Common decision making & problem solving errors #1

Heathrow Terminal 5 Chaos - management and leadership

It opened on time, within budget (£4.3 bn or $10 bn) and to spec, well the technical specifications anyway. A triumph of a new project management (actually on behalf of BAA it was project leadership and management) model that saw the sponsor taking responsibility, leading with vision and humility and not pushing the risk to the contractors in the usual punitive way of management. BAA looked at all the famous project management flops and realised that the often used model of abrogation of risk and responsibility (i.e. no leadership) to the contractors doesn't produce good projects. It is interesting that many managed and not led projects are government programmes, but that's another issue.

It is estimated by the respected transport Journalist Christian Wolmar that if this programme had gone the way of most other large capital projects it should have overrun on costs by about 40%, been about 1-2 years late and an average of 6 workers would have been killed during the construction phase.

As it is the project, one of the most complex yet, didn't have any of these problems and yet we see this happening, delays, the baggage system halted because the loaders couldn't keep up, glitches due to the complexity of the system, check in staff confused about the new systems. There will of course be a post-mortem, many reports and it will be interesting to see what the results will be of these.

However from a preliminary trawl of the media and BAA / BA material (they are staying very tight lipped at the moment, giving quick briefings and walking off before they can be asked any questions, listening to the passengers stories it sounds like the technical systems are working fine. The problems appear to be when humans who didn't design and grow with the technology are suddenly required to operate it all together.
I am reliably told (by a BAA employee) that every system was tested and retested and works. However everything working together with real people and not the experts and designers operating the systems things started to go wrong.

On the face of it the success of the capital part of the project was down to the sponsors bearing the risk, leading as well as managing the project, by which I mean taking responsibility, allowing the risks to be real and not pretending they don't exist or minimising them, keeping communications open at all levels, listening to feedback at all levels as the project progressed and learning as they went along. The failure of the operations appear to stem from the opposite. There appears to been a lot of management and little leadership when it came to the operations side of things. Both need to work together, especially when it comes to people.

The difference between management and leadership and what happens when both aren't operating together came out loud and clear in the very different press briefings given by BA.

The sight of BA Director of Operations Gareth Kirkwood, clearly rattled, giving a press statement to say sorry (which was good) and then walking off refusing to answer any questions (which was not good), did not help. He was clearly trying to manage the situation however in doing so displayed poor leadership and very little emotional resilience, which are closely connected, especially in times of difficulty.

This is in contrast to the performance today of The Chief Executive of British Airways, Willie Walsh, who was composed, honest and human, took responsibility and answered the questions put to him. Leadership matters as does management - they have to work together.

Above average leaders

• Are the people in your organization smarter / better / more intelligent than the average?
• Are your leaders smarter / better / more intelligent than those from most other organizations?
• Are your leaders smarter / better / more intelligent than the rest of your organization, or do they think that they are?
  
• Are you, your team, your organization better at dealing with ambiguity and risk than the average?
• Are you a better driver than the average?

If you answered yes to the last question then you are in good company. A study by Ola Svenson in 1981. ("Are we all less risky and more skillful than our fellow drivers?". Acta Psychologica 47 (2): 143–148.) found that just over 80% of drivers considered that they were in the top 30% of drivers in terms of driving ability.

In 1987 John Cannell published a study in which he found that every state in the US reported that the students from that state had on average scored higher than the national norm in educational tests!

In other studies, project manager's ability to project manage, leaders ability to lead, people's time management capability, sales ability, ability to deal with ambiguity, police officers view of their force and their policing capabilities, military personnel's view of the standing of their service compared to others, etc. all report the same thing. That they are at least above average and usually in the top few percent of the population.

This tendency to overestimate one's achievements and capabilities in relation to others is a common effect especially when people are reporting on traits or attributes of themselves or groups to which they are affiliated. It has it's own name - The Lake Woebegone Effect after a fictional town in a radio series A Prairie Home Companion, where, according to the presenter, Garrison Keillor, "all the women are strong, all the men are good-looking, and all the children are above average."

Obviously with the exception of a couple of mathematical obscurities, only half the population can be above average.

This may account for one of the findings I had recently that most senior (board level) leaders tend not to engage in development activities but require that others below them do.

Most of us are, it would appear, when compared to everyone else, above average!

Leadership development?

What would have to happen for any leadership development to be called a success?
That it develops more knowledge?
or better skills maybe?
Oh and some leadership models or theories maybe?
A mixture of all of these?

Just what are the attributes of a successful leader and how to best develop them?

How many coaches, leadership trainers and lecturers have answers to these questions that they have thought about before you ask them?

I was interested in what would happen if I started to ask such questions of the people who's job it is to develop leaders either in universities or in industry. The results were enlightening and somewhat depressing. Before I go any further this was an informal research project, but as a result of the findings I have started thinking about a more robust and formal exploration of this subject.

I have set about this task in the last couple of months and made a pest of myself with every leadership trainer and lecturer I have met. On the whole they were all happy to answer me. I have spoken to 161 such leadership developers since January. The lecturers from universities were much more likely to have thought about these questions before hand. Trainers and coaches tended, with a few exceptions, to have to think about this on the spot suggesting that they were just running programmes based on the activities and exercises they knew about.
The academics tended to have thought more about the end result and developed material that focuses on that.
It became apparent that trainers split roughly into two: trainers who mainly run set packages and facilitators who tend to work off the data presented to them by the delegates.
The problem with the academic solutions is that they tend to concentrate on the development of knowledge rather than skills.
Neither group had a ready answer to questions about what is their strategy for developing critical thinking, creativity, and autonomy.
When I asked how they helped to ensure that the leaders developed flexible practices and what they did to develop emotional resilience and the ability to deal with ambiguity I drew a total blank. No one had any thought out suggestions.

It would appear that there is a big difference between academic and industry leadership developers in their outlook and scope. Academics focus more on knowledge development, trainers on skills development and facilitators and coaches on personal development. These are not exclusive, just tendencies towards certain development activities.

Academic sources tend to be more up-to-date than their industry based colleagues. Additionally they are much more likely to present counter arguments for certain theories that industry trainers. Academics are also much more likely to have had their thinking and teaching challenged by peers.

On the other hand trainers are more likely to incorporate new material into their programmes than academics, however such material is much more likely to be unverified. In other words trainers will include material that has little or no research backing. This means that what you could get cutting edge thinking or a pile of drivel. Academics however are not immune to this either, but it is less likely to happen.

When asked how they help leaders make better decisions the most common answer was that simply knowing more helps here. Some (all academics) said they included decision making sciences in their programmes but weren't sure if this actually helped.

