The Millennium Dome in London was billed as a modern-day wonder of the world.  It opened on 1 January 2000, ushering in the 21st century with promises of an exciting, innovative, high-tech venue, as well as being a futuristic landmark; perhaps a contemporary equivalent of the Eiffel Tower in Paris.

The Prime Minister of Britain, Tony Blair, extolled the significance of the dome, calling it: “a triumph of confidence over cynicism, boldness over blandness”.  Yet within weeks the dome became a national embarrassment.

It was forecast that twelve million people would visit the dome, but fewer that 4,5 million came. The government of the UK invested a total of 965 million pounds in the project, to no avail.  Exactly a year later, the dome shut its doors, bankrupt.  Ironically, the day it ceased to operate was the day the real millennium was ushered in.

Why did the dome fail? For the same reasons that most decisions fail.  They are made with vested interests in mind, without adequate objectivity, and because poor decision-making practices are applied.

Most Decisions are Poor Decisions

Paul J. Nutt spent more than twenty years studying how decisions are made and how effective decisions differ from those that don’t work.  He evaluated over four hundred decisions made by managers in organizations across the United States, Canada and Europe.  His key finding was startling: “Decisions fail half the time… Two out of every three decisions use failure-prone practices…  Vast sums are spent without realizing any benefits for the organization”.

Although Nutt established that 50% of decisions fail, he also said that the real figure is likely to be much greater than that. Most managerial decisions are made privately. When things go wrong they are either covered up, or blame is shifted.  Seldom are managers accountable for the efficacy of their judgments.  For these reasons it is estimated that the real figure for failed decisions is nearer the 80% mark.

The shocking failure rate prompts the following questions:

• Why do managers make poor decisions?
• Is there a process that may be followed that will significantly improve the quality and effectiveness of decisions?

The answer to the second question is yes.  There is a rational decision-making process that, if followed, will ensure a good decision in the vast majority of cases.  Mistakes may still be made, but these are likely to occur due to matters outside your control or because of information or data that was not available.  My guess is than an effective decision is possible ninety percent, or more, of the time.

We will now consider, in more detail, the reasons why decisions fail.

Failure-prone practices

There are essentially seven factors that constitute the root causes of decision failures.  These are:

1)  Vested interests and self-gratification
2)  Profit maximization and greed
3)  A vague or ambiguous purpose
4)  Rush to judgment
5)  Focusing on the wrong issues
6)  Not considering the wider impact of a decision
7)  Lack of action and follow-through

Before we expound on these decision-making blunders one by one, bear in mind that they seldom occur in isolation.  Most often, two, three or even more factors combine to adversely affect the quality of the decision.  For example, profiteering (profit maximization) could take place simultaneously with a rush to judgment and a focus on wrong issues.

1) Vested interests and self-gratification

At senior levels of management, and in politics, this is probably the single most devastating cause of poor, costly, strategic decisions.

The reason that politicians seldom make good business decisions is that nearly every decision is made with the mindsets of either staying in power, or serving the narrow interests of the party concerned.  Consequently, it is universally true that government owned corporations are generally inefficient and unproductive.

Private and public enterprises are, however, also subject to the same malaise. This is particularly true of those organizations headed by high-earning, persuasive leaders who are extremely competitive and very egotistical.

Whenever narrow, self-interests prevail, decisions are made from an egotistical perspective.  The ego seeks to serve self and make one look good at the expense of others.  It is also irrational, especially when challenged.  Charismatic, powerful leaders often have an exaggerated sense of their own self-importance, and since they like to control and dominate, they are prone to exert undue influence and impose decisions to gratify their personal needs and desires.  This is a dangerous predisposition, frequently leading to the incursion of huge losses and even corporate failure.

When making a significant decision, a leader or manager should always keep the best interests of the company in mind.  Self-interests should never prevail over the well being of the organization and its stakeholders.

