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While making critical decisions, not many strategists are conscious of the impact that cognitive biases have on business decisions.\u00a0 These biases are part of human behavior, and can be referred to as \u201csystematic human tendencies to deviate from rational calculations.\u201d<\/p>\n
In strategic decision making<\/a>, leaders need to recognize their own biases, as these biases influence important strategic decisions made by the smartest managers in the best companies.\u00a0 Understanding these biases is also foundational to behavioral economics<\/a>. Two broad categories of biases cause the people to drift from rational decision-making:<\/p>\n Emotional biases entail taking action on feelings instead of fact, or making emotionally driven decisions rather than logical ones\u2014i.e., a person\u2019s inclination to believe in something that has a positive emotional effect or that gives a pleasant feeling, even if evidence contradicts it.\u00a0 Cognitive biases, on the other hand, arise due to incomplete information or the inability to analyze the available data.\u00a0 These preconceived notions can be categorized as either Belief Persistence or Processing Errors.\u00a0 Belief Persistence occurs when individuals try to shun the conflict in mind that occurs when facts contradict their existing beliefs. \u00a0Processing errors occur due to failure in organizing and analyzing data properly.<\/p>\n The awareness and the ability to manage cognitive biases assists the decision makers in making more logical decisions.\u00a0 The following are the 9 most common Cognitive Biases that occur most frequently and have the largest impact on business decisions:<\/p>\n Experienced executives are able to discern biases and make allowances for those\u2014by applying a discount factor\u2014to adjust for someone\u2019s over-optimism or seek neutral opinion to avoid biased suggestions.\u00a0 But, at times, these adjustments are also inaccurate.\u00a0 These biases in corporate decisions are a product of behavior, training, culture, and human nature.<\/p>\n A global McKinsey study conducted in 2009 about the quality of executive judgment and decision making revealed that out of the 2,207 executives only 28% considered the quality of strategic decision making in their organizations to be satisfactory.\u00a0 About 60% of the participants believed that bad decisions were just as likely as good ones, while rest of the 12% thought that good decisions were rare in their companies.<\/p>\n Sound judgment and strategic decision making necessitates 3 key elements:<\/p>\n Better strategic decisions necessitate attempts at limiting our biases as well as establishing a decision making process that can challenge various biases and minimize their effect.\u00a0 The process for strategic decision making<\/a> requires an understanding of the 5 Building Blocks of Behavioral Strategy<\/a> to help nullify biases:<\/p>\n Interested in knowing more about how these 5 Building Blocks of Behavioral Strategy<\/a> provide useful practices to neutralize biases and help ensure unbiased decision making? \u00a0You can learn more and download an\u00a0editable\u00a0PowerPoint about\u00a0the Building Blocks of Behavioral Strategy <\/strong>here<\/a>\u00a0on the Flevy documents marketplace.<\/p>\n You can download in-depth presentations on this and hundreds of similar business frameworks from the FlevyPro Library<\/a>. FlevyPro<\/a> is trusted and utilized by 1000s of management consultants and corporate executives. Here’s what some have to say:<\/p>\n “My FlevyPro subscription provides me with the most popular frameworks and decks in demand in today\u2019s market. They not only augment my existing consulting and coaching offerings and delivery, but also keep me abreast of the latest trends, inspire new products and service offerings for my practice, and educate me in a fraction of the time and money of other solutions. I strongly recommend FlevyPro to any consultant serious about success.”<\/p>\n \u2013 Bill Branson, Founder at Strategic Business Architects<\/p>\n<\/blockquote>\n “As a niche strategic consulting firm, Flevy and FlevyPro frameworks and documents are an on-going reference to help us structure our findings and recommendations to our clients as well as improve their clarity, strength, and visual power. For us, it is an invaluable resource to increase our impact and value.”