Lies, Hillary Clinton's Memory and Leadership Issues

A lot is currently being written about H.C.'s memory / lies / stories. Here are a couple more interesting and charitable blogs from a cognitive perspective :

1. http://scienceblogs.com/mixingmemory/2008/03/defending_hillary_clinton_from.php
2. http://www.neurosciencemarketing.com/blog/articles/hillary-kwame-and-our-fallible-memory.htm
   

I think that there maybe other explanations here, and one in particular that I have researched with leaders, particularly when they are reporting on how they see certain situations like the reality of the market conditions for example.
The phenomenon, 'context recollection' incorporates the affect of the emotions on story telling and recounting of memory events. If there is a strong emotional situational context, in which the story is being retold, particularly those contexts that produce euphoria or fear (risk and ambiguity) there is a strong tendency for the story or memory recollection to be molded to the current context to either carry on the euphoric emotions or to mitigate perceived threats.

The tellers of these untruths know and can report that the memory is not real, however the context appears to change the meaning of the untruth to 'not a lie' for the story teller.

Without evidence to the contrary, many leaders will stick to the 'untruth' and force agreement, creating a false certainty, ignoring and filtering out evidence that everyone else knows the veracity of the situation. Denial of this type is typical mode one behaviour.

This has a lot of consequences in situations where leaders are making decisions based on their understanding of the current situation and perceptions of the past. If they make decisions at times of euphoria or fear (even if they are not conscious of the emotion at the time) the decisions are usually awful ones. Their recollection of the success of the decision is likewise altered by the emotions experienced. This is why I place such emphasis on the development of emotional resilience and intelligence for leaders.

Leaders or followers?

Leadership is a difficult activity: You have to work out what the reality of the environment is; try to predict what will happen over the coming period; decide what possibilities exist or what latitude for action exists; work out where you want to take the company, organisation or country; articulate the same in a way that everyone understands and can buy into; decide the appropriate time scale; methods and so on.

It's a difficult job even in the best of times. However when the environment starts to change or become volatile leading gets really tough. Things are made considerably harder when leaders find it difficult to separate reality from perception. Harder still when emotions start to alter our view of reality.

The research (press release here) I referred to in the last blog has showed that whilst just about all leaders say that they make decisions based on the data, 4 out of every 5 leaders recognise that these decisions , especially in uncertain situations, usually have a heavy emotional basis.

My question is how do leaders learn to make decisions in difficult and uncertain situations?
The answer appears to be not through any formal process. One leader told me:

"A university education is a good start and an MBA helps however it never prepares you for dealing with uncertainty. In fact it makes things worse.You tend to leave thinking that the answers are in the data. In hard times all the data in the world won't help you a jot. It's how you see things and how you fool yourself, and we all do, that counts. Their way of thinking is great for stable times but if you follow their guidance when things are less stable you are going to end up in a lot of trouble."

Another leader stated:

"It is important that people believe I know what I am doing. I have to admit that like many people, when things are foggy you can't in all honesty say I do know what I am doing. I think we all just trust to luck a bit and cast about and see what others are doing. I know it's not satisfactory but what can you do when things are changing so fast?"

.

"What I have learned since taking control of the service is that all the research and models you get fed in training and from college are historical. Not one of them tells you what to do when things have changed or when they are changing. New situations need new thinking, not old research and education. I would place the ability to make good decisions in the face of ambiguity and to be able to think new thoughts in new situations as the number one leadership attributes these days, not the degree someone has." Reported a CEO

Agile Leadership is the ability to be able to lead well in difficult and ambiguous situations, the very circumstances others are clueless in. There is precious little formal preparation for leadership in uncertain times anywhere in the world, which is why leaders are increasingly looking to each others for answers. We run Agile Leadership programs and modules (PDF version)designed to fit in with existing leadership training or as stand alone packages, that develop these attributes. The growing popularity of these events is testimony to the need for something different in formal education and training. I am not saying what is going on now is wrong. It is useful and has it's place. It just doesn't equip people for difficult times, dealing with uncertainty and rapid change where they need to solve problems, make good decisions and lead when everyone else is sat around wondering what to do next; just waiting to see what everyone else is doing (just like the current economic situation where rumour and volatility are rampant). That is being a follower not a leader.

Leadership - leading or following?

Does leadership development come up with the goods particularly when it comes to preparing leaders for dealing with a crisis or ambiguous situations?
Do leadership developers (trainers) know how to develop critical and creative thinking?
We are just finishing off a 5 year research project looking at leadership decision making, problem solving and agility in times of difficulty - when things are uncertain and ambiguous (I will post the articles from this when they are ready). What is becoming very clear is that most leaders have no personal strategy for dealing with difficult situations or ambiguous conditions. The study has found that only about 11% of leaders have such a strategy, or even think about it.

What, you may ask, is the number one leader's strategy for dealing uncertainty or difficulty?
The answer is not very encouraging. It is to see what others are doing and copy it. It's a sort of safety in numbers mentality.

Most leaders don't have a personal strategy for what to do when things get difficult or ambiguous

The second most popular response? To collect more data. The problem here is that the leader's report that this is usually self defeating as the data is normally conflicting and the sheer amount available is confusing. The ambiguity of this strategy usually means that leaders end up making a decision about what data to accept and which to omit. As you can probably guess they largely choose to omit the data that is less optimistic, more confusing and that which they don't understand. When they are confused by the data they fall back on strategy 1. See what everyone else is doing.

The current economic crisis is actually crisis of leadership

You only have to have a look at what is happening in the financial markets at the moment to see this behaviour writ large.

This current crisis is a crisis of leadership. It has been leadership decisions both at corporate and governmental levels that lead us into current economic mess.

Over 83% (the sample size for this study was 1628 leaders from business and service industries in 7 countries) said that they they would not consider them selves to be particularly creative or that they struggled with creativity.

We will look in greater depth this week at leadership development and more from the study.

Ambiguity, bad showers, and organizational restructuring II

This is (finally) the follow-on from this article. In the that article we were discussing when it is that the decision is made to engage in some form of organisational change process. Now bearing in mind what I wrote previously about the regression fallacy and in particular the issue that things only come to our notice once they have crossed some threshold (usually a very personal and somewhat arbitrary threshold) and put it together with what I wrote about our perchance for action bias.

There are some considerations here:

1. The first is that when we actually notice a problem we don't notice the problem, rather we notice the symptoms.
   
2. Secondly, by the time that we have noticed the symptoms there has almost always been a time-lag between the problem occurring and us noticing it (usually as it passes a threshold).
3. When the symptoms cross our threshold we almost always jump into action mode or solutionizing as it is known - as happened in this situation and evidenced here.