2) Profit maximization and greed

A commonly held misconception is that businesses exist for the sole purposes of maximizing profits and increasing shareholder wealth. If this view drives organizational behaviour it is likely to lead to exploitation and even corruption. Consider, for example, a case involving Ford and the Firestone Tyre Company.

In the late 1990’s, Sports Utility Vehicles (commonly known as 4×4’s) began to emerge as a highly desired vehicle for wealthy metropolitan enthusiasts. The image of youthfulness, adventure, and the option to take the vehicle where no other car could go, appealed to a new genre of men and women who wanted something different.

To meet the needs of a growing market, motor manufacturers began producing SUV’s in large numbers.  Because wealthy people are not particularly price sensitive, SUV’s were able to generate a relatively high profit.

With the idea of maximizing profit from this ‘cash cow’, the Ford Motor Company heavily promoted a SUV called the “Ford Explorer”.  On the face of it there is nothing wrong with this.  What was wrong was that, in pursuit of profits, Ford, and its supplier Firestone, cut corners to the point that the vehicle was unsafe, causing many people to lose their lives.

City use of the vehicle meant that SUV’s were driven on hot, tarred roads at high speeds.  Urban drivers were encouraged to keep their tyres under-inflated to ensure a comfortable ride. All of these factors constituted a major hazard because tyre specifications were such that, under those conditions, treads would peel off causing the SUV to veer sharply and roll. In the space of just a few years, the accident toll reached more than 6,000, with 174 deaths and 700 injuries.

How did Ford and Firestone react when confronted with these facts?  Initially they responded with a succession of denials.  Then, when the truth began to emerge, they resorted to blame.

Ford conceded that they had been aware of incidents of tread separation in South America. They claimed that Firestone had been notified and decided not to recall tyres due to the cost.

Firestone officials admitted that their tyres did not fully meet safety criteria.   Tyres had even been mislabeled as having an extra nylon strap.  However, Firestone said that tyres had been manufactured according to Ford’s specifications.  Officials also pointed out that SUV manuals recommended tyre pressures below those required by Firestone.  They claimed this was the major cause of tyre failure.

The dispute became more and more acrimonious as the debate became increasingly public.  Firestone eventually severed its relationship with Ford, a relationship that went back more than a hundred years.

Ford ended up by recalling millions of vehicles, at a cost of billions of dollars.  Firestone faced an estimated loss of $50 billion in lawsuits and lost sales.  The CEO of Bridgestone, Firestone’s parent company, was called to testify before the USA Congress and subsequently resigned. To squash the controversy, and remove the matter from the public arena, Ford decided to settle claims out of court.

A fiasco such of this would have destroyed almost any business, anywhere, and put thousands of people out of work.  The fact that Ford and Firestone are mega conglomerates, with vast resources, makes one wonder why they would so stupidly decide to save a few dollars on each tyre at the expense of human lives.  The answer is profit maximization and greed.

Profiteering and greed can be seen in many aspects of corporate life.  Always they lead to exploitation. Often, information is manipulated or misrepresented for the benefit of few and to the detriment of many. Think of the corporate failures that have dominated the headlines in recent years, such as Enron and Tyco, or Masterbond and Health and Racquet Club. Tens of thousands of employees have lost their jobs; investors have forfeited millions (some have even lost their life savings), yet in many cases the perpetrators of these injustices retire with great wealth.

If profit maximization and shareholder wealth are not the purpose of business, what is business all about?  In my view, the purpose of business is to provide outstanding, value-added products and services for the benefit of all stakeholders.  Of course stakeholders include shareholders (the owners of a business) and directors, but they also include staff, customers and suppliers.  To focus on one group of beneficiaries, at the expense of all others, is to misunderstand the nature of business.

3) A vague or ambiguous purpose

Effective decisions have very clear, definite and transparent objectives.  They are intended to achieve aims that are specific, measurable, realistic and in the best interests of the company as a whole.

An unclear or obscure purpose often heralds a hidden agenda. A vague, appealing purpose or dream, is often motivated by an ulterior motive; a motive that may serve the vested interests of individuals or specific groups of people, without benefiting the all the company’s stakeholders.

