Nick Salvatoriello

MBA 660, Belason

Question #1:

Question number one makes two specific points. First, it states that perception is important in

the decision making process. Second, the question states that the influence of perception does

not stop with the act of choice, but rather continues to affect the outcomes, feedback, and

controls necessary for measuring strategic success of the decision.

To address the first point, there are several examples in our coursework thus far of how

important perception is in the decision making process. Bazerman and Moore's work on

Judgment in Managerial Decision Making explain how a decision maker's perception provides a

means of gathering information in the search for relevant alternatives. This is primarily

demonstrated through our use of judgmental heuristics and other common biases. Heuristics

provide simplified ways of dealing with the complex world we live in. They can be very useful

to managers having to deal with many decisions each day, but they also can be very destructive if

used as a blanket "filtering mechanism" for perceiving relevant alternatives in the business

world.

For example, in Chapter Two of their text on Common Biases, they discuss the

availability heuristic, which occurs when more available memories can cause bias. The decision

maker perceives more vivid stories (such as disastrous fires or floods) as an indicator of a more

frequent or likely event. This, they explain is why more people buy earthquake insurance after

an earthquake, even though the likelihood of an earthquake goes down immediately after. A

similar judgmental heuristic that affects perception is the affect heuristic, which is when

judgments are evoked by effective or emotional evaluation that occurs before any higher-level

reasoning takes place. This heuristic most likely colors information of people under a great deal

of emotional stress.

Ultimately, what the first point of question two seems to highlight is the important differences

between "System 1" and "System 2" thinking in the anatomy of decision making. System 1

Thinking is how most of life's decisions are made. It's when we rely on our intuitive system,

which is typically fast, automatic, and effortless. People fall back on these systems when we are

rushed and when the alternatives are implicit and emotional. System 2 Thinking, as our course

describes, is a higher level of reasoning that is a slower, conscious, effortful, and logical way of

thinking.

Bazerman and Moore's work on the decision making process certainly relates to the

importance of perception and how it can affect one's search for information and how one

interprets that information when rating each alternative to compute the optimal decision. One of

the HBR case studies we did in class, The Skeleton in the Corporate Closet, bares this out.

When a key piece of information about the origins of one of the company's founders is

discovered decades afterwards, the current CEO along with the rest of the staff must grapple with

the fact that their current perceptions of Hudson Parker, their lovable old "Hap" was possibly a

thief. The case is interesting as it shows how each character's biases "color" the information at

their disposal when advocating for choosing the optimal alternative. As in many decision-

making scenarios, the information at hand is incomplete (they don't know the exact

circumstances surrounding how and why Hap had hid this formula away without acknowledging

the obvious link to the work of his friend, Karl.)

The General Parkelite Company's lawyer fell prey to the confirmation trap when making his

case to the current CEO to choosing between "Reputation-or Reparation." The "confirmation

trap" is a cognitive shortcut in gathering information to frame our perception of events. In short,

we search for information that is consistent with our personal hypothesis. His argument to the

CEO in the case study utilized terms like "Isn't it conceivable that..." and "Your employees

would be better off if..." These terms are of course examples of confirmation biases that seek

information and evidence to confirm an already predetermined conclusion. Luckily, the CEO

doesn't buy his lawyer's judgment outright and considers the case on more ethical grounds.

Ultimately, case studies such as this one and the first three chapters discussed in Bazerman and

Moore shed light on how perception influences decisions in a variety of conscious and

subconscious ways. The conclusions of the class thus far seem to point towards using system

two thinking and possessing an awareness of our often subconscious biases which form up the

heuristics designed through cognitive evolution to "streamline" our decision making process.

Point number two of question #1 addresses how perception does not simply affect the choices

executives make, but also how executives choose to implement those choices as well as the

feedback and control mechanisms. I agree with what the question states that the influence of

perception does not stop with the act of choice, but rather continues to affect the outcomes,

feedback, and controls necessary for measuring strategic success of the decision.

Finkelstein's book, Why Smart Executive Fail has great research in its first half, which is

certainly relevant to this question. He writes of the disaster that awaited companies that "created

an insulated culture that systematically excludes any information that could contradict its

reigning picture of reality." Finkelstein is talking about the importance of perception in this

chapter and how even a talented management team can make poor decisions when they have a

seriously flawed perception of themselves and their competition. He says the mechanism that

makes them so devoid of proper perception is not their executives and technical people don't

have a grasp on their specialty areas or lack an awareness of what's happening around them, but

instead possess company attitudes and mechanisms that are "ultimately mind numbing, a

cumulative effect of so many small and seemingly benign policies that are ultimately destructive

(Finklestein 169)."

An example, in their presentation on Finkelstein's research, Jeremy Daniel and Brendan brought

up the examples the book covered of successful businesses whose flawed perceptions affected

not just their strategic choices (to buy competitors, to modernize, or cut costs) but also how they

implemented those choices. Examples included were ones like how GM, correctly perceiving

that their labor costs were too high and that the Japanese were experiencing more efficient

production using robotics, made a choice to produce an expensive "robitisization" of their

factories. How that perception backfired on them was they did not account for the increased

costs involved in specialized labor required to build, install, and maintain these robotic factories.

The GM robotics case supports the second point in question one which state how perception

affects not just how a decision maker chooses, but also how a decision maker implements their

choice.

The question also asks one to consider in what way(s) does perception influence feedback on the

outcome of a choice in consideration of certain strategic objectives. A great example we

discussed in class is another from Finkelstein's book and this was Snow Brand Milk of Japan.