So what happens is like trying to use a shower I have at home:

The shower in question is the type that sits over the bath and is connected, via a long flexible pipe, to the bath taps, just like the picture above.
Have you ever tried to use one of these contraptions to have a stand up shower with??

You tend to find that you were are constantly juggling the taps as the water osculates between ice and steam with about three seconds in between where the water is the temperature you want. If you have such a shower you will undoubtedly know what I mean.

The key here is the water pressure and length and bore of the pipe. If the water pressure is low, the length of the pipe is long and the bore is narrow (like my shower), the lag between what you do with the taps and what the temperature the water is when it finally comes out of the shower head is quite considerable.

The effect of this long lag between what I am feeling and any actions I take with the taps means it is incredibly hard to get the right temperature. You either have to make the changes really slowly and incrementally and wait to see what effect it has had (got the link with organisational change?), or if you are in a hurry (because things are bad and we need action NOW) you find that you end up over compensating and a couple of minutes later end up with scalding water. Which when you try to compensate for this, a couple of minutes later you are back to freezing water with a 3 second period of just right showering.

All organisational change has a long lag between what we do and their effects.

Just to make matters worse there is a lag at the beginning from the problem occurring, us noticing the symptoms and then any action we decide then to take. This is followed by a delay before we notice finally what effect our actions have had, which may be months or more likely years down the line. By which time we have got impatient and turned the taps again!

Organizational Change - Leaders leading and managers managing

I am frequently asked why we concentrate on leadership and management, especially in organisational change situations. The answer is simple. We make far too many assumptions about the capabilities and beliefs of these key people. When you analyse why change programmes fail outright or fail to excel in delivering real advantage the top three reasons are:

1. Poor Strategy
   
2. Poor Leadership
3. Poor Management
   

As any organisational development / change process is going to depend on Leaders and Managers doing their job and making a positive impact it is essential that any assumption that they are going to do so are true.

It is quite a large assumption that because someone has the title ‘leader’ or ‘manager’ that they will lead and manage, especially in the difficult, uncertain and shifting conditions of change. This assumption is based on the further assumptions that they know what to do, how to do it and have the mindset and willingness to do what is needed, especially in a situation of change when emotions are often running high. These are difficult situations to manage and lead through, and such situations are an entirely different prospect than say leading and managing in normal operational conditions. There are some questions about the leadership and management which need to be answered:

• Do people know how to lead and manage in such conditions? Different thinking is required in such situations.

• Do they have the skills for such situations? Skills don’t transfer very easily from normal conditions especially when the leader’s and manager’s own emotions are likely to be involved.Do they have the required emotional resilience and intelligence? Can they deal with other people’s and their own emotions in a way which creates a positive working environment where change is constructive, rather than just amplifying fears and heightening emotions?
• Do they have the belief in the change and the vision of the future? People’s attitudes are apparent from the behaviour they display. Our attitudes stem from our beliefs. If people really believe in something they will think and act accordingly. Just asking people if they believe is not enough!
• Do they have a ‘can do’ – positive attitude in difficult situations? All change programmes will have difficult times. People who give up when the going gets tough are going nowhere. Leaders and managers who give up or keep their heads down when the going gets tough are of little use in organisational change situations.
• And finally are they willing to grasp the nettle and actually lead and manage in a way which leaves the organisation and their people stronger and more resilient? Leaders and managers who know what to do and when to do it but who don’t actually do anything will at best have no impact and at worst will have a detrimental influence.

Good leaders and managers can make all the difference between change that delivers massive benefits and catastrophic change that weakens the organisation and the bottom line. This means a bit more than just running a few workshops and briefings.

Leadership Resilience - the difference that makes the difference

Yesterday Keith Mcfarland on Inc.Com posted an article about the Polaris Motorcycle Company. As a biker (BMW) the article caught my eye. As a developer of leadership and organizational resilience the article was a great example of a leader being brought in with no knowledge of the industry or even motorcycles and turning a brand from being seen as one of the worst makes in the world to being some of the most desirable (I would have one!), innovative and well manufactured bikes ever and all during a shrinking US and global motorcycle sales market.
Keith McFarlands bottom line? Leadership resilience. Read his fascinating and inspiring article entitled 'You think you have it tough? here. Then come back here for more or better still head over to Centre i for more, or download the 2008 brochure and develop some resilience in your organization now.

Oh I will get round to finishing off the Ambiguity, bad showers, and organizational restructuring blog asap!

Leaders Leading and Managers Managing II

Many people get promoted to positions like manager or leader because they are good at their job. Others end up being the manager because they have been around longer than anyone else. And yet some become leaders and managers because they look or sound good or convincing. There is a question here:

Just because someone is good at their job, have been around longer than anyone else, look good, sound good are more convincing than others, does it necessarily mean that they will be good at being a manager or leader?

We are just finishing a research project one part of which was to look at leadership and management development:

From the preliminary results we estimate that only about 15% of leaders and managers receive any form of development for the role in preparation, before they take on the position.

Additionally and astonishingly, only about 40% of managers and 30% of leaders ever receive any formal development, like training, coaching or mentoring for example at anytime whilst they are in the role. The further up they are the less it appears that they are likely to have had any form of development and the also they less likely to engage in such activities.

Just under 90% of leaders and just over 70% of managers admit that they largely make it up as they go along, especially as far as decision making is concerned.

78% stated that they were aware that they had either frequently or very frequently made decisions based on their emotional reactions to events. Paradoxically 83% of leaders also stated that most of their decision making was based on the data. So maybe the data was sparking the emotional reaction. I'll let you know when the analysis is complete.

Something to think about.

Leaders Leading and Managers Managing

I managed to talk to the leader who sent out the email yesterday. Her responses to my questions were enlightening:
"I know about all the work being done but it was taking far too long"(Urgency and action bias)
"I hadn't heard anything for ages about what was happening in OD, they had just dropped off the planet as far as I was concerned" (Stakeholder management and different perceptions of time)
"Someone had to move things quickly. The company is in a bad state. I saw the last quarters figures. We don't have time to parp about." (Action bias, possibly regression fallacy, certainly lack of emotional resilience - panic)
"The effect? To motivate people I hope and get things moving" (Assumptions of cause and effect)
"Well we do need to shed a load of people. This way we will see who gives up and who floats to the top." (Concept of motivation)
"Nothing really, it's like all leadership decisions - you make it up as you go along. You do whatever you think is right at the time. I am sorry but we don't have time for all that fluffy stuff. We need to move and now." (To the question about how she developed as a leader and learnt to make decisions).
"Yes I suppose I could have done it differently or even better, but if we don't do something now it will be too late. I can see that it was a bit harsh and maybe a bit of a reaction to the figures but someone has to grip this."
"Well they are just going to have to get on with it aren't they? That's what we pay them all for."


