Why Smart People Can Make Bad Business Decisions

Every organization consists not only of individuals, but a hierarchy of power among those individuals. No matter how noble the group’s goal, there is often a struggle for power beneath the surface.

Companies in the pool and spa industry are facing an ironic problem. Success depends on the quality of everyday decisions made by people in the company. However, people have hardwired flaws in their thinking that are reinforced by a multi-tasking, time-constrained environment. In fact, many companies are doing little to help improve their employees’ quality of thinking and instead, in some cases, are making matters worse.

After more than 30 years in the industry, many as the president and CEO of a water treatment products manufacturer, this author retired and started working on his life goal—understanding why otherwise bright business people (himself included) can unknowingly make bad decisions when they simply should have known better.

Bugs in the thought process

In any business activity there is one component that is not completely understood—the human element. From psychology to cognitive social neuroscience, research points to shortcomings in how people gather and process information and experiences to answer questions, solve problems, determine judgments, and make decisions. Many people are simply unaware of the flaws that plague some of their own resolves.

Pool companies rely on people at all levels who can systematically pursue important goals, recognize and analyze significant problems, communicate essential meanings, and assess their own performance on the job. After all, employee decision-making ultimately impacts revenues, costs, customer loyalty, safety, reputation, and more

Unfortunately, just like computers can have bugs, humans can have flaws in the way they think and make decisions. This author refers to these flawed decisions as mind-bugs. They cause information to get filtered, even in good-faith ways. Left unchecked, they contribute to greater risk and poor performance because they cause important decisions to be based upon flaws in the way information is gathered and processed.

No one is immune

From large pool manufacturers to small retailers, no one is immune to flawed thinking. This is because mind-bugs are a pervasive part of human nature. They are hardwired in the brain and are highly resistant to feedback. Many problems businesses face today are not the result of factors that occur outside of their control, but are rather ‘self-inflicted’ as a result of these mind-bugs.

Over the years as a business executive and industry insider, this author has observed bad decision-making and business failures in the pool and spa industry from a unique vantage point. Problems rarely developed overnight; instead, they were gradual negative changes that ultimately resulted in a serious problem that could have been avoided. The two most common contributors to these problems are:

  1. The leader’s attitude, ability to be objective, and his/her willingness to bring in needed help and share power.
  2. Failure to anticipate or react to competition, technology, or other significant changes in the marketplace.

So, what causes business owners and leaders to convince themselves their thinking is sound when problems exist? Look no further than mind-bugs.

Meet the mind-bugs

During this author’s five years of research he screened more than 125 recognized problems with regard to thinking and decision-making. The following, however, are six mind-bugs pool and spa businesses should watch out for. These should be considered before making decisions to help avoid problems and improve results.

1. Informed leader fallacy

Informed leader fallacy is the belief by a company leader that he/she is better informed and has better instincts than others, simply because he/she is the leader.

This occurs in all business types and sizes, but it is a particular risk for companies in the pool and spa industry because many leaders have typically come up through the business they helped build. They learned their critical skills by doing and by necessity. Early in the process they learned the importance of making others feel positive about their judgment, even without a strong basis.

That said, the amount of success it takes for leaders to become overconfident is not terribly large. Some achieve a reputation for success when, in fact, all they did was take chances which happened to work out. The fierce personal confidence that characterizes many leaders serves as a breeding ground for this mind-bug. Most decision-makers will trust their own intuitions because they think they see the situation clearly. Accordingly, they can fall into a trap of believing they are better informed than they really are and fail to look for, or appreciate, much-needed assistance.

2. Status quo

Most decisions have a status quo alternative; this means doing nothing or maintaining the current or previous decision.

Businesses such as pool distributors, service companies, manufacturers, and retailers affected by this mind-bug cause them to disproportionately stick with the status quo and create significant friction that works against the momentum and traction of new ideas, thinking, and/or options. New evidence that contradicts the status quo is cleverly rejected through the infection of other mind-bugs. Defense mechanisms are triggered and emotions can sometimes reach dysfunctional proportions.

When this mind-bug is deeply entrenched, companies are at significant risk of being displaced by new technology and novel business models. Couple this with leaders who have the ‘informed leader fallacy’ and it is easy to see why the business landscape is littered with the bankrupt remains of some of those companies.

3. Source influence

Source influence is the mind-bug that affects the conditions and inputs that are accepted to be sufficient for decision-making. For instance, when a boss suggests something, some may non-consciously accept it as fact (and sufficient for taking action) without any challenge due to the source of the information.

One reason for this is some may fear conflict by proposing an alternative to his/her boss’s thinking. The stronger the leader’s personality, the greater they will not learn the truth from employees—particularly when he/she appears ‘dug in’ and is prepared to defend their position rather than abandon it.

When employees become conditioned to really believe their boss’s way is best, they fail to put their thoughts on the table. If decisions do not go well, they think they can always blame their boss later. This has the unintended consequence of isolating bosses to the point they do not want to share power. The irony is, when this mind-bug is present, bosses and employees are clueless as to how they are contributing to the problem.

