Harvard Business Review
Why Good Leaders Make Bad Decisions
UK drugstore chain, launched a healthcare strategy designed to diferentiatethe stores rom competitors and growthrough new health care services suchas dentistry. It turned out, though, thatBoots managers did not have the skillsneeded to succeed in health care ser- vices, and many o these markets o-ered little proﬁt potential. The strategycontributed to Russell’s early departurerom the top job. Brigadier GeneralMatthew Broderick, chie o the Home-land Security Operations Center, whowas responsible or alerting PresidentBush and other senior government o -cials i Hurricane Katrina breached thelevees in New Orleans, went home onMonday, August 29, 2005, aer report-ing that they seemed to be holding, de-spite multiple reports o breaches.All these executives were highlyqualiﬁed or their jobs, and yet theymade decisions that soon seemedclearly wrong. Why? And more impor-tant, how can we avoid making similarmistakes? This is the topic we’ve beenexploring or the past our years, andthe journey has taken us deep into a ﬁeld called decisionneuroscience. We began by assembling a database o 83 deci-sions that we elt were ﬂawed at the time they were made.From our analysis o these cases, we concluded that ﬂaweddecisions start with errors o judgment made by inﬂuentialindividuals. Hence we needed to understand how these errorso judgment occur.In the ollowing pages, we will describe the conditions thatpromote errors o judgment and explore ways organizationscan build protections into the decision-making process toreduce the risk o mistakes. We’ll conclude by showing howtwo leading companies applied the approach we describe. Toput all this in context, however, we ﬁrstneed to understand just how the hu-man brain orms its judgments.
How the Brain Trips Up
We depend primarily on two hardwiredprocesses or decision making. Our brains assess what’s going on using pat-tern recognition
and we react to thatinormation – or ignore it – because o emotional tags that are stored in ourmemories. Both o these processes arenormally reliable; they are part o ourevolutionary advantage. But in certaincircumstances, both can let us down.
is a complex pro-cess that integrates inormation rom asmany as 30 diferent parts o the brain.Faced with a new situation, we makeassumptions based on prior experiencesand judgments. Thus a chess master canassess a chess game and choose a high-quality move in as little as six seconds by drawing on patterns he or she hasseen beore. But pattern recognitioncan also mislead us. When we’re deal-ing with seemingly amiliar situations,our brains can cause us to think we understand them whenwe don’t.What happened to Matthew Broderick during HurricaneKatrina is instructive. Broderick had been involved in opera-tions centers in Vietnam and in other military engagements,and he had led the Homeland Security Operations Centerduring previous hurricanes. These experiences had taught himthat early reports surrounding a major event are oen alse:It’s better to wait or the “ground truth” rom a reliable source beore acting. Unortunately, he had no experience with a hur-ricane hitting a city built below sea level.By late on August 29, some 12 hours aer Katrina hit NewOrleans, Broderick had re-ceived 17 reports o majorﬂooding and levee breaches.But he also had gotten con-licting inormation. TheArmy Corps o Engineershad reported that it had noevidence o levee breaches,and a late aernoon CNNreport rom Bourbon Streetin the French Quarter hadshown city dwellers party-ing and claiming they haddodged the bullet. Broder-
Leaders make decisions largely
through unconscious processesthat neuroscientists call patternrecognition and emotional tagging.These processes usually make forquick, effective decisions, but theycan be distorted by self-interest,emotional attachments, or mislead-ing memories.Managers need to ﬁnd system-
atic ways to recognize the sourcesof bias – what the authors call “redﬂag conditions” – and then designsafeguards that introduce moreanalysis, greater debate, or strongergovernance.By using the approach described
in this article, companies willavoid many ﬂawed decisions thatare caused by the way our brainsoperate.
THE REALITY IS
that importantdecisions made by intelligent, responsiblepeople with the best information andintentions are sometimes hopelessly ﬂawed.