Interestingly this has happened at a moment when we are just getting some initial results from some research into management and leadership development which makes for interesting reading coming next and then we will get back to the showers...

Communicating Change

Just a quickie. Sometimes you are left wondering why some companies bother to bring in expertise or even bother with their own OD departments, managers and leaders.

We have been working with a large organization who are about to go through a serious change process. A lot of research and preparatory work is being done at the moment, especially in the area of developing resilience, dealing with ambiguity and opportunity finding prior to any change. An internal taskforce is (was until this morning that is) working on new structures, strategic alignments and organisational/talent development.

This morning everyone in the organisation received an email from one of the board members with a powerpoint attachment. The email was titled 'Organizational Change - new structure'. The powerpoint with the same title comprised of 5 slides with a series of organisational charts. The email said that this was the new organisational structure. There are no explanatory notes to accompany the slides.

The entire organisation has as you can well imagine, now stopped working and are engaged in a process of trying to work out if the new structure includes them or not as no names are supplied just a load of newly named departments and reporting structures.

Many of the managers have managed to work out during the day that the new structure only accounts for about 1/4 of them.

How to stop an entire organisation in it's tracks in 2 minutes flat. Amazing.

Ambiguity, bad showers, and organizational restructuring

You look at your company or organisation. It has grown. Times have been good. Now times are not so good. The profit margin has shrunk. Cash flow is starting to become a problem. You look at your company. The last time you really looked, (you have been so busy making money or providing your service that you haven't really had the time or the impetus to stand back and have a good long hard look) it was smaller and less complex. Now it looks a mess compared to how it appeared before. You are not really sure what everyone is doing. It matters now that everyone is productive. It matters now that in a time of falling income somehow the cash flow situation is made more comfortable. Almost all the data you see is worrying. This is no longer a time of expansion and spend . Spending when there are copious amounts of inflow is easy. You can convince yourself that almost anything is worth a punt when things are good. The risk of loss is low. Even if it doesn't work there is enough money to ride over any errors. Taking risks is easy, the overall impact on the business, when things are growing and going well, of a bad thing happening is minimal. When we are closer to the edge of moving into a loss situation the impact of risks could (perceptually at least) be greater. We are now in a mindset of poverty consciousness as opposed to a mindset of abundance consciousness. This affects our perception of risk and uncertainty.

"a mindset of poverty consciousness as opposed to a mindset of abundance consciousness"

So what are we going to do?

Well it is obvious that if things stay on the current course what we fear is very likely to happen. This is a downwards spiral we need to halt and if possible reverse before things get critical (or even more critical if we are already at a crunch point).

Hmmmm a no brainer really. We need to act fast, work out what bits of the organisation are profitable and which aren't. Then we need to reorganise (reorganize - translation). Simple, neat and logical.

Or is it? This week I will have a look at the thinking, myths and rethinking about organisational change, decision making, the role ambiguity plays and what this all has to do with bad showers (of the bathroom type).

Ambiguity in Organizations

Click on the graph to make it bigger.

Again some interesting comments from Christine

Here are the approximate distributions of the modes of leadership. As you can see mode 4 leaders are in the minority. (modes 0 and 5 are theoretical at the moment as the research hasn’t been completed on these - these are the latest research distributions however only 1 -4 are accurate populations).

In terms of ability to deal with ambiguity, roughly the closer to mode 4 you get the better things get. Like everything in life every upside has a downside. The downside of this is that the closer to mode 4 you get the less methodical people are and they really don’t like stability too much. So at the moments an organisation needs change these are the guys, however the moment an organisation needs to just settle down and have a period of stability then mode one and two are the people to help here. The approach we take is to give people, particularly leaders the ability to operate in every/any mode depending on the situation and the outcome desired. This is what gives the leaders (and their organisations) their agility. Being agile usually means better decisions and more flexible thinking.

The point for me in developing (at least) tolerance of ambiguity in a wider population is that without it people’s decision making is usually impoverished. By this I mean that if they are reacting emotionally in a knee jerk way to uncertainty or risk for example, they are not usually making great decisions. Developing ambiguity acuity equips people to think clearer, make better decisions, behave better, it enhances problem solving etc. particularly, but not exclusively, in difficult and shifting situations. The very situations others spend most of their time avoiding or denying. They certainly outperform colleagues who don’t have much emotional resilience in a wide range of leadership tasks. These are also the people who will take a risk and try new things.

As you start to increase the numbers of people in an organization who can, as a minimum at least, cope with ambiguity the more agile the organisation becomes, the easier it finds it to navigate difficult times and find advantage where others are struggling. Such organisations also adapt to changing conditions quicker and with a better fit. This is why we do the work we do in companies and organisations. It makes them successful right at the time others are having it tough. To come out of a tough time like a recession for example in great shape, being innovative and having found new markets or other advantages during the difficult times, is like having a spring board into a new world, when others are still just looking up at the board wondering how to get up there.

In short - deal with ambiguity better and you and your organization become more agile, competitive, and swift.

Competency, proficiency and capability in ambiguity

I am currently teaching at Cardiff University where an interesting conversation was sparked about the difference and similarities between competency, proficiency and capability. Considering the last two blogs about developing ambiguity competency I thought that this might prove to be an interesting discussion for the blog. This might get a little convoluted but it is worth sticking with.

Capability: This is usually linked to the terms capacity and ability. So generally speaking in this context to say someone has the capability to deal positively with ambiguity usually means that the individual has the ability or skill and the capacity to deal well with ambiguity. However it does not mean that the person in question will actually do so. The have the capability, however if they don't have the desire to use their skills or contextual factors suggest that using their capability might not be ideal then the capability is unlikely to be realised.

Competence: This normally suggests that an individual has the required skills and knowledge to do something, in this case handle ambiguity. Now there is a question as to whether a person with a competence in say dealing with ambiguity is actually a competent person! Just because someone has a competence in an area does it necessarily mean that they are what what we would generally recognise as being competent? Whilst they use the same word one (having a competence) might not lead to the other (being seen as being competent). Go figure. You could argue that they should but do they in reality? This suggests that being competent takes more than having a series of competencies. One of the things that differentiates competencies from competence if the factor of context. A person would be described as being competent in dealing with ambiguity or risk, for example, if they appear to deal well with these in a wide range of situations and contexts, especially when the going gets tough.
Another factor in being competent is agility or flexibility; the ability to change and develop the competence in the light of new situations and thinking. Competencies therefore have levels leading up to competence that can be shown in almost any situation regardless of the degree of difficulty encountered.
So what about proficiency? This might well be what we would suggest competence is. To be proficient in something suggests an advanced level of competency, it suggests expertise.

