Strategic decisions are the backbone of any organisation, shaping the direction and long-term success of a business.
However, errors in strategic decision-making can have profound and sometimes irreversible effects on a company’s performance.
A research paper from the Academy of Management outlines key strategic decision errors that can lead to organisational decline and, in some cases, disaster.
The paper is titled Decision Errors, Organisational Iatrogenesis and Error of the 7th Kind.
Understanding these errors is essential for avoiding the pitfalls that may arise from well-intentioned but flawed decision-making processes.
Types of strategic errors
Strategic errors can occur at various stages of the decision making process.
These errors are not only common but can compound and interact, leading to disastrous outcomes.
Here are some of the most critical strategic errors identified:
Visioning error (Type III Error): One of the most significant strategic errors is what is known as the “visioning error” or Type III error.
This occurs when an organisation misidentifies the problem it seeks to solve.
Managers may focus on a corollary issue or symptom while the root problem remains unaddressed.
As a result, the solution is either ineffective or worsens the situation.
An example of this could be focusing on cost cutting measures without addressing the underlying inefficiencies driving up costs.
When the real problem festers, the organisation often finds itself in a worse situation than before.
Correlation errors (Type I and Type II): Correlation errors involve faulty interpretations of data.
A Type I error, or “false positive”, occurs when a relationship is assumed between variables where none exists.
For example, a company may incorrectly assume that a dip in sales is due to poor marketing when the real issue is product quality.
On the other hand, a Type II error, or “false negative”, occurs when a company fails to recognise a genuine relationship between variables.
This might involve dismissing early warning signs of customer dissatisfaction because they seem unrelated to declining sales.
Innovation errors (Type IV Error): Innovation errors arise when decision-makers select ineffective solutions, even when they have correctly identified the problem.
In some cases, they may choose an outdated or unfeasible strategy, leading to wasted resources and organisational frustration.
An example of this could be a company introducing a new product line without adequately testing it in the market, leading to poor performance and financial loss. 🔗 Read Full Article
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