Question: Extract the data related to the performance management system in this case study after reading thoroughly

T thinking." rage of validity tests. Research shows How Good Data that the memory that bubbles up first is more likely than any other to steer Leads to Bad Decisions you toward a bad decision. We're often unconsciously recalling a past Looking to the past for guidance may skew event that confirms the decision we're already leaning toward. your view of present facts. Here's how to refocus your decision-making lens. "It's called the prism effect." explains Jack Beauregard, CEO of the Cam- BY DAVID STAUFFER bridge, Mass., consulting firm Innervi- sions Associates. "We only recall the HE 1994 PURCHASE OF Snap- Why Decisions Fail and professor of analogy that confirms our present giant Quaker Oats appeared University (Columbus, Ohio). Thus, he to be a no-brainer, CEO William notes, Quaker seems to have decided to Emest H. Forman, professor of man- Smithburg had engineered Quaker's purchase Snapple because it attributed agement science at George Washing- spectacularly successful 1983 huyout the success of the Gatorade buyout ton University and coauthor of of the slumping sports-drink com largely to Smithburg's insight rather Decision by Objectives (World Scien- pany Gatorade, amid grave doubts than to its actual basis: good luck tific, 2002). concurs. "We're all prone expressed by industry analysts. With to go with what worked out well." the Gatorade win behind him-he Making a decision based on historical he says. And we're led even further paid $220 million for the company precedent has numerous pitfalls. But astray if that past outcome, like and grew it into a business worth $3 if you're thinking you're better off not Quaker's purchase of Gatorade. billion-he seemed to have a gift for to factor in any memories-forget it worked out by chance. "It's in your identifying smart buys. So the Quaker Research shows that you'll consider brain for the next 10 years that your board gave him the go-ahead on the past experience subconsciously, even great insight produced the favorable Snapple deal. if you disregard it overtly. result, says Forman. The top-of-mind recollection, once surfaced, tends to But that acquisition proved to be one Fortunately, we aren't doomed to use resist all logic that suggests its inap- of the most unsuccessful in American historical precedent to misinform plicability. That's because the mind corporate history. It also cost Smith today's decisions. In fact, we need tends to overweight first thoughts and hurg his job. Quaker unloaded Snap- past events, experts say, to help us underweight subsequent evidence. ple in 1997 for $300 million, having cope with the mind-boggling com- This phenomenon is called "anchor- paid $1.8 billion for it plexity of today's critical business ing bias." says Hammond. "It's unbe- decisions. lievably powerful." How could the Snapple purchase have gone so wrong after Gatorade had What's more, the beneficial use of So how do you avoid it? "Look for gone so right? The answer lies in our past experience doesn't have to be a disconfirming evidence," suggests very human tendency to rely on his complicated or time-consuming Cornell University Graduate School torical precedent. It's in our DNA to effort. "You don't need a Ph.D. in of Management professor J. Edward seek help with today's decisions by decision making to be a little more Russo, "First, force yourself to list as recalling past decisions in situations orderly in making decisions," says many ways that your top-of-mind that seem analogous. Only too late John S. Hammond, head of his own precedent is a mismatch as it is a and sometimes never do we see that decision-making consulting firm in match. Next, force yourself to come the earlier situation was quite differ- Lincoln, Mass., and a former profes up with what at first seems to be a less ent in fundamental ways sor at Harvard Business School. similar precedent." Then try to list as many or more ways that it's a better Where do we err? We misremember. Here are the most important steps that match with your current decision than We remember selectively. We recall decision-making experts recommend you listed for your first precedent. what's recent and neglect what's more distant. Or we recall what's traumatic 1 Cross-examine The first precedent that comes to mind and ignore what's subtle. "Where you every precedent is often nearer in time to the current stand today dictates what you see in Subject the first historical precedent decision than it is closer in similarity, the past," says Paul C. Nutt, author of that occurs to you to a merciless bar Get past this "recentness bias" by Copyright 2002 by Harvard Business School Publishing Corporation. All rights reserved 3 Good Data, Bad Decisions, continued coming up with at least