Crowds are not Wise: Three Magic Ingredients to make better Group Decisions
Many business decisions are taken within a group. The person leading the group — may it be the CEO or a project manager — is likely to…
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Many business decisions are taken within a group. The person leading the group — may it be the CEO or a project manager — is likely to have the final say, nevertheless the role of the group has a major impact on the decision-making.
Do groups really lead to the best possible decisions?
Two examples of decisions which led to substantial losses.
AOL and Time Warner in 2001. AOL acquired Time Warner for $164bn in 2001, following discussions that took place for over one year. Although Time Warner was initially supporting the deal, it soon realised it was not in its best interest and made a loss of $99bn only one year afterwards, in 2002.
The purchase of ABN Amro by The Royal Bank of Scotland in 2007 led to the near collapse of the acquirer. Following an investigation by the FSA (Financial Services Authority) the decisions taken by the management team were a determining factor, including disregarding the bank’s weak capital position and inadequate due diligence. The aftermath of the deal left the bank close to collapse during the financial crisis and was bailed out by the government in 2008.
What is it about people when they gather in groups?
These are past events and of course we assess them in hindsight. However, it is important to examine what happened within those two groups of very senior and experienced executives.
The questions that fascinate me, and should challenge any executive are:
What was the process or framework (if there was one) used in the decision-making?
What information did they base the decision on?
How did the group dynamics influence the decision-making?
The rationale behind group decisions is sound: it fosters collaboration, shared responsibility and commitment to a common purpose. Moreover, its members can contribute a broader range of views, experiences and expertise. Discussion is considered a core activity of a group. It promotes aggregation of information, and it can facilitate a shift of perspective and greater creativity. It can also identify the best solution, which tends to be provided by the best members of the group. Getting beyond groupthink to make groups smarter.
There is also that famous expression ‘the wisdom of the crowds’. Despite the claim that groups are smarter as a whole than the smartest people within them, I believe that depends on the circumstances.
People are influenced by biases, heuristics and emotions in their thinking, this can increase the potential for mistakes. Human behavioural influence both the process and on the potential outcomes of the decisions. I am sceptical about the wisdom of the crowd. We cannot rely on a group to reach the most optimal decision.
Do you relate to any of these situations?
My observations have led me to beware of group decisions, unless they are facilitated. There is somethings very valuable and powerful which I have seen happen with a facilitator present.
These are examples of situations I have observed in organisations around the world:
Participants arrive at a decision meeting and look at each other aimlessly: they are not quite sure how to start
Group members contributing information and data which they were not confident in, and had not been properly validated
Groups being swayed by one charismatic participant who had an earlier, not-so-good idea but who took over the discussion and stopped others presenting alternatives
Each of these situations gives us one of the magic ingredients.
How to make better group decisions: the three ingredients
Ingredient n.1
I have seen the aimless look among board members in large organisations, so you are not alone if this is the typical scenario in your company. The problem stems from focusing too much on the outcome of the decision and rush to solve problems.
The magic ingredient is the focus on the process. This is something that’s missing in many companies, there are detailed processes on how to order stationery and how to fill in your expenses, however there is no process on how to make decisions.
This process (or framework) doesn’t have to be complicated and cumbersome (I definitely don’t advocate that). It can have steps such as ‘define the problem’, ‘each team member has a brief presentation on his/her department viewpoint’, ‘there is an anonymous vote’ and so on. This is your process and needs to fit the requirements of your team and company
Ingredient n. 2
It seem that the more data we have, the more lost we are. Or we keep searching for an elusive piece of data which we are sure will solve all our problems. These are some of the questions that pop up all the time: ‘Why does that system not give me data X?’, ‘Why is the data coming out from team A is so wildly different from what team B sends?’ and ‘Can I trust these numbers?’
The magic ingredient is to sieve all information through the filters of useful, accurate and relevant. It seems simple, but it is not easy. I believe it is the only way, we need to continually strive to challenge and validate the information we receive.
The first step is to define the problem/question (much before you think of a decision). Let’s say you want to open a factory in Bulgaria, for each piece of information ask your yourself (and especially those who give you this information): ‘How useful is this data to the problem/question?’, ‘Explain how you validated this data to ensure that it is accurate’ and ‘What makes this data relevant to the problem/question we are dealing with?’. Then listen and keep probing with more questions.
Ingredient n. 3
We have all been in a group situation where the extrovert participant express an opinion and somehow prevents other people from presenting alternatives. The psychology of why and how this happens is whole new topic. For now, let’s just accept this as a fact of group decisions (and a reason why I believe crowds are not always wise).
The magic ingredient is to prevent that initial opinion and keep an open mind for as long as possible. It is a balancing act between encouraging people to contribute, whilst not committing to any of the ideas, just yet.
What I found most useful is to start with anonymous contributions, this levels the playing field and prevents people being influenced by others. There is something Simon Sinek once said that I have started using: “ask people to come up with 15 ideas each in 48 hours”. It sounds a lot, but it is the only way to prevent overlap and get people to come up with beautiful nuggets that they would not, if the target is 3 ideas each. This approach is also inclusive of all the smart introverts and reflectors in our teams.
Now you know the 3 magic ingredients to get started. There is much more to optimise decision-making however make a start today and contact me if you want to discuss your decision-making challenges.
If you can relate to any of the situations above, you have the opportunity to optimise decision-making in your organisation.
In this article, I have encouraged you to let go of your preconceptions and challenge your decision-making approach. I want to hear your views and experiences, the best way to learn is from the exchange of opinions.
About me
I have developed a passion for decision-making when studying for a Masters in Behavioural Science at the LSE. I wrote my thesis on behavioural dynamics in group decisions and was hooked. My mission has become to learn more about the topic and then inspire people to optimise their decision-making. My business background meant that working with executives and companies was the best place to start.
I reflected on my experience and observations in many organisations and it struck me that many didn’t have a framework or process to ensure they achieved the best possible decision outcomes. This became even more poignant during the pandemic this year.
Check out my website for more information on decision-making. You can sign-up for insights in decision-making and contact me if you want to talk about your specific decision-making
References
Martin, I. (2013). Making it happen. Fred Goodwin, RBS and the men who blew up the British economy. In. London: Simon & Schuster.
Kahneman, D., Slovic, P., & Tversky, A. (1982). Judgement under uncertainty : heuristics and biases. Cambridge ; New York: Cambridge ; New York : Cambridge University Press.
Thaler, R. H., & Sunstein, C. R. (2009). Nudge. Improving decisions about health, wealth and happiness. In. London: Penguin Books.
Kahneman, D. (2011). Thinking, fast and slow. In. London: Allen Lane, Penguin Group.
Sunstein, C. R., & Hastie, R. (2015). Wiser. Getting beyond groupthink to make groups smarter. In. Boston, Massachusetts: Harvard Business Review Press.
Surowiecki, J. (2005). The wisdom of the crowds. In. London, Great Britain: Abacus, an imprint of Little, Brown Book Group.