Strategic decision-making pitfalls happen by the lack of a clear process or communication, a poor problem's understanding, and a bunch of cognitive biases. Before we discuss the common pitfalls and how to avoid them, let's first discuss the effectiveness of strategic decision-making.
The effectiveness of strategic decision-making is about creating the right solution that aligns with the company's vision, solves the right problem, and is feasible to implement. When making a strategic decision, there are several important aspects to consider. These can include the potential risks and rewards of the decision, the costs and resources required to implement it, and the potential impact on your organization's overall goals and objectives. The opposite is a strategy that may have the perfect steps but doesn't considered the important aspects, doesn't solve the right problem or isn't aligned with the company's vision, leading it in the opposite direction. So, the first pitfall to avoid is not having a clear understanding of the problem and the company's vision.
Now, considering that the strategic makers know the problem and the company's vision, here we have a list of other pitfalls to avoid:
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Short-term thinking: Short-term thinking tends to focus on the immediate future, neglects long-term planning, and can lead to suboptimal decision-making as you may ignore important long-term factors. For example, a technological company could focus on increasing sales at all costs and don't to create a sustainable solution that will bring many maintenance costs in the future.
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Failing to assess the situation properly: To make sound strategic decisions, you must evaluate the situation appropriately, gathering all relevant information and data and considering all potential options and outcomes. Failing to do this can lead to suboptimal decision-making. It's the same as the example above, in which the company focuses on the revenue and doesn't consider future maintenance costs.
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Failing to properly consider all stakeholders: Another important concern in strategic decision-making is considering all stakeholders' interests, which include individuals, groups, or organizations affected by the decision. Failing to view all stakeholders properly can lead to adverse outcomes for those interested.
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Making decisions based on personal preferences: Another potential pitfall is making decisions based on personal preferences instead of what is best for the organization. This pitfall can lead to suboptimal decision-making, as you may overlook the global picture and interests of the group.
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Failing to communicate the decision properly: Once the decision makers have decided, it is important to share it with all relevant parties properly, including explaining the rationale behind the decision and the expected outcomes. Failing to communicate the decision properly can lead to confusion and frustration among those involved and diminishes the strategy's effectiveness.
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Failing to follow up on the decision: Once the decision makers have decided, it is important to follow up to ensure that it has the desired effect, which includes adjusting the decision if it is not working as expected. Failing to follow up on decisions can lead to unexpected results and time waste.
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Over-reliance on intuition: In many cases, decision-makers rely too heavily on their "gut feeling" or intuition when making strategic decisions. While intuition can be a valuable tool, it should not be the only factor considered. The optimum point is using intuition and data to support the decisions.
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Over-analysis: Another common pitfall is over-analysis, which occurs when decision-makers try to gather too much information or data before making a decision. In many cases, this can lead to paralysis by analysis and the inability to make a decision promptly. In some cases, the company loses time to market and trends.
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Emotional biases: Emotional biases are judgments or decisions based on emotions instead of logic or reason. Emotional biases can lead to suboptimal decision-making as they can distort our perception of reality and cause us to act impulsively.
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Cognitive biases: Cognitive biases are any of several biases or judgments that can distort our perception of reality and lead to suboptimal decision-making. Some common cognitive biases include the sunk cost fallacy, confirmation bias, and herd mentality.
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Groupthink: Groupthink is a phenomenon that occurs when members of a group or team place too much importance on agreeing with each other and maintaining harmony within the group. Groupthink can lead to poor decision-making as members may avoid challenging each other's ideas.
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Anchoring: Anchoring occurs when decision-makers place too much importance on the first piece of information they receive (the "anchor"). Anchoring can lead to suboptimal decisions as you ignore other relevant information.
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Confirmation bias: Confirmation bias is the tendency to seek information that confirms one's existing beliefs or hypotheses, which can lead to suboptimal decision-making as you may overlook important information that contradicts your beliefs.
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Sunk cost fallacy: Sunk cost fallacy is the tendency to continue investing in a project or endeavor simply because of the money or resources that the company has already invested, regardless of whether or not it is still a good decision. Sunk cost fallacy can lead to suboptimal decision-making as you may waste resources on a project that isn't likely to be successful.
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Herd mentality: The herd mentality is the tendency to follow the crowd or make decisions based on what others are doing. Herd mentality can lead to suboptimal decision-making as the company ignores its context and follow what others are doing without analyzing whether such actions make sense for the company's situation. For example, it's the case of companies from Brazil following the tendencies of American companies but don't consider the different contexts, like country laws, investments, and incentives.
How to Avoid Them
The short answer is to be aware of the biases and do the opposite. For example, if you are making a decision based on your gut feeling, try to make the decision based on the data. If you are making a decision based on the first piece of information you receive, try to make the decision based on all the information you have. If you are making a decision based on what others are doing, try to decide based on what is best for the organization.
The long answer includes some tips that may be helpful:
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Educating yourself about cognitive biases and how they can impact decision-making.
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Recognizing when you may be susceptible to a particular bias.
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Learn the mental models that overcome cognitive biases.
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Attempting to make decisions based on logic and evidence rather than emotions or personal preferences.
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Seeking out diverse perspectives when making decisions.
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Considering multiple options before making a decision.
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Taking your time when making decisions.
Final Thoughts
Strategic decision-making is a complex process that requires careful consideration of all relevant factors. You must consider all relevant aspects to avoid making suboptimal decisions that can adversely affect your organization. To avoid these suboptimal decisions, you must be aware of the common pitfalls and how to avoid them. Of course, there are many other pitfalls, and it's up to you and your team to identify and prevent them.
I wrote this article considering the ideas of the inversion mental model, which stands that if you want to achieve your goal, you need to follow the steps toward your goal and avoid the actions that oppose your plan. In this case, if you want to make good decisions, you must avoid the pitfalls that lead to bad decisions.