Decisions that are made to achieve specific objectives can be calibrated and appraised as to whether they are effective.  Because issues are thought-through, and where necessary debated and agreed, outcomes are measurable.  Those making the decision can be held accountable. Under such circumstances managers are far less likely to use manipulative or grandiose facades to obfuscate self-serving motives driven by greed or large egos.

Another important benefit of having a clear outcome in mind is that a decision-maker is less likely to be sidetracked.  In the course of arriving at a conclusion, a manager simply has to ask whether or not it achieves the stated objective.  If several options are available, the efficacy of each alternative may be appraised in terms of which is most likely to attain the best result.

4) Rush to judgment

Managers are under constant pressure to perform.  Consequently, decisions are sometimes made quickly, without sufficient data gathering.  This practice is particularly prevalent when information is not readily available, or when data is presented that predisposes managers to see what they want to see.

The predisposition to jump into action is also a quality sought after, and valued, by many managers. We are told that that any action is better than no action; a moving ship is easier to redirect than a stationary one.

Decisiveness is thus a quality to be admired. Indecisiveness is perceived to be the mark of a timid or confused individual. Consequently, managers are encouraged to mobilize themselves to an immediate, and sometimes instinctive, response when confronted with a sudden, serious or urgent problem.   Taking time out to reflect, or delaying a decision to establish the real cause of a problem, is seen as a weakness, the attributes of a ditherer.

There is also psychological comfort in taking quick action.  Doing something, anything, conveys the feeling that something is happening and that you are in control.

However, making a decision to feel good, or taking action without appraising the issues, or coming to judgment without sufficient data, are sure ways to fail.

According to Paul Nutt, the majority of corporate debacles can be traced to decision-makers seeking a quick fix. He says:

“The first seemingly workable idea that was discovered got adopted. Having an ‘answer’ eliminates ambiguity about what to do but stops others for looking for ideas that could be better.

The rush to judgment is one of the reasons that Ford and Firestone’s top management initially opposed a recall.  They made a quick decision because, on the face of it, it would cost too much.  However, in the end, failure to replace tyres cost both companies considerably more than they could have imagined, especially when the costs of litigation, loss of business, and bad publicity are taken into account.

Decisions made quickly are often spontaneous and irrational.  They are usually based on self-interest, precedent, a superficial observance of the facts, or upon how one feels in the moment.  This in not to say that fast decision-makers are always wrong; they may sometimes be correct.  But there is a significant danger – the danger of subjectively reacting to a situation, not thinking it through, coming to a false or inappropriate conclusion, and taking a course of action that is disadvantageous and even disastrous.

It should be borne in mind that whenever people are tempted to make a hasty decision there is usually pressure or strong emotion driving the need.  Under such circumstances it behooves us to wait a while, gather information and delay the decision until a fully rational and considered approach can be taken.

A rush to judgment is the also the major reason that alternative courses of action are not considered.  In most cases there are many ways of achieving a desired outcome, some more effective than others. By taking the time to consider several options, including new, innovative solutions, an unusual strategy may be employed that provides added advantages and even a competitive edge.

5) Focusing on the wrong issues

It follows that if managers focus on wrong issues, apparent issues rather than real ones, the resultant decisions will not solve problems. Neither will they address the things that really matter.

According to Louis Allen:

“An effective decision can only be made if the real cause of a problem has been identified, or if the real need has been established”.

Decision makers are often provided with information that, on the face of it, makes sense.  If a decision is made on data that seems to be true, and the information is not validated, there is a strong likelihood of focusing on the wrong issue.

Think, for example, of the Iraqi war.  After ousting Saddam Hussein, on the grounds that he was manufacturing and storing weapons of mass destruction, the USA and UK found that their entire premise for declaring war was based on an illusion. Billions of dollars and thousands of lives were lost because of faulty intelligence.

