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Strategic Mistakes

March 10 2020 - Research from Nyenrode Business University in the Netherlands found that more than half of all strategic decisions taken by directors turned out to be mistakes,

The study conducted by PhD student Joep Steffes found three main reasons for wrong decisions:

  • Time constraints
  • Not having all necessary information
  • Bias, causing important decisions to be made on 'gut' feelings, rather than reason

Joep Steffes argues that important decisions, such as whether or not to enter a new market or to pursue a merger, need more thought than average decision. Directors should not rely on automatic actions, speed, and intuition.

Steffes points to research from former Harvard Business School professor Clayton Christensen who found that. 30,000 new products are launched every year but 80% of these fail as a result of poor decision making.

According to Joep Steffes:

"Businesses need to ensure that their directors are making fully-informed decisions by selecting directors based on cognitive capabilities and critical thinking skills. They have to put more cognitive effort in the decision-making process. They need to have decision governance structures and responsibilities in place which effects how decisions are made and that monitor the decision-making process."

Joep Steffes considers that poor decision making among directors could be result from homogeneous boards and non-diverse thinking. Steffes said:

"The position of director would often be passed on to those in the 'old boys' network' rather than a candidate who is more qualified.

"However, this doesn't work anymore. Directors need to have real knowledge and expertise to be able to do this role, they need to fully understand how the behavioural process works."

Steffes concludes that:

""If a company is more responsive to the behaviour of directors in this capacity, it leads to better decisions which can not only be of value to shareholders and the organisation but can bring social benefits too.

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