Think Again
"What were they thinking?" is an irresistible question to ask when someone makes a big mistake. It's one that Sydney Finkelstein, Steven Roth Professor of Management at Tuck, spent a lot of time asking while he researched his latest book, Think Again: Why Good Leaders Make Bad Decisions and How to Keep it From Happening to You (Harvard Business Press; Feb 2009). "Like any good human, I find it a lot easier to look at other people's faults than my own," he jokes, acknowledging the appeal of using hindsight on someone else. But decisions, he says, are the lifeblood of action for organizations and individuals, and there is much to be learned from others' mistakes.
Along with co-authors Jo Whitehead and Andrew Campbell, he looked at 83 cases of high-profile acts of poor judgment in the political, business, and military worlds. How could Department of Homeland Security official Matthew Broderick fail to see that Hurricane Katrina was a catastrophe? Why did Lehman Brothers' CEO Dick Fuld spurn suitors, instead watching the venerable firm go broke? In about half the cases, people agreed to talk to the authors directly. Many, Finkelstein notes, seemed happy to get it off their chest. "They wanted me to know that they had reasons for what they did," he says. "Sometimes they acknowledged they were personally responsible and other times they felt threatened."
Finkelstein's past research has focused on decision-making, senior leadership, and how teams operate in large organizations. This book is a natural follow-up to Why Smart Executives Fail, which looks at how entire organizations fall apart. Andrew Campbell, a director of the London-based Ashridge Strategic Management Centre contacted him after reading that book, and flew to Hanover to meet him. They agreed to collaborate on another work and brought in Ashridge director Jo Whitehead, an expert in strategic decision-making. Written for a general audience, the book's approach, which relied largely on interviews rather than academic tools like objective surveys, was well suited to the complexity and nuances of decision-making. "Most academic researchers tend to look at a large number of cases and find general patterns," says Finkelstein. "I wasn't interested in that. I think the interviews allow you to look eyeball to eyeball with people and really understand what was going on. So you end up with fine-grain ideas on decision-making."
Through the lens of these cases, Think Again looks at two processes involved in making judgments: pattern recognition and emotional tagging. The brain always relies on previous experience in judging current situations. But past experience can be misleading. For example, in August 2008 Lehman Brothers Holdings Inc. was in big trouble, like many other banks. CEO Dick Fuld refused to sell, believing he could ride it out. "If you go back and look at his history at Lehman, he had made it work in other crises, for example the Long Term Capital Management crisis in 1998-99." That crisis, Finkelstein points out, was much less serious than what the company faced now. "This is a classic example of misleading experiences, where he had experience that made him think he could solve the problem. And that ended up in part costing him the company."
Emotional tagging is another crucial process. The brain tags every experience as positive or negative, and uses that information when it evaluates choices. Referring to research in neuroscience and cognitive psychology, the book looks at how emotions appear to lead the decision-making process, even before we are aware of them. This process allows us to make efficient choices every day, but it can also be faulty. One case looks at Wang Labs, which became one of the most successful computer companies in the world after it launched its word processor in 1976. Its founder, An Wang, was reluctant to develop a personal electronic computer, declaring, "The PC is the stupidest thing I ever heard of." He was driven by strong emotions: his attachment to the word processor and his bitterness towards rival IBM, whom he didn't want to emulate.
While Think Again focuses on cautionary tales, it also suggests how to reduce our vulnerability. It identifies four red flag conditions that can lead to errors of judgment: misleading experiences, misleading pre-judgments, inappropriate self-interests, and inappropriate attachments. As the case of An Wang shows, changing your mind is not at all easy. "He has to set up an environmental culture so that there are other people that can provide their alternative point of view," Finkelstein says. "One of the safeguards is to ensure that you have the right people around the table."
The current crisis in financial services gives daily examples of the victims of bad decisions. But the insight is just as applicable to personal decisions. "It's not just about Fortune 500 CEOs," Finkelstein says. "As a researcher, a professor, what I care about most is helping people think differently and hopefully in a better way about their lives and organizations. It's fun."
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