Most people will agree that Iraq, and the world, is better off without Saddam and his brutal, inhuman regime.  But the fact remains that, if it was known that the dictator possessed neither nuclear nor chemical weapons, the war would not have been justified; neither Bush nor Blair would have received support for invading Iraq.

On a smaller scale, actions based on fear and faulty perceptions occur all the time in business.

Suppose, for example, that the Managing Director of a business is concerned about a loss of market share after noticing that a competitor had made inroads into his target market.  After an examination of the facts, he comes to the conclusion that the competitor is a major threat and needs to be eliminated.  With the demise of the competitor in mind, he devises devious strategies to neutralize his adversary.  Would this constitute good business practice?  And would it really solve the problem, even if it were possible to put the competitor out of business?

We can answer these questions by examining the case of British Airways vs. Virgin Atlantic.  When Richard Branson announced his plan to introduce a new airline he was greeted with incredulity and ridicule.  Major international airlines, such as British Airways, gave Branson no chance of success and predicted he would go the way of Freddie Laker, whose airline, Skytrain, descended into bankruptcy after causing an initial stir.

But BA soon changed its mind.  Before long, Virgin Atlantic made its presence felt. BA found their passenger loads decreasing, whilst Virgin Atlantic were growing from strength to strength.

By introducing value-added, innovative new services, and by promoting the image of being a fun airline, Virgin became a major threat to British Airways.  So what did BA do? Instead of improving their passenger services, and offering greater value, they decided to ruin Branson and put Virgin out of business by engaging in a series of “dirty tricks”.  This strategy was driven by fear, and envy of a smaller rival.

In due course, Branson became aware that something was radically wrong.  Rumors and false reports were being promoted and problems emerged that suggested a focused and vindictive drive to malign and destroy him and his business.  He hired investigators to uncover the source and soon had conclusive evidence of British Airway’s tactics.

In the high court, BA admitted that they applied shameful business strategies to eliminate Virgin Atlantic.  These included hacking into Virgin’s computer system, perpetrating industrial espionage, price slashing, attempting to block Virgin’s access to new routes and withdrawal of co-operation on safety training and engineering agreements.  They also admitted planting “hostile and discreditable stories” about Virgin and Richard Branson in the press.

Bernard Levin, columnist for ‘The Times’ was particularly disturbed by the nature and extent of the disgraceful campaign waged against a business competitor in an open market system. In an article he wrote:

“I detected a stench so relentless that I have found myself unable to
sleep…The stench is made up of several sub-stenches, including
self-exculpation, blame-shifting, cowardice, knavery, crocodile tears
and a miasma in which anything can be lost and no doubt has been.

Lord King [Chairman of BA] presided over an enterprise
that would  have had the mafia saluting, while his fetcher
and carrier, Sir Colin Marshall, trotted behind him.”

British Airway’s defense collapsed in January 1993, and a multi-million pound out-of-court settlement was agreed upon.  In addition, several top-level executives lost their jobs, including the Lord King, Chairman of BA.  Lord King also publicly apologized to Richard Branson for perpetrating a series of “disreputable business practices”.

Another, more recent case, occurred in South Africa concerning the national carrier, South African Airways, and its rival, Sun Air.

In 1999 Sun Air was known as “South Africa’s favourite airline”.  To force the airline out of business, SAA’s president advised Sun Air that the national carrier had purchased it for seventeen million rand.  Sun Air was ordered to stop flying.

Later, the minister of public enterprises  (Jeff Radebe) refused to rubber stamp the deal but it was too late to restart the airline.  Consequently, the R17million was never paid and shareholders lost their entire equity.

At the time of writing, a lawsuit is under way for claims totaling R275 million, alleging conspiracy to gain control of Sun Air and shutting it down.  In addition, a shareholder claim of R178 million is being made against South African Airways.

The last two cases provide evidence of just how leaders make poor decisions by focusing on the wrong issues.  Instead of trying to eliminate competition, which is what an ill-advised bully would do, a more appropriate course of action would be to establish exactly what the real problem is. Why is a competitor gaining ground, and what needs to be done to rectify the situation?  Perhaps the answer lies in better service, or a higher quality product, or a reduced price tag.  Whatever it is, the real problem must be addressed if market share is to be regained.

