Our vision of the true nature of leadership is a lie we keep telling ourselves. Actual leadership has very little resemblance with our idealized image of a rational and visionary captain of industry who steers his company safely through the often rough seas of the market.
The idea of rationality lies at the very core of our self-understanding. It was Aristotle who coined the phrase that man is a rational animal. Here rationality becomes the very dividing line between a chaotic and animalistic world of instinct and emotion and the clear-sighted and rational world of human thought.
In fact rationality has infused our thinking to such a degree that we often do not even distinguish between rationality, intelligence and simply being smart. But these are very different concepts. Rationality is an applied tool of cognitive thinking. Intelligence is an inherent capability and being smart is the good application of that capability. Because most of us confuse these three, one of the worst things we can say to another person in a discussion is: You’re being irrational. In our view of ourselves as a species, it is the equivalent of saying: You’re being stupid. But pure rationality is rare in human behaviour. What we conceive as being rational decisions often turn out to be mostly rationalizations driven by forces beneath conscious reason.
Nowhere is this more evident than in our understanding of organizational management and leadership. Here we tend to operate with two different idealized roles: The leader as a heroic character with foresight and the charismatic ability to inspire people to move single-mindedly in a preordained direction. And then there is his sidekick: The manager who transforms the leader’s clear vision into just as clear operational objectives and action plans, which will enable employees to implement the strategy as a linear process.
We read it in the autobiography of any great business leader. They are all based on the same model: I faced a lot of adversity, but due to the clarity and rationality of my thinking and the strength of my character, I overcame the obstacles and emerged as a hero at the forefront of a blooming business.
This is the story of organizational decision-making we like to believe is true. But reality is very different indeed.
When empirical studies dig into organizations to uncover how decisions are really made, they open a Pandora’s box of ill-structured problems, uncertainty with respect to alternatives and consequences, partial search for solutions and their consequences, and biased evaluation, selection and monitoring of alternatives.
The decision making process in itself is shaped by organizational culture, by the self-interest of the individual agents, and by the necessarily bounded rationality of human beings. Even our most heroic leadership role model is not omniscient.
Every organization has its Kodak moments
The history of commercial organizations is fraught with examples of dismal failures, that seem self-evident today, but were based on decisions made by presumable highly intelligent business leaders following a rational decision making process.
We all know the example of Kodak; a favourite horror story repeated time and again by consultants. But most organizations have had Kodak moments of their own where they pursued a project or a strategy long after even the most cursory of examinations had demonstrated its futility. Most of this is due to the sunk cost fallacy, also known as the Concorde fallacy. It is a metaphor for when we defend an investment, a policy or a strategy, even though that defence costs more than abandonment and alternatives. Costs being two things: Either material in terms of money and time, or emotional in terms of lost prestige.
Prestige? You might ask. Yes, for example almost every business will tend to hang on to their main brand beyond any rational reasons, even if they have developed leaner and more agile sub brands that outperform the mother brand. Such thinking is solely based on fears of lost prestige and not by objective business analysis.
The Concorde fallacy becomes especially dominant in larger corporations that have chosen to have short turn-around times in their executive positions. Often they do so in order to facilitate the rapid development of leadership talent, the basic idea being that it furthers a meritocratic approach to recruitment.
But in an environment, where your future career is based on short term success, the natural tendency of any executive will be to look for a single tangible project which they can implement during the 2-4 years they know they will spend in their current position. That project may or may not be aligned with the long term needs of the company, and it may or may not turn into a white elephant or the chase after a white whale. But the point here is that even what we would consider executive strategic decisions are more likely to be driven by self-interest than by actual business necessities.
Be rational about irrationality
Most people with a few years of corporate experience have been through a change process or two, which turned into little more than some nice words on equally nice banners and probably a substantial bill from a consultancy firm. The emptiness of those statements and the lack of results is tangible evidence of a top management group which clings on to a belief in a rational and instrumental process, where decisions trickle down and automatically turn themselves into actions and change.
But as we all know, culture eats strategy for breakfast. We just need to not only repeat that old idiom, but really take it to heart and accept that rationality is nothing but the stories we tell ourselves of our decisions, and that our decision making process in itself is as based in emotions as in abstract cognitive thinking.
So do we simply give up on decision-making?
Of course not! We all know that leadership is a reality and that it can make a huge difference. We just need to adjust our view of leadership and the way we approach decision-making in a world which is anything but rational.
Basically there are two ways through the murky cognitive landscape of irrationality.
Turn uncertainty into a competitive advantage
If we are in a market that is characterized by a very high speed of change, either driven by innovation or fierce competition, we might as well abandon the notion of long term strategies and instead turn to the start-up communities for inspiration. When faced with a world of uncertainty, as any young start-up is, we cannot possibly hope to outsmart the market and think through any probable permutation of the future. The way to overcome this is by moving forward through prototyping. Develop ideas quickly, put them to the test in a real life environment and base the next steps forward on those that survive.
It flies in the face of common logic, and of the values we tend to look for in employees and leaders. Because in order to get this sort of evolving strategy to work for us, we should not be proactive – that favourite buzzword of most job listings. Instead we need to excel at being reactive. The success of any evolving strategy does not stem from some uncanny ability to accurately predict the future, but on our ability to nurture an organizational environment that embraces opportunities and on how quickly and accurately we are able to assess which ones to follow through on.
It is not a new concept. Truthfully, most innovation takes place like this, and a lot of strategies are formulated based on hindsight, even though most companies would be hard pressed to admit so. Hugely successful concepts and companies have been built upon this kind of evolving strategy, where the way forward is rationalized after the fact.
Embrace your doubts
Companies, who find themselves in a market where the pace of change is somewhat more tranquil, can rely a bit more on their trusted ways. They do not need to entirely abandon the idea of rational decision making; they just need to get a whole lot better at it. And they do so by shifting their focus.
In the real world of multiple decision makers, complex problems, fast moving markets, unpredictability and uncertainty, objective rationality becomes inapplicable. Instead we need to focus on the factors that influence our attempts at rational thinking. These can be social, political or cognitive. We should realize that while the manifestation of a problem may be more or less clear (e.g. falling market shares), the causes may be less visible and our seeing will be impaired by self-interests, prejudices and lack of knowledge.
We need to clearly identify the unspoken beliefs and the issues that we otherwise tend to ignore, when we tell ourselves the neat story of a rational decision. What is it that we do not want to hear? What information could convince us otherwise? That is not easy. In fact it is hard work and counter-instinctive. As human beings we tend to make decisions based on a minimum level of energy expenditure. Or in other words: Our thinking is lazy. When suddenly confronted by the task to identify and analyse every single issue that influences our line of thinking, we tend to shy away.
But in order to make better decisions, we need to be as clear as possible about our conditional rationality. We should look to make the informed semi-rational decision; not the wrongfully perceived rational. So, in order to have a better understanding of your decisions – and ultimately make better ones – our first order of business should not be on how we decide, but to ask ourselves what it is that guides our decision-making.
Even in this common scenario, where semi-rational decision making is the norm of our organizational behaviour, we should abandon the idea that the main task of a leader is to direct organizations through strategies based on foresight into the future and fixed plans. In reality leaders influence their organization far more by everyday interactions, nudging and micro-decisions. This is where the key to any successful implementation of an organizational strategy lies; whether it is an evolving strategy or some grand scheme developed through a semi-rational decision making process. But that is a subject for another day.
Thank you for your time. And remember this: Your rational choices are nothing but the stories you tell yourself.