GNcareers, from Gulf News

Leaders must guard against biases

Leaders must guard against biasesImage Credit: Supplied

A prominent business leader's company is ready to fold. He was considered a top CEO in the past, used to making fast decisions, and delivered outstanding results. All along, he was successful in his operations, ruling the entire group from top to bottom.

But why the sudden change? He realized later on that he lacked one main attribute, that is, the ability to think fast while making decisions. Judgment and decision-making are a leader's bread and butter. Looking back, most of his business decisions reflected some cognitive biases.

Corporate executives must get to know the work of Nobel laureate Daniel Kahneman's on how we think. Based on the two processes that influence our judgments and decision-making – System 1 is intuitive and automatic, and System 2 is slow, deliberate and effortful. He suggests that people's decisions and/or choices are determined by the interplay between these two cognitive systems.

Kahneman explains that a System 1 thinker is a risk-taking decision maker, while a System 2 thinker is a risk-averse decision maker. These two systems, through their complex interactions and on account of their characteristic traits, determine the numerous ways in which day-to-day decisions are made, including those that modern-day humans need to make in order to survive in the present economy.

Organizations need to build a framework for how managers' minds reason, going against the traditional view involving the rationality of the human mind in decision-making. The CEO and his HR team did not apply System 2 thinking to understand buying behavior, make rational policies and hire employees. Some of their decisions related only to investments, mergers and acquisitions, and turned out to be big mistakes.

If you are running a group of companies dealing with many businesses, your choices should not be based on monetary value alone (financial performance). It is more vital to understand the psychological and hedonic values of products and services to make customers happy, and find the right people to accomplish business goals.

Handy Hints:

• Good judgment and decision-making skills vital to CEO role

• Daniel Kahneman identified two types of thinking systems

• System 1 thinkers take risks, while System 2 are risk-averse

Source: Dr. Pon Mohaideen Pitchai, Special to Jobs & Careers

The writer is a Dubai-based HR and Management Consultant