How does it happen that managers take decisions which lead them to failures? What decision-making mechanisms do they inactivate when they take such decisions? This paper is aimed at analyzing these psychological implications.
Psychology Decision Making
It is not rare that managers take decisions which lead them to failure. These failures often become the headlines and the top stories of newspapers and magazines. However, has anyone analyzed the psychological implications of such decisions? What psychological theories could explain such managers’ behavior, and what useful recommendations could be drawn from such cases?
The case of Sears, when owned by Edward S. Lampert, is the most recent example of a large managerial mistake, having led to significant financial and economic losses. On January 29, 2008 Lampert pushed out his chief executive, but what is more important, he took decision to distance himself from the day-to-day management of his enterprise. “Until now, the heads of several major departments, like marketing and merchandising, reported directly to Mr. Lampert, even though he has no background in retailing or advertising” (Barbaro, 2008). It is crucial to understand, how Lampert came to the idea of day-to-day management of his enterprise, although he did not have enough professional skills for that
It is stated, that “we are likely, social constructed individuals. Our experiences, our cultures, our social order, shape our motivations, our desires, and our beliefs about the world we encounter” (Plous, 1993). Our management decisions are shaped are also shaped under the impact of business environment and the objectives we expect to meet in our management activity. We tend to take decisions, which are primary based on our perception of the world around us (Connolly, 2000). One of the major problems in management decision making is in that a person can hardly be objective in taking decisions. The lack of objectivity leads to the situation, when we do not take into account multiple environmental factors, impacting our decisions.
Evidently, there cannot be any better explanation to Lampert’s decision, that the self-perception theory. This theory deals with the human perceptions and the ways they incorporate their perceptions into their daily behavior (Plous, 1993). To be clear, Lampert’s expectations and beliefs into his managerial skills and the ability to cope with a large retail enterprise were not justified from the start. In this case, the major question to be answered was “what am I to do to make this enterprise profitable?” Trying to answer this question, and taking decisions in the discussed framework, Lampert has concluded that the best solution for the situation would be tying himself to the daily company’s activity.
Moreover, it was not enough for him to stay ahead; he had to manage, but this decision lacked theoretical and practical foundations. This is how Lampert’s pseudo opinions impacted the overall performance of the company (Plous, 1993). Respondents are influenced by pseudo opinions when they do not know much about the issue or when they know nothing about it (Plous, 1993). In Lampert’s case, attribution heuristics has greatly contributed into the negative decision outcomes: Lampert was obviously justifying his behavior as situationally-produced. As a result, he has underestimated the lack of his managerial skills (Plous, 1993).
Critical thinking is the integral part of the decision making process. “Most international managers find it extremely challenging to evaluate a written or spoken commentary on a hot topic because both sides of the controversy seem to have good arguments” (Safi & Burrell, 2007). Has Lampert’s decision been caused by critical thinking approach? Definitely, it has: for a long period of time, Sears was criticized for lacking a management team with retail experience and for Lampert’s being a micromanager who hampered the business (Barbaro, 2008). As a result, Lampert was driven to the situation in which he had to admit his managerial mistakes due to the two facts: the external criticism, and the objective financial data confirming the $14 million financial losses.
The case of Edward S. Lampert is a brilliant example of a situation, in which successful manager has overestimated his skills and has not applied any critical thinking approach before the decision was made. As a result, numerous pseudo opinions and the lack of objective information have led to significant gaps in the company’s performance.
In order to take a good decision, a manager must “understand, what result is desirable and the tools available to us for making good decisions” (Safi & Burrell, 2007). There are several recommendations for a manager in similar situations. First, it is crucial that the manager avoids pseudo opinions. In this aspect, the wording of the question to answer is very important. In order to create effective decisions, managers must be able to formulate the questions.
Properly wording the issue crucially impacts the effectiveness of the chosen answers, and as a result, the managerial activities which lead or do not lead to business success. “Be honest with yourself about the agendas and motives. Are you really gathering information to help you make a smart choice, or are you just looking for evidence confirming your preconceived notions?” (Safi & Burrell, 2007).
Not only objectivity and evaluation of one’s skills have led Sears to failure. It is also the inability to properly formulate the goals of such actions: what aims did Lampert have in his actions? Did he want to promote his enterprise profitability or himself as a successful manager? He had to answer those questions before he undertook any real actions which later almost pushed the company into the flow of negative consequences.
In his decision to quit day-to-day management of Sears, Lampert has finally come to one of the crucial elements in the decision-making process: he was able to recall the key facts and decision-making variables. The list of these variables included financial indices and persistent criticism of Sears’ performance. As a result, Lampert was finally able to take the best decision possible in the problematic situation. However, it is still unclear whether hiring a new CEO was based on any objective grounds or would require thorough re-consideration in the nearest future. One may hope that this re-consideration will not be caused by a new management decision-making failure.
Barbaro, M. (2008). Sears’ chairman will take a step back. The New York Times. Retrieved
February 1, 2008 from http://www.nytimes.com/2008/01/29/business/29sears.html?ref=business–qG4vaywTPkZypAw
Connolly, T. (2000). Judgment and decision making: An interdisciplinary reader. Cambridge
Plous, S. (1993). The Psychology of judgment and decision making. McGraw-Hill.
Safi, A. & Burrell, D.N. (2007). Developing advanced decision-making skills in international
leaders and managers. Vikalpa, vol. 32, no. 3, pp. 1-8.