Half of All Management Decisions Fail — and How You Can Avoid Them

He identified three types of blunders that are made:

1. Managers choose the first best solution that presents itself. Because of the pressure from higher management, boards or funders, managers are anxious to leave problems unsolved. This makes it four times more likely that the decision-maker will seize the first passing idea without taking the time to investigate the causes of the problems and alternatives. A regional charity facing falling donations might sign up for the same digital fundraising platform a peer organisation just adopted, without first working out why donations actually dropped.
2. Managers misuse their resources in making decisions. They bet millions on defending a decision, for example by means of an evaluation. There is hardly any effort into researching the causes of the problem, who may be able to stop action, and for creating support. A government agency under pressure over a service backlog might commission an expensive independent review to justify its existing approach, rather than putting that budget into understanding what is actually causing the backlog.
3. Managers use the wrong tactics to make decisions, even against their better judgment. For example, participation processes succeed more than 80% of the time for implementation, and yet this is only used 1 in 5 times. When a manager uses power or persuasion, this is only successful one in three times but it is used in 60% of the cases. A board that rolls out a new program by directive, rather than involving the frontline staff who have to deliver it, often sees implementation stall within months.

The main objection to not using recommended decision-making tactics is that it would cost too much time or money. But as Paul Nutt put it:

First Principles Thinking offers a method to overcome these challenges and therefore increase the likelihood of the decision to be successful significantly. On the three blunders that Nutt has identified, use of First Principles Thinking solves them accordingly:

1. Reaching for the first solution that is within reach is countered by First Principles Thinking through stripping down of the problem and the structured questioning of the assumptions before working towards a solution.
2. Instead of spending resources defending a decision, First Principles Thinking front-loads effort in order to define the problem that is being encountered through research.
3. Instead of imposing the final decision on people, questioning the assumptions with a group of stakeholders during a project makes the First Principles Thinking exercise much more accurate. Due to the broader involvement of stakeholders, different perspectives are integrated, which ensures the overcoming of natural blind spots.

Two-thirds of all decisions are based on failure-prone tactics, but success will increase by as much as 50 percent when better tactics are used. The use of First Principles Thinking will therefore save organisations a vast amount of resources. So, instead of putting the resources towards a decision that is based on the wrong fundamentals, allocate them the right way from the start.

In my working paper I have explained how First Principles Thinking changes the kind of advice you get. With TKD advisory I bring First Principles Thinking to organisations that are willing to research alternative paths in order to solve their issue, and look beyond the first solution that is in front of them.

Source: Ohio State University, "Half of Business Decisions Fail Because of Management’s Blunders, New Study Finds," news.osu.edu (2002).