In business, leaders and managers are expected to put together plans, forecasts and projections for the years to come. The strategy team works with the business and finance teams to plan for the future. Management consultants have carved an enviable niche in area of business strategy and advise companies on how to adapt the business to deal with the future. Economists offer forecasts for the national and global economy; venture capitalists invest in new ventures based on predictions for profitability and growth. You have demand forecasting for the launch of a new product, more recently the launch of the latest model of iphone saw Apple successfully meeting the global demand for the product. In our personal life we make predictive judgements for example about a new job that we are considering. What is the role of intuition in management decisions?
We often see skilled people make split second discussions like a chess master making the next move in rapid chess. However statistically it has been shown that intuitive predictions are overly confident and often wrong. As we have often seen, even a promising start-up has only a small chance of success. The same way a grade ‘A’ student in primary school has a small chance of being a top ranker.
How do you make the most promising bet of all the bets that are available? Following intuition comes naturally to us. Our minds are conditioned for this and quite often we feel uncomfortable going against our intuition. Past stories and experiences, even if flawed shape our understanding and our views about future outcomes. Like in his book, “The Black Swan” Nassim Taleb explains, what influence our expectations are the flawed stories of the past. We construct accounts of the past with scattered data and believe them to be true.
The “Halo Effect”, helps to maintain the consistency of the narrative. For instance, a tall and handsome soccer player may be mistaken for an ace striker thus overrating his ability, without even taking into account the significant factors. The same happens when hiring senior executives.
Relying on our gut during hiring isn’t a great idea. Our intuition often makes us “fall in love” with a candidate too quickly. We get swayed by prestigious schools and great experience on a sparkling resume.
We see a likable candidate who says all the right things. And even though we don’t admit it, too often we look for a person who can quickly make a problem vanish, a role we are in a hurry to close, so we rush to sign the deal. All we look for is confirmation of our decision, also known as the “Confirmatory Bias”. You run the risk of hiring the wrong person if you are not careful. We associate leadership with decisiveness and this perception often forces executives to make decisions quickly and without proper analysis.
While hiring, we generally use the past performance to predict the future outcome. However, future events may be quite unpredictable. One has witnessed many a complexity of a business in a volatile and global marketplace during the last decade. Few could predict the financial crisis of 2008 and the Arab spring in 2010. It clearly follows that the intuitive feeling that has performed in the past, may not work in the future.
Can you really trust a professional to use his intuition to make a decision? Experts suggest that you should not take your intuitions at face value. Overconfidence is a powerful source of illusions. Do your homework well to feed your intuition. In his book “Thinking fast & Slow”, Daniel Kahneman advises not to trust your gut. Take your gut feel only as an important data point, but evaluate the same consciously and deliberately, to ensure its contextual relevance and accuracy.
So when it comes to hiring decisions, doubt and double-check your gut. Go beyond the resume. Dig for extra data. And don’t just make reference calls; force yourself to listen, especially to mixed messages and unpleasant insights. After all going wrong with a leadership hire has an enormous opportunity cost.
The author is senior partner, Hunt Partners