two events "Much more often than not." says expectations, in ways that make from the more distant past that seem Donnelly, eliminating emotion and choices obvious to decision makers." in any way applicable, then follow opinion also eliminates the suppor- Russo's advice to try to make them edly analogous precedent in its Render acknowledges that he can't work better entirety. "Suppose we are faced with quantify bottom-line benefits to the alternative investments to either company of the new decision process. President John F Kennedy battled expand a sales force or invest in addi-"But what I can say is that everyone recentness bias by having his aides tional clinical trials. A decision maker marketing, development, operations, read a history of World War I, says who was once a field sales manager or and so forth-has input and everyone John C. Mowen, professor of market- a clinical director might base his rec. communicates. I think those may be ing at Oklahoma State University, ommendation on his experience of our biggest gains. I'm certain we're Stillwater. "JFK's intent was to get five or six years ago. That might have getting better-quality decisions them thinking of precedents other been a big factor-literally decisive, because we're using better inputs." than those arising from World War IL." in a traditional environment. We con- which they all had lived through and sider many factors today-both Those inputs need not be sophisti- in which many, including the presi- financial and strategic. As it is, the for- cated or extensive. "Gathering data dent, had fought mer sales manager or clinical director doesn't mean you study a decision to is as likely as anyone to eventually see death." says consultant Larraine Segil. Kennedy's successor, Lyndon John- that the precedent's current applica- a former aerospace company CEO son, might have avoided the quagmirebility is minimal or nonexistent." who is founding partner of The Lared of the Vietnam War had he tested the Group, a strategic alliance advisory top-of-mind precedent. As an exer- 2 Require proof of firm in Los Angeles. "What's impor- cise, take the exact opposite view that common knowledge tant is doing some cognitive screen- memory presents," advises Fred "Memory is contrived and re-created ing, which can get us sufficiently Turner, a visiting scholar in communi- to suit our current needs." observes disentangled from our past experience cation at Stanford University and GenSight Group President Michael to assess it intellectually." author of Echoes of Combat: Trauma, Menard. So apply factual research to Memory, and the Vietnam War (Uni- the historical precedent that's so 3 Encourage others to versity of Minnesota Press, 2001). widely accepted in an organization challenge your thinking That would have meant that the that it's no longer challenged. Things The relevance of a particular historical Johnson administration "would have deemed to be common knowledge are precedent can be more solidly estab- considered whether their enemy, often the result of inferences made by lished if you invite others to comment rather than they had the popular the "primal" mind-they're a product on its validity-others who feel free to support of the people-which we of evolution, and so tend to be gov- dismiss the past events you may con- now know would have been a correct erned by emotions and instinct sider significant. Just be careful that assumption." you don't restrict their comments. Says "We can't reverse evolution, but we Forman: "Many CEOs ask for a brief- Clearly, emotion and personal attach- can use our "analytical' mind to under-ing: 'Just give it to me in a nutshell. ment loom large in dictating the his stand and better cope with the ways You can't fit very much in a nutshell." torical precedent that most readily evolution causes us to think." Menard comes to mind. Another way to soften continues. An essential part of apply. In general, the more people challeng- the outsive impact is to introduce ing our analytical mind in decision ing your precedents and suggesting more-objective decision-making cri- making "is to collect, manage, and their own, the better, Forman contin- teria, a tack recommended by The visualize relevant data." ues, particularly if they're people GenSight Group (Doylestown, Pa.). with motivations different from "This helps you get the emotion and "The beauty of being able to display yours." Sometimes, however, the opinion out of recollections of past data is that it can be very objective." decision-making group can turn into experience," says Jon Donnelly, vice says Todd D. Render, director of a "BOGSAT" (bunch of old guys/gals president of strategic planning and research and development for War- sitting around talking). Such a bunch process excellence for Janssen Phar- saw, Ind.