Monday 16 March 2020
Due to the unprecedented Covid-19 restrictions, the fourth Managing Partners’ Forum Strategy Summit was hosted online, using Zoom for an interactive video meeting. The meeting followed the usual Summit format of keynote presentations followed by an audience Q&A. Forum founder and CEO Richard Chaplin introduced the presentations, which were delivered online, and moderated the Q&A session via Zoom’s text and audio Q&A application.
The topic was Making Better Decisions and the purpose of the session was to help leaders learn methodologies that would help them:
The first keynote, by Johannes Lohmann head of employment and organisational behaviour at the Behavioural Insights Team (BIT), covered how business leaders can recognise and resolve biases in their decision-making. He started by explaining how behavioural biases influence decision-making. He used the classic MBA example of subscription pricing and how adding a decoy ‘full-price’ option influences buyers to purchase a ‘bundle’ rather than the cheapest version, that most people would have chosen had there been no decoy.
The Behavioural Insights Team, a former government organisation, has found that the same human biases apply in multiple contexts, geographies and cultures. They gather evidence about behaviour and what influences behaviour and use this to create practical applications that help people make decisions for the greater good or more in line with their and/or their organisation’s values. Robust evaluation of what works and what doesn’t work in different circumstances is used to continually refine and improve the process.
Behavioural Insights tools range from basic information provision, through environment and process design, financial and non-financial incentives (such as recognition) to working on the interaction between behaviours and rules. This is generally applied in the context of organisations and human resources, but it is powerful food for thought for everyone during the Covid-19 lockdown.
Nobel Prize winning psychologist Daniel Kahneman, wrote “The confidence that individuals have in their beliefs depends mostly on the quality of the story they can tell about what they see, even if they see little.” Consequently, a compelling narrative can lead to blind spots that affect decisions.
In his book, ‘Thinking Fast and Slow’, Dr Kahneman distinguishes between System 1 (fast: automatic, intuitive, effortless) and System 2 (slow: reflective, deliberate, analytic) thinking. System 1 thinking promotes confidence but can lead to spectacular failures. For example, decision-making biases and blind spots contributed to Enron and Lehman Brothers’ respective failures.
This applies equally to government decision-making. In 2018, the Infrastructure and Projects Authority (IPA) annual report concluded that 80% of projects in its £423bn major projects portfolio were unlikely to be delivered successfully.
BIT looked into the reasons behind this and identified three phases of decision-making which are affected by different cognitive biases:
The solution is straightforward in theory, but potentially challenging in practice:
Lohmann wrapped up with three takeaways: biases harm decision-making; you can mitigate this; but ultimately structures and processes need to change.
The second keynote was delivered by Bryce Hoffman, founder and president of Red Team Thinking, which is designed to address biases and blindspots and help organisations deal with unexpected problems. Right now, all businesses are being disrupted. Red Teaming and Red Team Thinking were designed for exactly this type of situation.
Hoffman described the historical principle behind Red Team thinking: Pope Sixtus V establishing the office of the ‘Devil’s Advocate’ to argue against proposals for canonization put to the Catholic Church. The term itself derived from the Prussians, who following their defeat by Napoleon created the concept of war games, a tabletop strategic exercise for two teams. The blue team represented the Prussians’ blue uniforms, and the red team represented the enemy. Red Team thinking is dividing a group into two teams and getting one team – the red team – to oppose your strategic plans and thereby uncover their weaknesses. Almost all military organisations use this type of war games. Following the Yom Kippur War in 1973, the Israeli army created a group within their intelligence division with the motto ‘He who thinks wins’, to challenge prevailing theories.
Following 9/11 the CIA set up a group called the Red Cell, which developed tools to apply contrarian thinking in a systematic and conscientious way. And the CIA report that this has prevented at least half a dozen further 9/11 style attacks on the US. Red Cell produced a one-page intelligence paper for the US president – the alternative intelligence assessment – until President Trump asked for it to be removed.
The US Army in Iraq used a similar approach to set up lessons learned teams to analyse and interrogate strategies and plans in order to improve them. They called it ‘Red Teaming’.
Hoffman’s book “American Icon”, became a manual for business transformation and led him into consulting. He blamed cognitive bias and bad decision-making for the phenomenon whereby businesses transform and then slip back into bad behaviour and financial difficulties. Most high-profile business die from self-inflicted wounds, he said. Polaroid was not put out of business by digital photography, but by focusing on the wrong business line: film rather than digital cameras!
Hoffman was the first civilian to graduate from the US Army’s Red Team Leader Course. He then went to the CIA and others, including the British Ministry of Defence, to learn additional tools and techniques. He is now applying this knowledge to business.
We have entered an era of unprecedented VUCA – volatility, uncertainty, complexity and ambiguity – which needs new tools and new thinking, said Hoffman. We must also counteract the wilful blindness of leaders, he added, citing Dr Kahneman’s description of the human brain as “a machine for jumping to conclusions”.
Finally, Hoffman shared a long list of human biases and heuristics which are magnified by organisational dysfunctions like groupthink, internal politics that affect decision-making. The antidote, he said, is Red Team Thinking.
Red Team Thinking brings the value of Red Teaming to organisations in a way that does not require additional resources or delay decisions. Its 20 or so tools fall into three categories:
A major challenge to contrarian thinking is the tick-box mentality. The step-by-step processes involved in Red Team Thinking overcome that, by literally making decision-makers stop and think.
The presentations were followed by a lively Q&A moderated by Richard Chaplin via the Zoom Q&A feature.