By now it’s generally accepted that if senior leaders suffer from cognitive biases their decisions can severely undermine company performance. Yet, leaders are not the only members of organizations that exercise poor judgment: Non-leaders are sometimes irrational too. Bearing this in mind, it is imperative that strategy-setters make explicit allowance for just how cognitively fragile their employees might be – or else they risk not fully understanding why their “perfectly rational” strategies don’t work.
Take the recent case of JC Penney, which hired and abruptly fired its CEO, Ron Johnson, after the major changes he instituted took the company from bad to worse. Johnson’s critics have explicitly accused the former Apple superstar of having suffered from no less than three cognitive disorders during his tenure, including: overconfidence (for failing to test his risky pricing strategy), representativeness (for trying to force the Apple retail model onto JC Penney), and anchoring (for having ignored pricing-related, cognitive biases amongst JC Penney’s customers).
Yet, the workforce that Johnson inherited at JC Penney seemed no less guilty of having their ownmental hang-ups, including: defense-attribution bias (for failing to recognize that JC Penney was a sinking ship long before Johnson arrived), Dunning-Kruger effect (for failing to see their roles in making that ship sink), and status-quo bias (for refusing to acknowledge that change was needed). Moreover, in a stunning display of large-scale, bounded rationality, more than 4600 of JC Penney’s head office staff used nearly 35% of the company’s broadband for streaming Youtube during office hours in 2012. In other words, a significant portion of the JC Penney workforce failed to see any connection between their loafing activities and the company’s poor performance.
His own cognitive biases aside, it’s unlikely that any of Johnson’s initiatives would have stuck at JC Penney without first making explicit allowance for the judgment lapses and biased mental dispositions of his new employees. For a firm already in a 6-year slide, how else could he have escaped the associations between his presence and the company’s further decline? By what other means could he have shown how much organizational incompetence was already impeding performance?
Johnson should have directly addressed the biases at the outset, while he forged his strategy. Instead, he fell into the common trap of failing to recognize how organizational biases can derail the execution of that strategy. Perhaps, for example, he felt that firing many of the blatant culprits would solve the problem. It didn’t. Instead, Johnson and new leaders like him need to go deeper into the psyches of lower-level employees. Here are four steps outlining how this might be achieved:
Assess the staff’s personal goals. Let’s be realistic: Having a mission statement too often means very little to low-seniority staff in many organizations. Leaders should recognize that the most common employee goals are more personal in nature: They want job security, good compensation, career progression, etc. Using anonymous surveys, well-structured retreats, and other devices to itemize these goals is an important starting point in overcoming biases that result from misalignment between corporate leaders and the people doing the work. The aim should be to gather a list of the most important goals that characterize what the staff “is thinking about.”
Identify the major bias. Without exhaustively listing the most common employee biases, it suffices to say that the most important one relates to the staff’s misperception of how their goals, their actions, and the company’s strategy are linked. If employees believe that the company’s current direction will ultimately lead to meeting their goals (when it doesn’t) and that a new direction will miss their goals (when it won’t), they will become resistant and inactive and other biases will flow. Hence, the leader must discern, through the examination of those surveys and retreat feedback, whether her staff has an accurate perception of reality.
Lead employees towards logically understanding the fallacies. Once major misperceptions of reality have been identified, it’s vital for you as a leader to publicly demonstrate that those ways of thinking, if accepted and believed, will not lead to the accomplishment of important goals—including those of everyday employees. For example, your staff may highly value job security and defend the status quo; however, if the current strategic direction is leading the company to disaster (as in the pre-Johnson, JC Penney case), as a leader you need to demonstrate the fallacy of the status quo.
Offer an alternative strategy that will still achieve everyone’s goals. Having demonstrated the fallacies, you’re now positioned to win the staff over to your camp in forging, launching, and executing a better strategy. That strategy should aim to meet—in addition to the standard financial and operational performance goals—feasible goals for employees. Where goals are infeasible the leader should explicitly state the reason and logic behind what’s been omitted.
As Ron Johnson learned the hard way, cognitive biases amongst lower-seniority staff can be deadly for even the best of strategies if they go unchecked. But if they’re identified early, executives have a better chance of overcoming them. By demonstrating their potentially negative impacts and transparently offering strategic alternatives to employees, senior leaders can get the buy-in they need and avoid the mistakes of JC Penney’s now-ousted CEO.
MAURICE EWING
Maurice Ewing is a globally experienced executive and the forthcoming author of The Leap Factor. You can follow him on Twitter @mauriceewing.
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