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The missteps that led to today’s economic troubles continue a long history of decision-making failures.  Earlier this year the New York Yankees priced box seats in its new ballpark at $2,500 and quickly had to offer discounts.  Two years ago Mattel and Nike each recalled carloads of products because of faulty manufacturing in China.  The year 2005 saw the delayed response to Hurricane Katrina and the opening of Boston’s Big Dig, five years late and five times the projected cost. 

Looking further back, there was London’s Millennium Dome, the Challenger explosion, the Waco siege.  At Ford there was the introduction of the Edsel and later the Pinto recall.  There was the Barings bankruptcy, New Coke, the Bay of Pigs invasion.   Decca Records said “guitar groups are on the way out” and “the Beatles have no future in show business.” Napoleon sold the Louisiana Territory for less than $300 million in today’s money.  The Trojan horse, a gift from the Greeks, carried hidden Greek warriors into the rival city. 

Why do these debacles happen?  Most certainly lack of data is not the cause today.  Indeed, company-wide ERP systems that give chief executives real-time access to all kinds of metrics can actually contribute to faulty decision-making:  As more data is introduced, the number of contradictions that must be reconciled grows. There are limits to the amount of information the human brain can process in a reasonable manner.  The chief executive is forced to accept some pieces of information and reject others — and often selects, unconsciously, what supports a preliminary conclusion. In both business and personal affairs, we often make decisions without full awareness of how much intuition and emotions influence our choices.       

Globalization and rapid-fire technology developments are forcing executives to make more decisions and deal with more complexity than ever before.  Offered more opportunities than they have resources available for pursuing them, executives can be tempted to develop too many projects, short-changing those with the highest potential.  Yet focusing excessively on high-potential opportunities – a common practice — also poses danger because these opportunities carry the highest risk of failure.

Here are eight reasons why decisions fail to improve the profitability, competitive advantage or performance improvement results that were expected.

1.  Predetermining Decision-making’s Outcomes

When the company’s leaders want their deliberations to produce a desired outcome, they may downplay or ignore contradictory evidence.  This can easily happen when, for example, the leadership has an emotional investment in one of its options, or its highest priority is meeting financial goals, or a project’s momentum gains it adherents as it moves forward.  In these situations, the leaders might not ask tough enough questions.

Can’t we afford to maintain a valued tradition?  The W.T. Grant retail chain collapsed in 1976.  Among the reasons for its demise was continuing to pay its quarterly dividend after becoming unprofitable, even borrowing funds to do this.

Should the company change or defend a threatened business model? Kodak Co. understood as far back as the early 1980s that digital photography posed a threat to its paper and chemicals business.  Committed to further developing its pioneering technology, it kept investing more in it than in the clearly superior digital alternative.

Can we lower costs but maintain product quality?  Until the 1970s Schlitz Brewing Co. had been America’s second-largest brewer, trailing only Budweiser.  (It was number one until 1957).  Seeking higher profits, the company cut the cost of ingredients and accelerated the brewing process.  Schlitz replaced much of the barley malt in the beer with cheaper corn syrup and shortened the brewing cycle from 40 days to 15.  When the product broke down, causing sludge, Schlitz was forced to recall 10 million cans of beer.  It had to close down its Milwaukee brewing plant in 1981 and the following year it was purchased by Stroh’s.

Should we introduce this product?   The idea of a cigarette that would burn cleaner and deliver fewer toxins had high appeal to the R.J. Reynolds Tobacco Co.  It introduced its Premier cigarette, which met these needs, in 1988 despite the product’s shortcomings: It was difficult to light, the smoker had to inhale harder and it left a charcoal-like aftertaste. The product, which cost $1 billion to produce, was dropped from the market after less than a year.