<\/p>\n \u2013 David Coloma, Consulting Area Manager at Cynertia Consulting<\/p>\n<\/blockquote>\n “As a small business owner, the resource material available from FlevyPro has proven to be invaluable. The ability to search for material on demand based our project events and client requirements was great for me and proved very beneficial to my clients. Importantly, being able to easily edit and tailor the material for specific purposes helped us to make presentations, knowledge sharing, and toolkit development, which formed part of the overall program collateral. While FlevyPro contains resource material that any consultancy, project or delivery firm must have, it is an essential part of a small firm or independent consultant’s toolbox.”<\/p>\n \u2013 Michael Duff, Managing Director at Change Strategy (UK)<\/p>\n<\/blockquote>\n “FlevyPro has been a brilliant resource for me, as an independent growth consultant, to access a vast knowledge bank of presentations to support my work with clients. In terms of RoI, the value I received from the very first presentation I downloaded paid for my subscription many times over! The quality of the decks available allows me to punch way above my weight \u2013 it’s like having the resources of a Big 4 consultancy at your fingertips at a microscopic fraction of the overhead.”<\/p>\n \u2013 Roderick Cameron, Founding Partner at SGFE Ltd<\/p>\n<\/blockquote>\n “Several times a month, I browse FlevyPro for presentations relevant to the job challenge I have (I am a consultant). When the subject requires it, I explore further and buy from the Flevy Marketplace. On all occasions, I read them, analyze them. I take the most relevant and applicable ideas for my work; and, of course, all this translates to my and my clients’ benefits.”<\/p>\n \u2013 Omar Hern\u00e1n Montes Parra, CEO at Quantum SFE<\/p>\n<\/blockquote>\n","protected":false},"excerpt":{"rendered":" While making critical decisions, not many strategists are conscious of the impact that cognitive biases have on business decisions.\u00a0 These biases are part of human behavior, and can be referred to as \u201csystematic human tendencies to deviate from rational calculations.\u201d In strategic decision making, leaders need to recognize their own biases, as these biases influence… Building Blocks of Behavioral Strategy: How to De-Bias Your Decision Making Process<\/span><\/a><\/p>\n","protected":false},"author":110,"featured_media":3880,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"neve_meta_sidebar":"","neve_meta_container":"","neve_meta_enable_content_width":"","neve_meta_content_width":0,"neve_meta_title_alignment":"","neve_meta_author_avatar":"","neve_post_elements_order":"","neve_meta_disable_header":"","neve_meta_disable_footer":"","neve_meta_disable_title":"","footnotes":""},"categories":[408,81],"tags":[1287,1286,1285],"class_list":["post-3876","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-management-leadership","category-strategy","tag-behavioral-strategy","tag-cognitive-biases","tag-strategic-decision-making"],"_links":{"self":[{"href":"https:\/\/flevy.com\/blog\/wp-json\/wp\/v2\/posts\/3876","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/flevy.com\/blog\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/flevy.com\/blog\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/flevy.com\/blog\/wp-json\/wp\/v2\/users\/110"}],"replies":[{"embeddable":true,"href":"https:\/\/flevy.com\/blog\/wp-json\/wp\/v2\/comments?post=3876"}],"version-history":[{"count":11,"href":"https:\/\/flevy.com\/blog\/wp-json\/wp\/v2\/posts\/3876\/revisions"}],"predecessor-version":[{"id":7947,"href":"https:\/\/flevy.com\/blog\/wp-json\/wp\/v2\/posts\/3876\/revisions\/7947"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/flevy.com\/blog\/wp-json\/wp\/v2\/media\/3880"}],"wp:attachment":[{"href":"https:\/\/flevy.com\/blog\/wp-json\/wp\/v2\/media?parent=3876"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/flevy.com\/blog\/wp-json\/wp\/v2\/categories?post=3876"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/flevy.com\/blog\/wp-json\/wp\/v2\/tags?post=3876"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}\n
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<\/a><\/p>\nDo You Find Value in This Framework?<\/h2>\n