Human beings are the basis of all life activities, and organizational transformation is no exception. Humans are the forces who design, develop and operate transformational projects that aim to maximize institutional excellence. Given the nature of human inclinations, leaders may sometimes fall into the trap of cognitive biases which can significantly affect the way they think and run their organizations.

In this article, one of a two-part series, we will talk about cognitive biases and how they are correlated to organizational transformation efforts. But before starting to discuss this correlation,  let us first explain what is meant by cognitive bias. Cognitive bias is “a pattern of deviation in reasoning or judgment in certain situations, resulting in perceptual distortion, inaccurate judgments, or subjective interpretations”. The effect of such biases on decision-making has been confirmed by cognitive science (particularly cognitive and behavioral economics).

In the context of organizational transformation, biases can be formed due to overconfidence in the outcomes of the decisions we take regarding continuous improvement projects. Sometimes, business leaders tend to, unconsciously, overestimate their reasoning and decision-making capabilities, resulting in what is called “outcome bias”. To protect our clients against forming such biases, we have reviewed and analyzed the lessons learned from some of the projects we conducted with our clients, and that were linked to cognitive biases. We will take you on a journey to identify such biases in the context of organizational transformation, with illustrative examples.

Outcome Bias

Outcome bias arises when a decision is evaluated based on the outcomes of a previous similar situation,  expecting to achieve the same outcomes each time a similar decision is made. When making decisions related to organizational transformation, leaders may fall into this trap by confidently anticipating to achieve specific results. They interpret all the inputs they have and align their paths of thinking towards reaching the specific, desired result.

These biases can arise at any stage of the organizational transformation process, and can take many forms, such as choosing the competencies based on the desired result (e.g. selecting  a team with a technological background because the suggested solution is technological), or collecting specific type of data that achieves the desired result (e.g. collecting complaints and suggestions from a certain branch because you think that all problems arise from this specific). Other example may also include choosing the experts and consultants with specific background based on the outcome you hope to achieve (e.g. consulting experts with marketing expertise based on your belief that most of your major problems are due to inefficient marketing plans).

The Anchoring Bias

Anchoring bias refers to the constant tendency to be overly affected by the first information you hear. Organizations may fall into this trap by blindly relying on the ideas and information they gain at the early stages of their transformation journey, without questioning their accuracy, effectiveness, or relevance in the present context. This bias can dramatically impact the decisions you make and the practices you adopt to achieve transformation.

This bias can show in many ways. For example: if you are in the process of appointing leadership positions related to transformation programs, you will tend to choose the candidates with previous experience and knowledge in the field of business transformation, which they might have obtained an early stage of their career. This may cause you to make decisions based on outdated standards that no longer fit in today’s constantly-changing world. You may also be misled by bias when making decisions based on your organization’s external stakeholders only, while underestimating the role of the internal stakeholders in your business transformation journey. This bias will prevent you from seeing the close link between service quality and internal processes, resulting in weak, inefficient business operations..

False Consensus Effect

False consensus effect (also called “consensus bias”) describes the tendency to overestimate how much others support or agree with your choices or way of judgement. Some leaders may falsely believe that the rest of the organization’s leaders and employees have the same beliefs and views regarding the business transformation initiatives – a false consensus that does not really exist.

This bias can arise at any stage of transformation, and can take many forms: For example, when you think that your suggested transformation model will get buy-in from all stakeholders, or when you adopt an improvement strategy while thinking that everyone else is aware of.  When it comes to implementation, however, you will be surprised how false and inaccurate your assumptions were.

See you soon in Part 2.

Thank You!

Knowledge Library Team

ODEL

Riyadh