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Archive for May 18th, 2010

The case for behavioral strategy

Left unchecked, subconscious biases will undermine strategic decision making. Here’s how to counter them and improve corporate performance.

MARCH 2010 • Dan Lovallo and Olivier Sibony

Once heretical, behavioral economics is now mainstream. Money managers employ its insights about the limits of rationality in understanding investor behavior and exploiting stock-pricing anomalies. Policy makers use behavioral principles to boost participation in retirement-savings plans. Marketers now understand why some promotions entice consumers and others don’t.

Yet very few corporate strategists making important decisions consciously take into account the cognitive biases—systematic tendencies to deviate from rational calculations—revealed by behavioral economics. It’s easy to see why: unlike in fields such as finance and marketing, where executives can use psychology to make the most of the biases residing in others, in strategic decision making leaders need to recognize their own biases. So despite growing awareness of behavioral economics and numerous efforts by management writers, including ourselves, to make the case for its application, most executives have a justifiably difficult time knowing how to harness its power…

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Here is the thing…

The subject of the article is the categorization of ‘biases’.

Like the other media forms, if you run out of new terms to use in business, your presentations die an agonizing death of disuse.  This paper provides a fine example of what lack of clarity and  misapplication of  the vernacular does: http://www.mckinseyquarterly.com/Strategy/Strategic_Thinking/The_case_for_behavioral_strategy_2551?gp=1

Put ‘Behavioral’ or ‘Neuro-‘in front of almost any expression, term or concept and it would appear that it is born anew.  Throw in a set of myths, superstitions or “common knowledge” as those found in the metaphysics of the ‘subconscious,’ and cognitive biases, then make up some new words, like “debias” and you have the makings of another mechanism that supports ignorance of behavior [corporate or personal] from slippery sound bites.   Lovallo and Sibony have done a story for the acclaimed McKinsey Group and packed it with metaphors, similes and analogies but missed the behavioral part of their article, that is:

  1. EMPIRICISM –
  2. OPERATIONAL DEFINITIONS  –
  3. SHUNNING OF MONOCAUSALITY –
  4. MEASUREMENT OF BEHAVIOR OF INDIVIDUALS, COMMITTEES, OR COMPANIES SUBSEQUENT TO ANTECEDENTS OR AS CONSEQUENCES

Biases are not new, empirical, behavioral or operationally defined and therefore constitute a rehash of psycho-babble that

  1. Doesn’t address how biases come to exist OR influence behavior like selection of options or decisions
  2. Doesn’t address how biases are maintained OR why they are negative, irrelevant or harmful
  3. Doesn’t address what to do to reduce their effects in business for some company benefit

McKinsey Group should move on and get some behavioral assessment partners to mull business approaches with these gentlemen.  With stuff like this being offered to the management of companies that can afford help, is it any wonder that businesses sometimes seem to be clueless on what is going on with customers, vendors, or partners?

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