its colloquial name from the Concorde story. This groundbreaking project became increasingly difficult to justify in economic terms, and at a certain point it really should have been shelved, set aside until better times or technological advances made it possible to reduce its operating costs and noise levels, and so on. Unfortunately, the costs already incurred, together with the earlier enthusiastic declarations of support from not only the airlines but also the governments of France and the UK, left the decision-makers in a sunk costs trap, which they couldn’t get out of. Irrational economic decisions were taken to continue the work and introduce the aircraft into the fleets of both carriers.
Other examples abound in the world around us.
Surprisingly, even the Germans, consistently held up as models of solidity and scrupulous business sense, are struggling with a project whose financial dimension bears an uncanny resemblance to a bottomless pit. Berlin used to be served by three airports, Schönefeld, Tegel, and Tempelhof. With the reunification of Germany came the idea of building a large airport to accommodate a significant portion of the passengers from the existing ones and serve not only the German capital, but the whole of Brandenburg. After much squabbling, construction of the new Berlin Brandenburg Airport, slated to serve close to 30 million passengers annually, began in 2006. Costs were estimated at over €2 billion, and the airfield was to open to passengers and airlines in 2010. The deadline wasn’t met—even though Tempelhof ceased operations in 2008 in anticipation of the planned opening of the new airport. Very soon, it appeared that nobody could realistically set a completion date for the project. By 2010, the sole achievement of the project team was to have chosen a patron for the airport (Willy Brandt, who beat out Albert Einstein, Marlene Dietrich, and Claus von Stauffenberg, among others). It was finally announced that the airport would open on June 3, 2012. In May 2012, this was amended to March 17, 2013. When September 2012 came around, a new opening date was given: October 27, 2013. As I’m sure you’ve guessed by now, that date also turned out to be unrealistic, so, at the beginning of 2013, the authorities announced that the Berlin Brandenburg Airport would open in 2014. This, however, was still a highly optimistic prognosis, because at the beginning of 2014 we were informed that an accurate prediction for the opening date of the airport was simply not possible, especially as a fundamental problem had arisen: the only airline that was considering using Berlin Brandenburg as its main hub was the financially unstable Air Berlin (which ultimately went bust at the end of 2017, even further complicating the situation). It’s worth adding that, to date, close to €7 billion have been sunk into the project—and that’s certain not to be the final figure. Klaus Wowereit, the mayor of Berlin and head of the team supervising the Berlin Brandenburg Airport project, resigned from his role as team lead in recognition of his involvement in the ongoing debacle. Despite this “heroic” gesture, nobody can say whether the new airport will ever be ready, and if so, at what cost.
Look around you. Many companies have a great number of projects which, looked at objectively, have no hope of success, but which are allowed to continue, because they’ve already swallowed a lot of money and time, and nobody has the courage to point out that the emperor is naked. While hosting a conference for one of my clients, I heard a very good expression for this phenomenon. The CEO of a large technology firm liked to call inefficient business projects, of which his company had many, “Titanics.” He compared them to the situation in which it was already clear the ship was sinking and couldn’t be saved, but some people were still manning the pumps and trying to bail out the water, instead of dealing with more important matters.
Having the courage to abandon such Titanics pays off, because it allows us to free up employees’ time and energy for other, more constructive tasks, which gives a much better return on our money. In a world where time is constantly in short supply, that’s a massive advantage.
We rarely realize the scale of the savings we could make. For example, the board of a large service sector company twice refused the suggestion that it review its project portfolio, saying it didn’t make economic sense. The third time the idea was presented to the board, it was persuaded to go ahead with it—and subsequently introduced a system for the rapid elimination of ineffective projects, based on an accurate assessment of the key performance indicators (KPIs). In only six months, the company cut the number of its projects by 18 percent, which reduced the number of employees engaged in them by 24 percent. The savings didn’t affect the income from the portfolio of projects, because they were achieved solely by eliminating those projects that had no chance of success and, consequently, no prospect of generating income.
Rule #5
The greater the investment of time, effort, money, and our own reputation, the harder it is to objectively assess a situation and make the right decision.
Colin Powell, when asked what he understood by leadership, is quoted as saying that “it’s the art of accomplishing more than the science of management says is possible.” Very often, then, the authentic leader in an organization becomes the person who is able to persuade those around them to engage in deep discussion on a relevant matter, even if those same people are convinced that the solution is obvious and safe and has been tested many times over, thus making the discussion pointless. In the world of black swans, that is a very dangerous approach.
The combination of our unconscious extrapolation of positive trends with the ease with which we succumb to real, or presumed, authority, together with our natural tendency to match our behavior to meet the expectations of a group lies at the root of both the smaller and the larger mistakes we make every day. In the last twenty years, I have frequently encountered very good managers who stared dumbfounded at an unexpected failure, with not the remotest idea about how it happened.
“That business process had been developed to perfection and had never let me down before.”
“I went with the opinions of the best consultants on the market.”
“I didn’t fight for this project a year ago and then work over twelve hours a day on it to give up on it now. I put everything into it.”
“Everyone was convinced it was the right decision.”
“There’s no way that should have happened.”
Once we started to talk about these basic decision-making traps, which our cognitive mechanisms and social psychology set for us, we soon discovered the source of the mistakes. The next question the managers asked themselves had little educational merit—“How could I have been so stupid?”—but it did lead to a more fundamental and productive one: “How do I not make such an idiot of myself in future?”
The answer to that will be revealed in the following two chapters.
4
Process
One of the most valuable guidelines I’ve encountered for making good decisions is astonishingly simple: Always treat making a good decision as a process, not an event. In other words, don’t reduce deciding to a single act, a single point in time; treat it as a process that demands an appropriate approach, careful consideration of your options, a choice, and timely follow-up. And don’t forget to pay close attention to the time requirements. Most of our decision-related mistakes come from underestimating not only the preparation required before we make a decision, but also
the implementation requirements. This results in either less than perfect decisions (faulty approach), or decisions which, even if they were perfect, didn’t bring the expected result (faulty implementation).
There are three fundamental approaches to the decision-making process, each with its own particular advantages depending on circumstances.
The first approach is called routinized decision-making—essentially an intuitive approach in which we make a decision unconsciously, drawing on repeated experiences and ingrained habits and decision-making mechanisms without thinking too much about them. It sounds dangerous, but the routinized approach is the one that we naturally use for making recurring decisions in known conditions (i.e., when we know exactly what the effects of an action will be). In such conditions, routinized decision-making not only works, but thanks to the extra automaticity of this method of deciding, it also saves our brains the time and energy needed for more important, conscious choices. A simple example of gradually routinized decision-making is driving a car with a manual transmission. When you’re learning to drive a car with a manual transmission, every gear change is a conscious, thought-out decision in which you run the whole sequence of actions through your mind as you carry them out. When you want to shift up a gear, for example, you check that the revs are high enough, you press down on the clutch while taking your foot slowly off the accelerator until your clutch bites, select a higher gear, and then slowly release the clutch while gently pressing on the accelerator, so as not to stall the engine. The years pass, you drive hundreds of thousands of miles, and, with your increasing experience, your driving becomes more and more routinized and automatic. While you’re driving, you think about a thousand other decisions—but none of them concerns which gear to select.