So we can be capable and yet not actually use the capability, we can have competencies and yet not be competent in the area in question. However if we are proficient we mush be competent, have the required competencies and have the capability. Simple really!

So what does this mean for ambiguity and risk?
Many have the capacity to deal with ambiguity well and make great decisions, but don't.
Some may have the capability to find the advantage in ambiguity but don't realise it.
A few may have competencies in the areas of ambiguity, like emotional resilience, critical thinking, creativity etc. and yet may not be competent in ambiguous situations.
Only a few (largely mode 4 individuals) are proficient when it comes to dealing well and finding the advantages in ambiguity and risk.

Discuss!

Ambiguity Competencies II

This this the second part of the last blog. I will continue to cover the issues that Christine raised about ambiguity competencies.
3. Leading others in times of ambiguity
There are a series skills, thinking, attitudes and behavours that are specifically required when people have to lead others in times of uncertainty. These include (but are not limited to) the following:

1. Creating a compelling and real vision of a required future state for people to move into - there are specific methods and tools for this.
   
2. Intrapersonal ability - being able to monitor your emotional state and manage it this includes:
   
1. Emotional resilience - the ability to move quickly out of one emotional state into another and change the cognitive frame being applied.
   
3. Interpersonal ability - connecting with others, empathy and being able to manage other peoples emotional states
4. Agility - the ability to see change and move with it, and respond accordingly. This is a key competence that has a series of sub skills, thinking, attitudes and behaviours associated with it. This is a major differentiating attribute that mode 4 leaders have.
5. Decision making in ambiguous situations where the outcomes are uncertain. There are some very specific methods are available here.
6. Problem solving, especially where data is missing, incomplete or contradictory. We are currently preparing a series of online workshops around this.
7. Generative (Creative and innovative) practices.
8. The ability to use diverse resources and thinking frames without prejudice.

to name but a few. The aim here is to have agile and flexible leadership that can see change as it happens, change it's approach when necessary to suit the situation and maintain progress, including counter intuitive moves.

4. Developing ambiguity tolerance / resilience in organisations
This requires a special strategic approach that denotes multiple pathways and outcomes. Most strategies have one future and one pathway. In order to develop tolerance to ambiguity, the ability to profit or advantage from ambiguity and increase organisational resilience takes more than just more plans. Just look at the pickle FEMA got into over the Hurricane Katrina disaster. Their problems did not stem from a lack of plans or planning. Organisations that are agile, and can adapt quickly require a different mind set and a different type of strategy. Again there are different sets of competencies and capabilities required for this than are present in most frameworks.

One further word. Any such competency or capability framework needs to have a direction (and a level of ambiguity) that produces the emergent properties required, i.e. the ability to deal with ambiguity positively, find and capitalise on the advantages in every situation and develop agility, excitement, energy and resilience.

Need more? Contact me

Ambiguity Competencies

The comment Christine left was on the last blog was really interesting. It raises some very important and practical issues about using ambiguity for development in organisations.

Oddly when I ran a department at Cranfield University I used to research and teach competency development as one of my areas of interest. I have come across a couple of competencies for ambiguity I would agree with you that just about all of them miss the point or help others like managers to miss the point!

For me there are a couple of important issues here which broadly fall under four broad headings:

1. Creating ambiguity for advantage
2. Dealing with ambiguous situations to gain the advantage
3. Leading others in times of ambiguity
4. Developing ambiguity tolerance / resilience in organisations
   

1. Creating ambiguity for advantage

The first is that creating ambiguity works in certain situations, mainly those where there is an advantage to be gained from doing so. This requires excellent decision making capabilities, or the ability to know exactly when to create ambiguity and when to create clarity, both of which are different but connected cognitive skill sets. There is then the question about how to create differing levels of ambiguity or clarity for the effect required.

When we are working in organisations we concentrate on developing 6 areas of capability that all contribute to the ability to use ambiguity well:

1. Emotional Resilience
   
2. Decision Making
   
3. Problem Solving
4. Critical Thinking
5. Creative Thinking
6. Development of Autonomy
   

2. Dealing with ambiguous situations to gain the advantage

The second is that the major skill in dealing with ambiguous situations is to find the advantage inherent such circumstances, especially when just about everyone else is heading for the hills or a bunker somewhere nice and safe.
This requires a good level of emotional resilience. This is different from emotional intelligence which is also required. One of the things we do know about ambiguous situations is that with the exception of mode four individuals (See Modes of Leadership) they almost always bring about a change in people's emotional state. Heightened emotional states almost always reduce the effectiveness of cognitive operations (thinking). Therefore what happens is that when a person feels that things are ambiguous they will respond in one of a number of ways. These responses can range from total denial, construction of a new reality, attention being placed less ambiguous items, displacement behaviour and so on. Therefore competency frameworks need to look at emotional resilience as a separate (but linked) skill set from emotional intelligence. Interestingly this is where a lot of our work comes from. Helping organisations develop the thinking and skills to profit from ambiguity and part of that is developing emotional resilience.

As a side note here we discovered that skills or competency development programmes have greater impact when the cognitive side of things are addressed. In other words the thinking needs to develop with the skill which is one of our USP's and is based on the idea of modes of thinking which is embeded in the Modes of Leadership model. The reason being is that the system of logic we apply to any situation changes the way we see things and consequently behave or react, which is inextricably linked with our emotional responses. Which is why when we engage people in our Agile Leadership Programme (pdf) we develop all six skill sets at the:

1. Behavioural,
   
2. Cognitive
   
3. Belief / attitudinal, and
   
4. Emotional levels together.

This holistic approach accelerates the development process and means that graduates of the programme can deal with any situation that occurs, make good decisions are creative and critical and can stand on their own two feet in any situation.

In terms of recruiting similar issues abound.

I will answer issues 3 & 4 later

Ambiguity Blogs

I have just done a Google search on the term Ambiguity Blog with interesting results. The top blog is one called 'Revel in Ambiguity' subtitled 'glory in the gaps', which I got quite excited about, until I opened the blog. To be fair it does indeed provide a lot of ambiguity - there isn't any! It is a blog of a newly married young woman who appears to be cooking her way to domestic bliss.
The next site 'Making sense of it all - Meow, doesn't appear as far as I can tell, to mention ambiguity or anything vaguely related to it. It contains the musings of a marketing guy who by the looks of his linkedin and face book profiles on the blog spends a fair amount of his life networking (well at the very least making links with a pile of other people). Surely networking is more than a million internet links to other peoples profiles. You are not even networking with the actual people. There is a guy who linked with my profile on Linked in when I had just started. When I looked at his profile he had over a million links! Networking? I think not, it's more like notworking.
Then comes a blog entitled Deliberate Ambiguity which sounded really interesting. It is sub titled ...'musings about philosophy, marketing and even the occasional taxidermy.' Oh Oh - another marketing bod - this time in braces and a tie. This blog is marketing first, marketing second and marketing third. My definition of philosophy must be way out of date.
The comes the Ambiguity Advantage blog - about ambiguity oddly.

