'Culture eats strategy for breakfast' -- McKinsey

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If executives want to make effective management decisions, they need to be aware of their own biases.

Unconscious biases can have a big impact on how businesses approach strategy and how they review past successes and failures.

A new report by McKinsey warns that executives need to be aware that “when creating a strategy for your organization there are many obstacles. It’s important to know what they are and how to get around them.”

Management guru Peter Drucker was quoted as saying “culture eats strategy for breakfast”.

McKinsey note that this is never more evident than in meetings to decide corporate strategies. This is where they see egos and competing agendas, biases and social games ruling.

The question asked by McKinsey is “why is this social side of strategy so pervasive”?

They believe it’s because people are prone to many well-documented unconscious cognitive biases that exist to help us filter information in day-to-day decision-making.

However, these unintentional mental shortcuts can distort the outcomes when we are forced to make big, consequential decisions, infrequently, and under high uncertainty – such as deciding long-term business strategies.

The McKinsey report describes four cognitive biases that impact decision making:

    • Overconfidence: Experts become more confident as they gather more data—even though the additional data might not make their projections any more accurate. Overconfidence is self-reinforcing and leads people to ignore contradictory information.
    • Confirmation bias: When you bring together people with shared experiences and goals, they typically wind up telling themselves stories, generally favourable ones. One study found, for instance, that 80% of executives believe that their product stands out against the competition—but only 8% of customers agree.
    • Survival bias: We only see what happened, not what didn’t happen. We analyse our customers but don’t see the customers we don’t have.
    • Attribution bias: When a target is missed, blame is placed on the most convenient cause available, usually some one-off event—unseasonable weather, an IT outage, etc.—even though such one-off occurrences seem to happen every year.

Being aware of these biases and ensuring that they are avoided in making the key strategy decisions is key for successful long-term planning for any business.

For more in-depth analysis on the impact of decision making, strategy and management, read the BI / Research Collaboration Report here.

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