Better decision-making by Jo Whitehead, Andrew Campbell and Sydney Finkelstein, Management Today, February 2009

The three authors - their background is not quoted but presumably this is Andrew Campbell formerly of LBS and Ashridge - clearly wrote this article to advertise their new book on this topic and good luck to them. It certainly made me want to read the book and it may be reviewed in future blogs.

The article and the book look at the phenomenon of flawed strategic decision making, particularly at senior level, and the reasons for it. As I read it I had a similar feeling to when I read Hamel’s article - wouldn’t the arguments be even more persuasive if related to more topical examples like the acquisition of ABN Amro by RBS or Lloyds decision to acquire HBOS? OK maybe it is too late to research for the book but surely the article could show some recognition of recent devastating parallels that would strengthen their argument? Instead we get the interesting but dated example of Boots move into healthcare in 2000 and acquisitions by Rentokil and M&S in the previous century.

Nevertheless the arguments and the frameworks from the article do provide food for thought and encourage the reader to relate these to current events. The article suggests four reasons for flawed strategic decision-making, what it calls red flag conditions:

• Misleading experiences, usually a success that makes you think you can do it again (Fred Goodwin’s success with NatWest?)
• Misleading pre-judgments, a similar condition that I found hard to separate from the first one
• Inappropriate self interest, something the decision maker wants for self and not for the business, for example an acquisition to achieve a bigger top job
• Inappropriate attachments (Lord Rayner of M&S apparently bought Brooks Brothers because he liked their clothes!) The latter part of the article moves on to what can be done to avoid the red flags and it is here that it becomes less convincing. They talk about a number of different types of safeguards, the first of which is to establish processes requiring more detailed analysis and research. They also suggest more rather obvious safeguards - debate and challenge, a firm governance framework and good post audit processes. There is an admission that these safeguards will inevitably slow down the speed of decision making, a trade-off that in our experience most companies are constantly trying to balance

But recent events in the financial services sector - as described in recent books about the fall of Bear Sterns and Lehmanns - have shown that autocratic CEOs often rule by fear and have contempt for formal processes. Over the years we have heard of many cases where major strategic decisions - particularly acquisitions - were made at an early stage and the evaluations were later made to fit the decision and comply with the processes.

Therefore the article - and presumably the book - does not address the key issue, how do you limit the powers of CEOs who forget that they are the servants of the shareholders and not the other way round? There is no easy answer but it is more likely to be found in the structure and dynamics of Boards of Directors than in detailed process safeguards.