That's it!

From there on in (in google) all the rest of the entries are from individual blog writings that mention the word ambiguity in some way, usually as a synonym for being uncertain.
May be people like the idea of ambiguity without having too much of it about. It might also say something about the ambiguity people feel in their lives and that the blogs are a way of disambiguating their lives. It's all a little vague, which isn't a bad place for it to be, maybe.

The Ellsberg Paradox - Ambiguity Aversion

A great explanatory video of the Ellsberg Paradox has been posted over on the Curious Website. This describes Daniel Ellsberg's (left) famous ambiguity aversion experiment. As I describe in 'The Ambiguity Advantage' most people shy away from ambiguous situations. The masters of ambiguity (Mode Four individuals) on the other hand are very comfortable with and explore ambiguous situations - the very conditions (as the video shows) most others steer away from. In part just being one of a small number of players in any (ambiguous) situation gives an advantage on it's own. However there are specific techniques and more importantly frames of thinking the 'Masters of Ambiguity use. Mode four thinkers rarely fall victim to the decision making and problem solving biases we are currently exploring on the Ambiguity Advantage blog. How come? Stay tuned and all will be relieved.

What happens when authority meets ambiguity?

An interesting series of responses of authority (in the form of the police) to an ambiguous, non-crime situation. This is a great example of mode one behaviour. Enjoy!

Action Bias in Decision Making & Problem Solving

The blogs have been a little sporadic in the last few weeks as I have been in the Middle East running workshops for a series of universities and agencies on how to develop critical and creative thinking, as well as higher levels of problem solving, decision making, greater levels of autonomy and leadership capabilities in students and employees.

Anyway...

Another factor that alters decisions to make a decision (!) ( or what it is that triggers us to make a decision) and contributes to the decisions we make is a phenomena called action bias. Simply put this means that just about everyone, when faced with ambiguous situations, especially those circumstances associated with risk, gets the feeling that they need to take some action regardless of whether this is a good idea or not. This frequently contributes to misjudgments about when to act (usually too soon or in the wrong direction) and misperceptions of the nature of the problem facing them, which means that people not only make decision too soon but they could often, almost always have easily made a better decision if they had an awareness of the unconscious psychological drivers we have to make decisions.

Simply put action bias states that when faced with uncertainty or a problem, particularly an ambiguous problem we prefer to do something, in fact we are happier doing anything, even if it counterproductive, rather than doing nothing, even if doing nothing is the best course of action. Action bias was noticed by Bar Eli et al (2007) in a study of goal keepers behaviour in soccer games when faced with trying to save a penalty. When they analysed where most penalty kickers place the ball on taking the penalty they found that just over 1/3 of the time they shoot for the middle and the remaining times, just under two thirds they aim for either the left or right corner. And yet when faced with the decision of what to do almost all goal keepers prefer to leap either to the left or the right rather than standing in the middle, where on average they are marginally more likely to save more goals. The thinking behind such a decision is that it looks and feels better to have missed the ball by diving (action) in the wrong direction than to have the ignominy of watching the ball go sailing past and never to have moved. Action bias is usually an emotional reaction based on the feeling that ‘I have to do something’ even if I don’t know what to do.

The same often applies in many other situations. In a study of police officers dealing with minor disorder outside of night clubs in the UK for example, it was noticed that when some (a minority of more mature and often more experienced) officers were present at the scene they were much more likely to be tolerant of minor disorder and hang back and not act. Preferring instead to keep an ‘eye on the situation’ when they considered the behaviour was ‘horse play’ and without consequence to other members of the public. When other, usually less experienced (the majority),police officers witnessed such behaviour they were much more likely to act, engaging with the ‘offenders’ at an early stage of the situations. The result was that where police officers didn’t act, there were fewer arrests, fewer injuries and the situations usually defused itself without intervention. However when officers did intervene early the situations were far more likely to escalate and more people were likely to be sucked into the situation. When the police took action more of a crowd of onlookers usually developed with the result that some of them got drawn into the situation. The police officers who did act early almost all reported that they felt compelled to ‘do something’ and that ‘sitting around doing nothing isn’t an option’.

Action bias frequently draws us into ‘doing something’ when hanging back, observing and exploring the situation for a while is often the best action to take. As you can see action bias can make easily situations worse and is the foundation of a lot of poor decision making in companies and organisations around the world. This is linked to both the illusion of control phenomena and regression fallacy which were the subject of the last two blogs.

It is also worthwhile noting that action bias leads us to jump into developing solutions before we have the problem fully articulated (solutionizing). A subject that has been the focus of previous blogs.

Also there are one or two places left on the March 4th workshop.

Michael Bar-Eli, Ofer H. Azar, Ilana Ritov, Yael Keidar-Levin and Galit Schein (2007) Action bias among elite soccer goalkeepers: The case of penalty kicks. Journal of Economic Psychology Volume 28, Issue 5, October 2007, Pages 606-621

Illusion of Control

Last week at the Medical Sciences Division (Oxford University) one of the subjects we explored follows on nicely from the last blog, illusions of control. In 1995 Langer wrote a paper in which he showed that many people tend to believe that they can control and change events that are in fact beyond their control. Even during truly random events like the lottery, rolling dice etc. people often believe that they have the skills and attributes to change or influence the events. Such a belief is not confined to individuals. Teams also fall foul of this decision making bias, which because others are involved in the bias, usually removes all doubt of the entire group that they can in fact influence events that when examined somewhat more objectively are beyond the control of the individuals and teams concerned.

The question, as I frequently ask lecture and workshop participants, is; So What?

When you think about the decisions governments, boards and committees make for example, you don’t need to go too far to see the effect of ‘illusion of control’ playing out. That some policy or other actions can do things like reduce crime, increase educational attainment, solve market related issues and so on. This does not mean that I am not a believer in action, only that many actions we take and assume have solved whatever the problem is, have not in themselves been the solution. It has often rather been some other effect like regression fallacy etc.