When the leaders of the company made the strategic choice to bow to consumer demands for

freshness while also cutting costs, the "D-O" delivery schedule was a result. The pressure from

the top to produce results had built up to such an extent that implementation, feedback, and

control broke down at the same time for Snow Brand's Osaka Plant and the results were

devastating. The implementation strategy, "D-O" delivery was an incredibly risky strategy in an

industry where 100% safety and reliability are required. The feedback strategy was flawed by

perception as well. Finkelstein writes, "Snow Brand's was not a culture where it was OK to

make or admit mistakes...(the Osaka plant's) resistance to informing the head office about mass

food poisoning speaks volumes about its...overwhelming fear of admitting that its milk was bad

(Finkelstein, 118). Lastly, the Snow Brand executive's lack of control after this terrible incident

became public is a final example of how perception does in fact carry beyond strategic choice

into the controls required ensures strategic objectives are met. Finkelstein writes of the

executives of this Japanese firm who perceived they could do no wrong. "These practices could

not have lasted if managers had doubted what they were doing. But it never occurred to Snow

Brand management that they could get caught. This was a company with a stellar reputation

among customers (Finkelstein, 199)." Clearly, perception does not stop with the act of choice.

If a company possesses a chronic unwillingness to learn in the face of clear evidence, failure is a

likely consequence.

Question #2

Question number two raises three key points to be discussed. The first point made is that a

decision is not an end in itself, but only a means to the end of attaining the objective that gave

rise to the decision. The second point is that strategic decisions are invariably made within the

cognitive limitation of the decision maker. The third point is that strategic decisions success is a

measure of preferred ad intended ends accomplished within the limited means both perceived

and unperceived.

The first point is valid and backed up by material in our course lectures. The decisions

one makes are not ends in themselves but rather steps in a process. These steps vary depending

on the models an organization uses. Process is the key theme here. For instance, the Rational

Approach to Decision-Making is a circle that involves problem identification and problem

solution. “Chose best alternative” is only a step in an 8-step process that inevitably goes around

and around based on implementation of a decision, monitoring the decision environment and so

on. In this way, we understand that the decision is only a vehicle to attain a strategic objective

that gave rise to a need for certain decisions to be made. Thus do strategic objectives give rise to

the need for decision-making skills and ability.

This brings us to the second point of the question that states that strategic decisions are

invariably made within the cognitive limitation of the decision maker. This is true. We humans

are not all knowing and possess mental limitation. Not only as we humans bound by our

cognitive limitations, but also we live in a world where our physical ability is limited and

resources are limited along with the technology we have at our disposal. Bazerman & Moore

describe these limitations in their writing on Bounded Awareness and Framing of Decisions. In

chapter four, they discuss how framing is a cognitive limitation and can lead to unwanted

decisions and misinterpretation of values of different alternatives. For example, the ownership

framework brings on “the endowment effect” where an object you own is worth more than you

would pay for the same object. This seems irrational, but those who try to sell their own home

fall prey to this trap because they ask more than the market would reasonably pay for their

property. They do this simply because their cognitive limitation and the ownership framework.

The same constraints appear when we add in emotion and motivation into strategic decisions. In

chapter five of Bazerman & Moore, discuss their research of how emotion constrained their

subjects. Their research showed the impact of temporal differences. They found that “any

choice that involves a tradeoff between current and future benefits should discount the future.”

This helps explain why younger people often fail to adequately prepare for retirement that exists

“far off in the distant future.” This resembles further work on Positive Illusions, which is the act

of viewing yourself, your company, and the world in a more positive light than it really is. This

causes other consequences beyond the initial decision as evidenced in the escalation of

commitment. Too often the strategic choice to “quit while you’re ahead” is constrained by the

illusion that if you can just “play one more round” that winning hand will be just around the

corner. This, Finkelstein explains was the constrains acting on the executives of doomed

companies like WorldCom who caused massive accounting fraud with the hope that if they could

just keep the whole company from falling apart one more quarter, they would pull through. I

concur with the position of this second point that the most successful strategies we discussed in

this course were those that acknowledged these omnipresent constraints in our logic while we

strive towards our objectives in business and in live. It is truly a key part in calculating the

chance of strategic decision success.

Ultimately, the last point of this question is the most meaningful: The success of a

strategic decision is the measure of preferred and intended ends accomplished within the limited

means both perceived and unperceived. In terms of the decision analytic models discussed in

class lectures thus far, it is very difficult to anticipate, much less model the many different events

and conditions that could significantly affect outcomes. Our means will almost always be

limited when making decisions. The executives discussed in Finkelstein’s book understood this

reality, but they chose to ignore it at one point or another in determining the fate of their

corporations. He speaks of the CEO’s whose strategies fell flat on their faces because they were

“brilliantly fulfilling the wrong vision.” Companies he documents, such as Rubbermaid, ran into

problems due to carrying out the wrong operations necessary in order to achieve strategic

decision success. Rubbermaid prided themselves on innovation, but lost out to competitors

because ultimately they didn’t have the means or the desire to compete on price. WebVan made

its choice to build a billion dollar grocery delivery system across the nation because it perceived

it could achieve a “first-mover” advantage, but Finkelstein points out how that “Holy Grail”

advantage never existed and WebVan seriously misunderstood their competitors and market. He

writes, “This is one blind spot that appears somewhere near then center of almost every major

business disaster: a seriously inaccurate perception of reality among executives. Along with

Finkelstein’s findings, the coursework on the challenges of attempts to provide a formula for

modeling successful decision making underscore the third point of question #2 by pointing out

that the success of an executives decision (or lack thereof) depends on the ends accomplished

within perceived AND unperceived means. Though we have been presented with competing

models, cases, and strategies for overcoming our cognitive limitations, there is no magic formula

for making perfect decisions. So far….