4. Shooting the critics

This mind-bug involves the tendency to marginalize people who disagree with them. Leaders know any decision they make is subject to their judgment being questioned. This author has unfortunately seen many pool company owners and managers who are simply not in the market to have their decisions, beliefs, and choices questioned.

This is not just about owner/managers. All people subconsciously develop the tendency to marginalize people who disagree with them. When this occurs, innovators and change agents must fight the system to improve it. But this mind-bug causes intolerance for challenge, leaving huge gaps in judgment and missed opportunity.

5. Experience bias

Biases involve believing future events will likely occur in a very specific way based on prior experiences, and not seeing how conditions differ.

It is logical to consider experience, but some things are not always remembered with complete accuracy. Human reasoning is accompanied by various subjective experiences, including the interpretation of thoughts, feelings, desires, and decisions. As a result, this can compromise one’s ability to recall and perform an objective comparison. Once afflicted, one’s belief can often be so strong they fail to look for contradictory evidence and and as a result impute hostile motives to even the most helpful people who question the relevance of their experience. Today, there are many pool companies that have gone out of business because leaders based decisions almost entirely on their experience only to find their memory was not as good as they may have thought.

6. Closed mind

Being closed-minded occurs when someone is unable to hold and examine two opposing views at the same time and does not acknowledge other’s perspectives.

Those afflicted with this mind-bug subconsciously shutdown the very thing that can help them examine their own beliefs—evaluation of diversity of opinions. In essence, things are the way they see them because that is the way they see it.

When this happens, perpetrators are sometimes not aware of it. Other times, some may even be proud of it. These people make the self-serving assumption they have figured out the way things are and anything that challenges their point of view becomes ‘unthinkable.’

It is not that these people shoot their critics or fail to listen. On the contrary, these people may spend time demonstrating their listening skills to others to prove they are good listeners, but they just do not hear them. They are simply not aware they do not allow themselves to hold—and mindfully examine—two opposing views at the same time. They give plenty of lip service to others, but true diversity of thought is non-existent.

Questions to ask to Get started on the path to improvement

While merely a starting point, routinely asking these five questions at all levels of the company can help to create an organization that is ‘in touch with its thinking.’

1. Is there sufficient information to make a decision?

This question addresses the requirement to make decisions based on relevant and significant information of adequate breadth and depth. One human tendency is to sometimes present and/or accept data as sufficient for a particular decision that does not completely frame the situation in a balanced fashion—as long as it supports the decision one subconsciously wants to make.

2. What makes one confident the information is accurate?

Clarifying accuracy addresses the requirement to make decisions based on clearly defined, reliable, factual, precise, and fair information. If input is not accurate then decisions will be faulty regardless the quality of the decision-making process. It is possible to unknowingly confuse unverified information with fact, see patterns that are not real, or experience a reflex-like rejection of data simply because it contradicts existing norms.

3. How do individual beliefs colour the decision?

Giving attention to one’s beliefs considers the influence of one’s own point of view, desires, values, principles, and emotional connections in conjunction with any decision. The question addresses the idea that whenever one reasons, they do so within a point of view. Any flaw in the point of view is a possible source of faulty thinking. It is possible to unknowingly draw conclusions and make decisions based on limited, unfair, and misleading personal interpretations of information. One can become so locked in they are unable to see the issue from other rational points of view. Once under the control of their beliefs the truth is hard to see and hear.

4. What is the influence of the group involved with the decision?

This examination considers the group’s definition of reality, as well as bureaucracy, power structure, and vested interests in conjunction with any decision. Every organization consists not only of individuals, but a hierarchy of power among those individuals. No matter how noble the group’s goal, there is often a struggle for power beneath the surface. Personal strategies may be obscure and not apparent—even to those who are using them.

5. Has the presence of mind-bugs, which can affect judgment, been considered?

People simply cannot manage complex situations successfully when mind-bugs are present. Using the mind-bugs reference chart to look for problems before they become bigger issues will help improve the quality of the decision-making process.

Better decisions take courage

Many nuts-and-bolts leaders may find the idea of mind-bugs to be a soft issue and give it second-class attention at best. Yet, everyone holds unrecognized beliefs that can block the path to sound decisions. Once someone is enthralled by their beliefs, mind-bugs make the truth hard to see and hear. A misguided belief left untamed will corrupt decisions and choices.

It takes courage to challenge one’s own thoughts. It is a struggle among different parts of the brain. However, the real issue is most do not notice their thoughts. Many are out of touch with themselves and it can be debilitating. It is like breathing carbon-monoxide—one cannot see or smell it, but it can be harmful just the same.

In the next decade and beyond, the single biggest determining factor of a company’s competitive success will be the ability to collectively advance its quality of thinking. Eliminating mind-bugs can mean the difference between success and failure for pool companies and the industry as a whole.

This article was written by Larry J. Bloom and originally appeared on Pool & Spa Marketing [link].