In his latest book, The Crux, Richard P. Rumelt explains how leaders can become strategists, for better or worse. In Chapter 18 (Pages 294-296), he examines three biases that can corrupt any strategy.
Optimism bias “means that people tend to overestimate benefits and underestimate the costs of a plan or set of actions. This seems to be the inevitable outcome of basic ‘animal spirits.’ I recall asking then futurist Herman Kahn about how to get unbiased forecasts. He advised: ‘Hire forecasters who are clinically depressed.'”
Confirmation bias “means we tend to favor information, news, and statements that confirm alreasdy-held beliefs and opinions. If management believes they have the best technology in spinal disc replacement, they will tend to discount news of a small firm having a better approach.”
Inside-view bias “occurs because there is a strong tendency to focus on our own experience. This common pattern tends to ignore two things: the general experience of others in trying to do similar things and the probable actions and strength of the competition, particularly when we were pushing into new competitive areas. Logistically, this bias is a close relative of the winner’s curse — the statistical truth that someone who wins an auction is almost certain to have overvalued the item. (The “rational” cure is to bid so low that you very rarely win!)” :
The Crux was published by PublicAffairs (May 2022). You may also wish to check out Rumelt’s earlier work, an international bestseller: Good Strategy/Bad Strategy: The Difference and Why It Matters (Currency, 2011).
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Richard P. Rumelt has been described by the McKinsey Quarterly as “a giant in the field of strategy.” I agree. He is the Harry and Elsa Kunin Emeritus Professor of Business & Society at the University of California, Los Angeles Anderson School of Management. He joined the school in 1976 from Harvard Business School.
Previously, Rumelt earned Bachelor’s and Master’s of Science degrees in Electrical Engineering from UC Berkeley. He worked as a systems design engineer at the Jet Propulsion Laboratories in 1963-65. He received his doctorate from the Harvard Business School in 1972 and joined the Harvard Business School faculty as an Assistant Professor.
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