6) Not considering the wider impact, or consequences, of a decision

Decisions have both short and long-term consequences.  Many managers make the mistake of making a decision that appears to have an immediate benefit, without considering the wider impact of the decision.

Nedfin Bank was, at one time, a highly successful general bank that was part of the Nedbank Group.  It had pioneered many innovative leasing and other financial facilities, and had branches in every major South African centre.

Unlike most general banks, Nedfin was not reliant on its parent company for loan capital.   It provided customers a range of deposit accounts through a wide network of banking halls.

During an economic downturn it was decided to retrench staff and close down banking halls throughout the country.  The objective of this decision was to eliminate a significant expense item (maintaining banking halls was costly when one takes into account salaries, rent, furniture and equipment etc).  Nedfin thus stopped taking deposits from the public, and was funded by Nedbank.

By closing its banking halls, Nedfin did achieve its objective of reducing costs.  However, there were other consequences that proved devastating.

For example, banking halls were conveniently situated in shopping malls and other hubs.  They were visible and attracted a wide range of customers, from depositors to borrowers.  Many people who had deposit accounts arranged hire purchase and leasing facilities, and those who made use of financing facilities often opened savings and other accounts for themselves and their family. In other words, banking halls were highly convenient, one-stop outlets for the rendering of financial services. By shutting down its banking halls, Nedfin lost much of its visibility and access; factors that gave it a competitive advantage over its rivals.

Soon after closing its banking halls, Nedfin was absorbed into Nedbank.  Today it no longer exists.  The decision did achieve its short-term objective of eliminating a large slice of expenditure, but the wider ramifications of losing a large client base was not considered.

7) Lack of action and follow-through

A decision on its own, even a good decision, is relatively meaningless unless it is followed by an implementation plan, by action.  Without action effort is wasted.

At first sight it seems rather obvious to suggest the need for action.  Yet a survey has found that about 50% of strategic decisions are not followed through to their successful conclusions.  They are spoken about, agreed and even delegated, but then often abandoned until the next strategic meeting is held

Lack of action is a characteristic of many thinkers who are challenged by the prospect of solving a difficult problem, but bored by the application of subsequent mundane actions. A leader may be highly competent in problem diagnosis and finding highly creative and innovative solutions yet deficient in implementation. Many great leaders, thinkers and inventors are subject to this phenomenon.

For example, Sir Alexander Fleming, discovered penicillin in 1929.  He published his findings and concluded that penicillin was safe, non-toxic and able to kill harmful bacteria in humans. Fleming had done a thorough scientific diagnosis of a medical problem.  He also found a solution.  But he did not follow-through.

Nine years after Fleming announced his discovery, two scientists, Florey and Chain, studied his work.  They immediately saw the practical benefits of penicillin and resolved to introduce it to solve numerous medical problems. In this case Fleming failed to follow-through on a life-saving discovery, and it was left to others to take action for the introduction and mass production of a drug that we now take for granted.

To ensure that decisions are followed-through, and actions taken, it is important that specific individuals are given responsibility for implementation.  Such people must be called to account, with delivery expected by a predetermined time.  Furthermore, an agenda should be set up to receive regular feedback on progress.

Conclusion

Perhaps more than any other single factor, a manager’s effectiveness is determined by the quality of his or her decisions.  Most managers are not trained in decision-making.  Consequently, decisions are often made spontaneously and intuitively, usually serving the interests of the decision maker.

For these reasons it is has been found that at least 50%, and possibly even 80%, of business decisions fail.

Decisions fail for the eight reasons already stated. To overcome these inadequacies managers must always seek to make the best decision possible, from the perspective of the overall company and its stakeholders (including customers, staff, suppliers and shareholders).  This requires a high degree of courage and integrity, and the desire to place the interests of others before one’s own.