-based DePuy Orthopaedics. is highly prone to "groupthink," a maceutica, a unit of Johnson & John- another unit of Johnson & Johnson term popularized by the late decision son based in Titusville, N.J., that that is implementing GenSight's researcher Irving L. Janis in his has started to implement decision decision processes. You can display classic 1982 book, Groupthink. Janis processes suggested by GenSight. multiple factors, such as risk and demonstrates how decision making HARVARD MANAGEMENT UPDATE DECEMBER 2002 Good Data, Bad Decisions continued can go very wrong "when a 'we- 4 Never rely solely of GM Strategic Initiatives. For exam- feeling of solidarity is running high" on precedent ple: What was the context of the deci in a decision-making team and its "History, contrary to the popular say- sion? What was the decision? What members fall prey to "concurrence ing, never precisely repeats itself." resources were allocated? What alter- secking behavior." Turner asserts. "Looking to the past natives were considered but not can often limit the possibilities you selected? Why? What assumptions The tendency teward decision biases, see in the future." were made? What outcome were you such as the recentness bias, increases looking for? By when? when groups make decisions, as com- He notes that Shell was the only major pared with when individuals do, says oil company to anticipate the oil price The document is completed and Oklahoma State's Mowen. "The dom- shock of the 1970s. Why? "Because signed by the decision makers after a inant view will be enhanced as others their then-new scenario planning team decision is reached but before it's participate." To counteract the ten- implemented deney, you need a devil's advocate." It's called thinking outside he says. "Among my five partners and the box, where the box is "It's quite an eye-opening experience." me, at least one of us is playing devil's advocate for every significant deci- all past experience. says Pudar. "People are forced to be clear. It can be painful. Decision mak- sion," says James Segil, president and considered the possibility of some- ers will sometimes see the absence of COO of Los Angeles-based enter-thing everyone else thought impossi- substantiation staring at them from the prise software developer Knowledge-ble: that oil prices could shock." It's page they filled out. But they can also Base Solutions called thinking outside the box, where solidify in their own minds exactly the box is all past experience. what they're deciding." Turner approvingly calls the formal creation of a naysayer role an encour- Which is not to say that historic agement of "heretics and heretical precedent should ever be completely Red Lodge, Mont-based writer thinking. Some people play that role discarded. Russo notes that some David Stauffer can be reached at MUOpinionibsp.harvard.edu intuitively," he says. "But in some people do that, saying, "Everything's large organizations, such as AT&T changed." and Shell Oil, it's done intentionally, by design." Heretics also aid decision 5 Above all, develop a process RESOURCES making by advocating radical depar- Surprisingly, seat-of-the-pants deci- Smart Choices: A Practical Guide ture from the path everyone else is sion making predicated on false or to Making Better Decisions taking. "They urge a contrarian deci- flimsy precedent occurs more fre- by John S. Hammond, Ralph L. Keeney and Howard Raiffe sion. For example, if I were a venture quently in today's sophisticated Harvard Business School Press 1998 capitalist right now. I might be invest- global economy than you might imag- The Art of High-stakes ing heavily in dot-coms, because ine. "We're shocked by the extent to Decision-Making: Tough Calls in everyone else has fled that market fol- which corporate America continues to Speed Driven World lowing its traumatic meltdown." ignore even the most basic practice of by John Keith Murnighan and John C. Mowen good decision making." says Menard. Wiley 2001 Segil strongly endorses the contrarian approach. He launched his current For hope-and guidance-cast an eye Why Decisions FailAvoiding enterprise just under two years ago, toward Detroit and a long-standing the Blunders and Traps That Lend to Debacles when the pervasive historical prece paragon of American enterprise. by Paul C. Nutt dent looming over almost everyone's There, a decision process being imple- Bemel-Koehler-2002 decision making was the dot-commented at General Motors is built Winning Decisions: Getting it crash. "It seemed to me to be the best around something called a decision Right the First Time time to start a business. Most people record. This document asks a few by J. Edward Russo and Paul 1. H. Schoemaker were too scared to do it. The few of us simple but critical questions about a Cunny.2002 who did seem to be succeeding." decision, explains Nick Pudar, director