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Rose-Colored Glasses: Stylish, but Not Good Planning Fashion

Spring is the fourth quarter of the fiscal year for most nonprofits and the time of year when executives, boards and staff begin wading through annual and multi-year strategic planning processes. Most executives hope these planning processes result in a blueprint for higher performance and mission impact.

There are other planning payoffs as well: alignment with the board; a shared sense of financial, technical, and human resource requirements; and a fresh understanding of the trends, issues and landscapes that affect the organization’s work and mission.

But many executives, despite their best intentions, look at strategy development through flawed perspectives which often work against sound decision making. In fact, our brains are wired in ways that tend to prevent us from following tried-and-true strategic principles.

For example, Charles Roxburgh, director of the London consulting firm McKinsey & Co., cites behavioral studies that imply that decision-makers commit mistakes in similar ways. This irrational behavior, or strategy flaws, could be innate.

Roxburgh outlines eight hidden strategy flaws and possible strategies to overcome them.

1. Overconfidence 

Overconfident leaders often exaggerate their own abilities, their staff’s abilities, or overestimate the capacity of the organization. Overconfidence and over-optimism lead nonprofits to take on projects, make promises or project service metrics that cannot be finished or achieved, or lead them to overestimate the fundability of a project.

Leaders who have this characteristic should temper overconfidence by adding 20-25% more downside to pessimistic planning scenarios. Boards who work with this type of very confident leader should beware of strategies based on certainty.

2. Mental Accounting

The leader who operates on mental accounting treats money differently according to its source, allocation or use. For example, this leader might employ rigorous cost controls on a vital core program but spend freely and with a higher disregard for risk on a new initiative.

Leaders who have this tendency should stick to the rule that a dollar is a dollar regardless of its origin or destination. Boards who work with this type of leader need to be keenly aware of ROI metrics and demand that they be part of evaluative program or financial reports.

3. The Status Quo Bias

Press conversations about the risks of doing nothing as well as risks in change.

This type of leader lives by the mantra that “if it ain’t broke, don’t fix it.” The tendency of this leader to leave things alone may keep the organization from dropping a program that was once effective but is no longer working, or from really understanding the costs of a program, activity or service that could be more efficient if it were changed or outsourced.

Leaders who have this characteristic should view every program, service and activity as always up for review. Boards should press conversations about the risks of doing nothing as well as the risks inherent in change.

4. Anchoring

Anchoring is a characteristic of the leader who hears a number or a statistic and anchors his or her decision on that figure. For example, past performance data may anchor this leader. Anchoring can be avoided by looking at long-term trends and comprehensive data sets that will provide a larger perspective.

Boards should disregard attempts from this leader to anchor a discovery process or planning investigation by requiring a comprehensive s.w.o.t. analysis in planning, or by leading conversations that uncover the breadth of data behind recommendations.

5. The Sunk-cost Effect

This leader may have a tendency to throw good money after bad. The scarcity of funds available makes this a huge area for planning debacles in the nonprofit sector. That new database that was supposed to solve tracking problems isn’t working, but instead of admitting it, this leader will stop at nothing to try and fix an unfixable system.

Leaders can avoid this trap by evaluating incremental investments as if they were new projects, and by being open to killing projects that will not work quickly. Boards should be aware that a slow “no” is 10 times more expensive than a quick “no.”

6. The Herding Instinct

This leader seeks safety in numbers and likes the tried and true. They look for successful examples of programs while disregarding the fact that these programs operated during a specific time period, geographic area or business environment. Not only do these executives base investments on others’ experience and capability, the urge to be like everyone else offers no competitive advantage.

These leaders should seek board and staff members who think innovatively. Board members should cut losses on program designs that do not help the organization break away from the pack or fall short of innovation expectations.

7. Misestimation of Future Hedonic States

This is Roxburg’s phrase to describe the propensity to make bad forecasts of how much something will help or hurt. For example, founders may see merging with another nonprofit as a death sentence when that effort might produce an exponentially larger mission impact. Leaders and boards should try to avoid overreaction and take a long-term, unemotional view of strategic choices.

8. False Consensus

Encourage open debate and seek out contrary views.

This leader seeks out facts and people that support a particular plan. As a result, data and opinions that do not support the plan are often overlooked or disregarded. These leaders should not overestimate how much others share their views. Boards in this scenario should encourage open debate and seek out contrary views.

Conclusion

Everyone has a perception flaw or two that he or she employs in business and in personal matters. Throughout our lifetime of experiences we have almost wired them into place. Leaders and boards would be well served to understand these common built-in strategic limitations before tackling a planning process.  Not doing so may flaw your final plan before the ink is even dry. 

To avoid common pitfalls, remember that your plan should be in place before you begin your process. This process can address many common decision flaws if it is afforded enough time, fed with unbiased data, composed from respectful debate, and cognizant of both short- and long-term dynamics.

As you begin your planning, be aware of these hidden flaws in decision-making and set up your processes so that they keep your plan honest.  If you can’t help wearing your rose-colored glasses, make sure there are a few people around you with 20/20 vision—or who are wearing another color!

Charles Roxburgh, a London director of the consulting firm McKinsey & Co, provided content for this article. 

Karen Beavor, CEO & president, Georgia Center for Nonprofits, also contributed to and compiled information for this article.

 

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