Sydney Finkelstein - Think Again: Why Good Leaders Make Bad Decisions and How to Keep it From Happeining to You

Copyright 2008 Sydney Finkelstein, Jo Whitehead, and Andrew Campbell

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First eBook Edition: February 2009

ISBN: 978-1-4221-2612-7

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This book relied on the contribution and support of many individuals many of whom would understandably prefer not to be mentioned by name.

Those whom we can mention include our colleagues at the Ashridge Strategic Management Centre (ASMC)including Marcus Alexander, Felix Barber, Stephen Bungay, Anthony Freeling, and Mike Gooldwho provided regular comments and input to the many drafts of our material. The member companies of ASMC also provided guidance and inspiration. Particular individuals from those companies whom we would like to mention include Peter van Laarhoven and Phil Renshaw. We benefited from the editing support of John Butman, Stuart Crainer, and Des Dearlove, as well as our editor at Harvard Business Press, Jeff Kehoe. Other input, examples, and advice came from Martin Essayan, Nick Viner, Valentin Von Massow, Liz McMeikan, Simon Wilsher, Peter Bennell, Simon Farnborough, Penny Dash, Cam Middleton, Dima Podpolny, Neil Monnery, Judi Bevan, Ulrich Pidun, Bob Batt, and Jay Kim.

Jo Whitehead would especially like to thank his PhD supervisors, John Stopford and John Huntwho started him down the road of researching decision making. He dedicates this book to Monica, whose decision to marry him he trusts was not hopelessly flawed.

Sydney Finkelstein would like to acknowledge the generous support of the Tuck School at Dartmouth College, and especially Deans Paul Danos and Bob Hansen for their continuing confidence that there is so much to learn from studying what goes wrong, and why. Thanks also go to the MBA students and executives who road tested some of the ideas in the book, especially the Hurricane Katrina story. The steady efforts of Helen Reese, agent extraordinaire, are greatly appreciated, as always. He dedicates this book to his daughter Erica, who has already made many well-considered decisions and has many more to come.

Andrew Campbell would especially like to thank his coauthors, Jo and Sydney, for tolerating his robust challenges, frequent edits, and continuous pressure for completion. Without their willingness to have another go, take the time required, and reject some of his suggestions, the ideas in this book would not be so powerful.

Sydney Finkelstein, Jo Whitehead,

and Andrew Campbell

Hanover, New Hampshire, and London

October 2008

Decision making lies at the heart of our personal and professional lives. Every day we make decisions. Some are small, domestic, and innocuous. Others are more importantdecisions that affect peoples lives, livelihoods, and well-being. Inevitably, we make mistakes along the way. We are only humaneven when we are at work. Indeed, the daunting reality is that enormously important decisions made by intelligent, responsible people with the best information and intentions sometimes go wrong.

Good leaders make bad decisions. Even great leaders can make bad decisions.

President Kennedy is famous for his blunder over the Bay of Pigs. President Hoover failed to inflate the economy after the great crash of 1929. Margaret Thatcher, the British prime minister, championed a poll tax that contributed to her being ousted by her own party. Paul Wolfowitz, the former U.S. deputy secretary of defense, was asked to resign as president of the World Bank because of a pay settlement related to his partner, who also worked at the bank.

And its not just politicians and public servants who get it badly wrong; business leaders, too, are prone to misjudgment. Juergen Schrempp, CEO of Daimler-Benz, led the merger of Chrysler and Daimler-Benz against internal opposition. Nearly ten years later, Daimler was forced to virtually give Chrysler away in a private equity deal. Lee Kun Hee, CEO of Samsung, pushed his company into a disastrous investment in automobiles. As losses mounted, he was forced to sell the car division for a tenth of the billions he had invested. An Wang, founder of the electronics company Wang, insisted on a proprietary operating system for his companys personal computer, even after it was clear that the IBM PC would become the industry standard. The company is now history.

Whether the decision is a personal one, as in the case of Wolfowitz, or of global importance, as in the case of the U.S. government reaction to the financial crisis in the late 1920s, mistakes happen. But why do good leaders make bad decisions? And how can we reduce the risk of its happening to us?

The Decisive Heart

To find out, we traveled to the heart of decision making in organizations of all shapes and sizes throughout the world. Each of the authors brought his particular perspective to the problem. As one of the worlds leading researchers into corporate strategy, for example, Andrew has been privy to some of the most important decisions made in some of the worlds biggest companies. While, in his researchcaptured in his bestselling book, Why Smart Executives Fail Sydney has examined the intricacies of failure. Finally, from his doctoral research on decision making and his years with The Boston Consulting Group, Jo has a unique combination of intellectual rigor and practical experience. What linked all our work and brought us together was a fascination with not just why bad decisions are made, but also what can be done to mitigate the dangers.

This unique combination of backgrounds and perspectives has been supplemented by our joint research. We began by assembling a database of decisions that went wrong. Lets be clear: we were not looking for decisions that simply turned out badly. We were looking for decisions that were flawed at the time they were made. This is an important point. It isnt that with twenty-twenty hindsight we identified these decisions as flawed. We sought out decisions in which any clearheaded analysis at the time would have concluded that it was the wrong decision.

Of course, many bad outcomes are due to bad luck or to taking calculated risks. In the business and political worlds in particular, sensible decisions based on considered thinking can turn out badly thanks to the unavoidable risks involved. Sometimes people are just unlucky.

As you can imagine, trying to distinguish between flawed decisions and calculated risks that turned out badly is not easy. For each, we made an assessment. Given the information available at the time, did we think that a reasonably competent person would have made the same decision?

We also looked for dissenting views in the decision-making process. The existence of contrary views is not proof that a decision is wrong. Many decisions have contrary views. But if there were no contrary views at the time, we excluded the decision from our rapidly expanding collection.

We quickly found there are an awful lot of bad decisions out there! Indeed, in unfamiliar circumstances, such as businesses entering new markets or politicians coping with new challenges, flawed decisions abound. We did not find it hard to identify eighty-three of them (appendix I lists the entire database of decisions we studied).