Strategic Thinking Traps 8 and 9

8. Status Quo

Popular adages such as “If it ain’t broke, don’t fix it,” “Don’t rock the boat,” and “Let sleeping dogs lie” all feed into the natural tendency to prefer the status quo. Time and again, research has proven that when individuals have the option of doing something new or staying with the status quo, they overwhelmingly stay with the status quo. In general, the threat of a loss has a greater effect on a decision than the possibility of an equivalent gain. The response to loss is more extreme than the response to gain. Consequently, many strategy decisions place too much weight on the potential negative outcomes because, psychologically, the displeasure associated with losing a sum of money or market share points is greater than the pleasure associated with gaining the same amount.

Life Preserver: To avoid the danger of the status quo in strategic thinking, consider the following:

  • Examine the actual changes that would need to be made to abandon the status quo, as the reality is often less painful then imagined.
  • Explore a range of alternatives outside the status quo to provide a full picture of the potential courses of action and their accompanying benefits.

9. Sunk-Cost Effect

People who have played a hand of poker know the difficult decision of folding their cards (dropping out of the game) when they have invested a considerable amount of money in the pot. The flawed rationale is: “Well, I might as well stay in the game because I’ve already put a lot of my chips into the pot. What’s the harm of putting in a few more chips now?” This tendency affects managers in the high-stakes game of resource allocation as well, and it is known as the sunk-cost effect.

Sunk costs are previous investments that are no longer recoverable. Research has indicated a bias toward making a choice that justifies a previous decision, even when that decision no longer appears to be valid. On the surface, it seems ludicrous that a manager would continue to invest new resources in an initiative that is clearly not working. Nevertheless, managers are often unwilling to admit a mistake, and shutting down an initiative opens that manager up to review and potential criticism. Consequently, if managers work in a culture where mistakes are directly or indirectly punished, they may very well fall into the sunk-cost effect because the other option of pulling the plug and admitting even a temporary defeat is not tenable.

Life Preserver: To avoid danger of the sunk-cost effect in strategic thinking, consider the following:

  • Use the blank-slate test: starting from today, what is the best use of resources moving forward, with no consideration given to past decisions?
  • Ask someone detached from the situation to provide thoughts on the current decision and the best option moving forward.

So those are the nine strategic thinking traps. Take notes during your meetings next week and check off which traps your colleagues are falling into. Then pull them out. Strategically, of course.

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