10 Jul Why Smart Businesses Keep Making Bad Strategic Decisions

The Judgement Gap

The failing point for most strategic decisions isn’t a lack of intelligence. It isn’t poor effort. It’s not even luck. It’s usually caused by faulty assumptions, incomplete information, inaccurate analysis of the variables, incentives, cognitive or emotional biases, and misreading the very reality that the person or business is operating in.

It’s an over reliance on poor judgement that often has disastrous consequences. I want to touch on why this happens and how best to prevent it to make better decisions for better outcomes.

The Pattern

Let’s paint a picture of the many ways businesses act on poor judgement, even though it seems like the right move at the time. A new startup launches products no one wants, which leads to poor sales. A small business wastes money on marketing that provides no ROI, which leads to a loss of crucial resources. A personal brand chasing the latest trends because “that’s what everyone else is doing”, which leaves them going in circles instead of making progress.

This applies to larger corporate businesses as well in hiring the wrong people, trying to scale and expand too early, or solving the wrong problems in the first place. All of these come down to poor judgement, despite being acted upon by intelligent people.

Search Beneath The Surface

When analyzing all of these other situations and many more that I encounter when working with brands and leaders, is the fact that intelligence doesn’t equal good judgment. A lot of people may think that these two traits are one and the same, but it’s often missed that one is a function of an ability to process information, the other is a function of an ability to obtain a successful outcome. The best processing of factors doesn’t matter much if it can’t be used to achieve a goal in reality.

Here’s a few things that can cause or lead to poor judgement:

• Incomplete information causing a miscalculation of important variables
• Emotional attachment or an inability to regulate one’s emotions
• Confirmation bias
• Focusing on social approval instead of achieving a goal
• Prioritizing short-term incentives over long-term wins
• Confusing activity with progress

The Underlying Reality

Before talking about the cause of poor judgement, let’s touch on what it isn’t. As discussed, it’s not a lack of intelligence. It’s not poor leadership. From a business function, it’s not poor marketing, branding, or management. The cause of poor judgement is a poor assessment of reality. Simply, people make decisions based on a million other factors, mainly the reality they perceive or feel is true, instead of making decisions based on objective reality. Everything else flows from that.

In essence, judgment stems from an ability to correctly assess reality, and then making effective decisions to navigate that reality. You can already see the value in such a skill in business, career, and life in general.

Why It Matters

Poor judgment rarely has a single consequence. It usually cascades into a chain of consequences that can quickly grow exponentially. One poor strategic assumption can create years of wasted effort, struggle, and ever growing financial costs.

This is why a lot of top businesses, brands, and leaders will hire outside strategic expertise specifically to prevent these cascading consequences from having a major detrimental effect on their organization or goal. They understand that accurate strategic guidance from someone specialized in judgement is worth its weight in gold. This has been true through the ages in practically every civilization.

Improving Strategic Judgment

So what’s the solution to poor judgment? I’ll be honest, this is where the frown might turn upside down. Short answer: the solution is having a natural skill in accurately seeing reality and strategic approaches combined with extensive experiences in life in general. Granted, this is not something easily obtained, so I’ll give some suggestions on how to develop a disciplined process for understanding reality before investing in incorrect strategic decisions that could be disastrous.

How To Approach A Situation With Good Judgement

• Observe before reacting.
• Objectively analyze the situation, challenge assumptions, and separate reality from preference.
• Diagnose before prescribing. Find the source cause that explains the entire situation.
• Consider and weigh the consequences.
• Test beliefs against evidence and refine your position until it is coherent across almost all applications
• Think in systems. Develop a strategic solution that solves both the immediate situation without creating long-term consequences.

(I go over this in more details in my upcoming book “The Advisor Method”.)

The Better Question

It’s not about how smart a person is, how many credentials they have, or even how much access to information that determines if they have good judgement. It’s their ability to accurately assess reality, and in turn, navigate that reality for a good outcome. This ability to see the reality of the situation is the hallmark of a skilled advisor or strategist, and why they’re brought in for the decisions that matter most, and when consequences are high.

Instead of asking “What is the right strategy?“, ask “What did we misunderstand?”. If you want to achieve the goal you’re aiming at, spend more time developing your ability to accurately assess a situation or reality. Better outcomes begin with better judgment.

MORE ESSAYSWORK WITH GI