There are a couple of interesting things here worth mentioning:

The first is that the cognitive bias we develop called the ‘illusion of control’ is frequently a response to ambiguity. Disambiguating something beyond our control appears to help emotionally. Ok it doesn’t lead to good decisions but we feel a whole lot better. A nice example of this is the difference between being passenger on a plane and the varying degrees of ill-ease felt say compared to the pilots who have a sense of control. A smaller effect can be felt often driving your own car or being a passenger in someone else’s. Yesterday I flew to Riyadh (where I am now) and was asleep when the plane hit a patch of really bad turbulence. I found myself sitting up and becoming alert, just in case. In case of what??? I found myself reasoning that we were 37,000 feet up flying at 550 MPH. If anything went wrong what was I going to do about it? Sod all really apart from probably scream and even then for what purpose? It just felt better to be alert and have the illusion of control even though in reality I had zero control over the situation. I was just trying to disambiguate the situation and (this is an important point) feel better – the emotional connection again. Once I realised what I was doing I relaxed, gave myself up to the uncertainty of the situation, stopped disambiguating and fell asleep!

The second is something called activity bias. More of which next blog. Oh and we will cover the recency effect as well!

The Regression Fallacy and desicion making / problem solving

Following on from the last article, the question was why do make decisions when we do?

The answer is that usually it is because we discern that there is a need for action. (well yup-de-do, I hear you cry).

The problem is that at the moment we realise that action is required the problem has almost always been around for some time and it has just pushed through some form of threshold to become noticed.
Now problems like pain, the stock market, organisational or individual performance or just about anything else, don't increase in a smooth incremental way (see last article), even if they appear to. They tend to fluctuate. So we notice the problem as the fluctuation crosses a threshold and makes it important to us. We tend not to concentrate on problems when they are below (and building up to) a threshold.
What happens is that 'on average' such fluctuating issues tend to regress to mean, or average out. We notice only the peaks as these have the largest emotional impact. We therefore tend to make decisions to do something at a peak once the problem has crossed a threshold (which can be emotional or psychological but are rarely consciously defined - it just feels like a problem now!).
Because of the regression to mean effect - (fluctuating events will almost always come back off the peak and move back to an average situation again, usually below the threshold) we think that whatever action we took, like going to the doctor, buying or selling, or changing the organisation in some way is responsible for the change, when in fact even without the decision things were going to even out anyway!

So we tend to make decisions to do things when they peak and assume that the action we took rectified the situation when the problems reduce, even though in all likelihood they were going to decrease anyway. The flaw in the logic that leads to this situation is to assume that the extraordinary events happening right now are now the 'norm' or average for this time and situation. This occurs usually because what is happening in the here and now feels like reality - and this feeds us into a place where we take now as a predictive indicator of the future - if things carry on like this...

Which brings us nicely onto another interesting decision making phenomenon. The recency effect - read all about it in the next article.

You may be interested in a couple of workshops I am running in London on 4th March. See here.

How do we decide when to make a decision?

James is sitting browsing through the year old magazine and wondering what all the other people in the waiting room are here for. There is an old couple sitting next to each other talking quietly who smile politely when he catches their gaze, a young pretty girl in a short skirt who looks miserable and pale, workman in dirty work cloths holding his arm. He looks like he is in pain, probably an accident. Jams notices the pain in his stomach as it start to get sharp again. He first noticed that pain a few days ago and it hasn't really gone away. It eases off at times and at other times it is quite painful. He is worried, it might be an ulcer or cancer even, maybe he should have come to see the doctor sooner. He keeps pushing that thought to the back of his mind. He looks back to the old magazine.
Shelly is looking at the recent stock market prices. They have been a bit all over the place recently. She wants to invest but is this a good time? Some people are saying this is a good time to buy compared to last month and others are saying that in all likelihood the market prices will fall further in the coming months and maybe over the year. If only she knew what to do.
Arthur is trying to workout if this is a good time to start a full scale root and branch reorganisation of the business. Market conditions are tough and we certainly need to do things differently to boost the profitability of the company. If we do this now will it cause too much disruption at a time when everyone really needs to concentrate on the business and on making things more efficient or will it be just the tonic we need? Clear out the less profitable parts, get the bits working better that need to change and sort out the management structure. Hmmmm.

Why is it that people decide to do what they do when they do? For example why do people decide to start an organisational change programme when they do, or go to the doctor when they do, or buy or sell on the stock market and a million and one other decisions we make when we make them?
All of these things like most things in life fluctuate naturally. Organisational efficiency or effectiveness, pain or illnesses, the stock market fluctuate naturally. Very few if any events or processes have a smooth 'glide path' where the changes are wholly incremental and equally progressive. Fluctuations and variation are a natural part of any and every complex situation. So given that change is part of the system and that the rate and direction of the change is also variable and frequently defies prediction with any degree of certainty there comes a question. When we make a decision to make a change, like go to a doctor or sell / buy or do something to change things how do we decide when the best time is to do any of these things? What is it that prompts most of us to make a decision especially when things are uncertain?
In the next blog we will have a look at something called the Regression Fallacy and how it gives us the illusion of success and frequently wrong foots us.

The Representative Heuristic - Problem solved, well almost

Firstly the term ‘heuristic’ simply means a method (usually informal) that helps to solve a problem or put another way a method of disambiguation of an issue.

The Representative Heuristic was initially used by Kahneman & Tversky (1973) to describe a phenomenon they discovered whilst conducting research into how people make judgements when they are in ambiguous or uncertain territory. What they discovered is that frequently people will look for and find similarities between two events or objects and then make an assumption that the similarity they have discovered represents a rule and then apply that rule to create a solution. People look for a likely (to them) explanation to a problem based on similarities they think exist between a few bits of data and then make this similarity representative of that relationship, in other words it becomes a rule. However it doesn’t end there because when people do this they believe the representation that they have constructed assuming that it is correct.

You can try out a modern version of the original Kahneman & Tversky experiment here.

I came across a more common every day example last year:

I was conducting some research in a company and was working with a group of managers, one of whom was in the middle of recruiting for a post in his team. I was invited to observe some of the interviews. About 20 minutes before the next interview the manager received a call on his mobile. He listened for a second, said "thanks", closed the call and leapt up saying to me "come on, this is where I find out if it worth interviewing the next candidate". We both rushed to the window which overlooked the company cap park.

“There he is in the Silver car just coming through the barrier – let’s see what he does.”

The car then slowly navigated the car park looking for a space.

“We ask visitors to park over there” he said pointing at a few empty spaces marked ‘visitors only’. “Which is really handy as I can see what they are doing.”

The silver car moved to the spaces for visitors and drove straight into one of the available spaces. The car door then opened and a smartly dressed young man got out.

“At last, that’s the first one this week! Someone worth interviewing finally”

“Sorry?” I replied “I don’t understand.”

“Look” The manager explained “People who are focussed on work drive straight into their spaces. Everyone else has backed in this week. That means that they are more concerned with leaving than arriving, so I won’t hire them, no matter how good their CV is.”

