Steps to adopt a Behavioral Strategy

Baskar Sundaram
Baskar Sundaram

The human mind has a tendency to be subconsciously biased and holds certain preconceived opinions that will definitely impact our strategic decision making. It is imperative to learn to override this to bring about a positive change in our corporate performance.

Behavioral economics has now become mainstream and behavioural principles play an important role nowadays in corporate policy making. Business studies and insights are being used to understand customer behaviour and to exploit any market anomalies. Cognitive biases become systematic tendencies that evade rational calculations. Leaders entrusted with important strategic decision-making must learn to recognize their own biases.

A recent survey conducted of executives from leading companies revealed that a major percentage of them felt that the quality of strategic decisions in their companies was poor, thus confirming the significant body of research indicating that cognitive biases affect the most important strategic decisions made by the smartest managers in the best companies.

A new research quantifies the financial benefits of processes that “de-bias” strategic decisions which makes a strong case for practicing behavioral strategy – a style of strategic decision making that incorporates the lessons of psychology. This starts with understanding that we cannot evade the subconscious biases and instead try to formulate new norms to manage different activities that can diminish the impact of cognitive biases on critical decisions, using a simple language for recognizing and discussing biases, one that is grounded in the reality of corporate life.

A good decision usually involves 3 factors – fact gathering, analysis and a solid process. The prevalence of biases in corporate decisions is partly a function of habit, training, executive selection, and corporate culture. Improving strategic decision making therefore requires not only trying to limit our own (and others’) biases but also orchestrating a decision-making process that will confront different biases and limit their impact.

The behavioral-strategy journey requires effort and the commitment of senior leadership, but the payoff would be better decisions, not to mention more engaged managers, making it one of the most valuable strategic investments organizations can make.

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