Despite their best intentions, executives fall prey to cognitive and organizational biases that get in the way of good decision making. In this series, we highlight some of them and offer a few effective ways to address them.
Our topic this time?
The perils of executive typecasting
The dilemma
The new CFO at a medical-device company has heard nothing but positive things about a line of products, now in their third generation, from the Consumer Health Division. According to her detailed review of the company’s entire portfolio, however, this product line has been underperforming compared with others, and the numbers are continuing to slide. On a team call with the operating and business unit heads of consumer health, the CFO hints that it might be a good time to divest. “Classic CFO: always looking for ways to cut costs,” the division executives observe as they trade instant messages among themselves. On the call, they wage a loud campaign against divestiture, noting the financial and reputational risks of doing so. When the meeting ends, the CFO thinks twice about bringing up the idea of divestiture with the CEO and other members of the executive-leadership team (ELT). There is strong institutional support for this product line, clearly. Given the response she just received, would the ELT even welcome her contrarian viewpoint?
The research
A common obstacle to good decision making is executives’ adherence to role theory, a concept in sociology and psychology that suggests that most people categorize themselves and others according to socially defined roles—as a parent, a manager, or a teacher, for instance. They adopt norms associated with designated roles, behave accordingly, and, in a form of groupthink, expect others to do the same.1Michael A. Hogg, “Social identity and social comparison,” in Jerry Suls and Ladd Wheeler, editors, Handbook of Social Comparison: Theory and Research, New York, NY: Kluwer Academic/Plenum Publishers, 2000. At the medical-device company, all that the operating and business unit heads could see was a relatively new CFO making an overly conservative proposal in line with her role. “Playing it safe is just what CFOs are supposed to do,” they felt. This role-based perspective allowed them to discount the CFO’s idea out of hand without fairly evaluating its merits. It also raised doubts for the very early tenured CFO about the best way to present new ideas to this group and the ELT.
A common obstacle to good decision making is executives’ adherence to role theory, a concept in sociology and psychology that suggests that most people categorize themselves and others according to socially defined roles.
The remedy
Organizations must actively encourage dissent and make it safe for individuals at all levels, regardless of role, to share contrarian ideas. In this case, if the CFO could separate her idea to divest from her status in the organization, she might get a fairer shake from everyone involved.
One way to do that would be to engage individuals and teams in a “what you have to believe” assessment, highlighting the discrepancies between the product line’s current performance and the resources needed to bring it back to premier status. Such an assessment could put more facts into and structure around strategy discussions.
Alternatively, the CFO could engage colleagues with a range of perspectives (outside of the usual suspects in finance and the C-suite) to help make objective cases for both investing in the asset and divestiture. Bringing in someone from the commercial side—such as a product manager who could speak to the current and historical performance of the devices in question, or a sales representative who could do the same—could provide a reality check against prevailing perspectives. The CFO could then lead a group discussion on the most likely outcomes.
With those other voices in the room, it might be easier for business unit and operating executives to stop making assumptions about the CFO’s motivations and consider the clear facts about the business situation at hand. And having gone through this impartial assessment and collected all the necessary data, the CFO would be better prepared to share with the ELT her perspective on the potential risks and benefits of divestiture—as a strategy for growth and definitely not just a controller’s attempts to control.
This content was originally published here.