Representative heuristics can be very useful in solving some problems. However because the logic used to construct a representative heuristic is often of the common sense variety they are frequently very misleading and plausible (I have had a number of people who I have told this story to say they hadn’t thought about it but now you mention it there must be something in it).

The other problem with this phenomenon is that it is also the basis for bigoted thinking. All women are, all blacks are, all homosexuals are, all engineers are... (Kahneman & Tversky )...and so on. One instance represents the similarities that the person has noticed (or more properly, constructed) and it is now considered to be true. Every time we now look at the situation having constructed the representation we keep noticing (filtering for) the same patterns of similarity and ignoring any differences.

Importantly it is worth noting is that this phenomenon is more likely to be used in new and ambiguous situations. Further in situations that evoke fear, like unwanted change and loss, the representations created are frequently to show just how negative this situation really is and to filter out positives and opportunities. That helps then!

The Monte Carlo (or Gambler's) Fallacy

There is an old joke about a man who always takes a bomb with him every time he takes a flight.

"The chances of an airplane having a bomb on it are very small," he reasons, "and certainly the chances of having two are almost none!"

It's interesting how we view risk. I mentioned in my last blog that perception of risk and the actual probability of an event happening are often (usually) not the same thing.

There is a phenomena called the Monte Carlo Fallacy, also known as the Gambler's Fallacy or phenomenon. Basically this is where there is some event that is truly or close to random , like the lottery or tossing a coin and predicting whether it will turn up heads or any other similar random event. The phenomenon is that often people will play such games and believe that every time they play and loose, each loss brings them one step closer to winning. So if we look first at a gambling example and then widen it out to more everyday events.
Take the lottery - any national lottery where you have to pick a series of numbers and if your numbers come up you win. In the UK the lotto works out at about 14 million to one against winning the big prize. What happens is that people keep playing the same (lucky) numbers every week in the belief that every time their numbers don't win they are one step closer to winning - next week maybe. The reality of course is that every week each selection of numbers still has a 1 in 14 million chance of winning and that stays that way no matter how long you play. There is no reduction in this chance what-so-ever as the numbers that won last week have exactly the same chance of coming up as any others do. It makes no difference what numbers you play you are still unlikely to win.
The same applies to other large and random(ish) events like air crashes for example. The fact that a plane has crashed already this week and on average only a few crash a year means that I am safe on this flight is nonsense. Ok, that's not much comfort if you are a nervous flyer but it is realistic at least. There are better indicators of air worthiness like maintenance schedules etc. however they don't fully account for the random chance events of a series of hitherto unknown issues coming together at some particular time. The stock market is another example. Past performance is not a guide to future performance. How many times have you heard that? It is true, however people still look to past trends to inform future decisions in situations that are random or as close to random as doesn't count. It is sort of hard wired into us.
This is the other side of risk aversion. As mentioned yesterday we are more likely to be risk averse if there is a perception of potential loss as opposed to a perception of potential gain.
Because things don't really happen in three's (Sorry!) and because what we believe is not always true, having an appreciation of the psychology behind risk behavour and thinking starts to help especially during events that are uncertain like organisational change for example, which is often a really good instance of ambiguity plastered over and made to look rational. We never truly know what the effects of re-engineering an organisation will be even if we believe we do. We can have a good guess but it is not guaranteed and it is a lot more ambiguous than most OD professionals would like to admit.
In the next blog I will explore what is called the 'representativeness heuristic' which sheds some light on why people engage in the Monte Carlo Fallacy and why risk averse and risk taking behaviour is an important issue, especially in times of uncertainty.

Risk aversion research

Whilst teaching at the Medical Sciences Division at Oxford University this week I came across a young D.Phil student conducting some very interesting research into risk and risk aversion in humans through the lens of medical perspectives of gambling addiction. Now clearly I am not going to pre-publish someone else's research, and especially not a student's, however the conversations we are having and the other research we have discussed are available to share and they throw an interesting light on risk averse behaviour, ambiguity and emotional resilience.
First I just want to reiterate a couple of things that I have mentioned before; Risk aversion is an emergent property of an individuals emotional reaction to a situation that is perceived to be ambiguous or uncertain, and that risk averse behaviour is usually different depending on whether the risk is considered to be risk of a gain or risk of a loss. Normally are more willing to take a risk if they believe there is a potential large win and a small loss. Which is why many more people will risk a few pounds or dollars on only a 14 million to 1 chance of winning the lottery (and almost certain to loose their money) without thinking and yet won't engage in stock ownership even though the likelihood of profiting is far greater in the latter scenario.
So most people have a natural tendency to avoid loss. This is that case whether the loss is financial, personal - like a job, role or position or social like a relationship, often suffering sever hardships rather than loose something like a bad relationship or a job they don't like.
The risk aversion in these cases are anticipatory, the loss hasn't actually happened and cold calculations of probability rarely affect the emotional reaction. (Which is why we often concentrate on emotional resilience in our workshops and coaching).
To be continued...

Risk aversion and the law of unintended consequences

The news that the UK Credit card company EGG is about to withdraw 161,000 credit cards from customers who are considered to be 'higher risk' is an interesting case study in risk aversion.
On one level their actions make a lot of sense for the company. If they are actually targeting individuals who propose a higher risk (and there is a question about how they have made this decision) in times of economic slowdown then restricting their ability to get into debit does reduce this companies exposure to risk later on - but only if other companies don't do the same thing.

In times of tougher money and in particular credit supply reducing peoples flexibility to move (and access) money around is very likely hasten the levels of bankruptcy. If you are in a tight spot and your emergency supply (the credit card) dries up and there is no way to get more money meaning you can't pay your debts then you will go bankrupt and then default on everything. This means that if every credit company, as is widely expected, follows suit, then this is quite likely to accelerate the numbers of payment defaults which is they very thing the strategy is trying to prevent.

This is a typical mode one (from the book the Ambiguity Advantage more of which later) risk averse reaction. When things look difficult more controls are put into place. Logically this appears to be the right thing to do. 'Things are going to be tight so we will reduce spending (or in this case the ability to spend) across the board'. That makes sense for the individual credit company. However if everyone does the same thing, the more they all control the money supply the less there is to spend, the less there is to spend the less people buy, the less people buy the less profit there is, the less profit there is... you get the picture.

So a risk reduction strategy that works for one company for a limited time, when copied and used widely is likely to actually bring about the very conditions they are trying to prevent.

This is also true within companies. Many companies that we have seen, cause themselves problems when things get tough by reducing spending / effort on the wrong things. So at the very moment when things need to change and employees need to think differently, get creative and find new ways of doing things you find that activities like better training and development, coaching etc, are usually slashed thereby exacerbating the situation.

Risk aversion often brings about the very thing we are trying to prevent.