Monday, March 14, 2016

Why do organizations fail?

Good review article that summarizes empirical and case studies that tell us why problems occur:
Organizations fail due to incentive problems (agents do not want to act in the organization’s interests) and bounded rationality problems (agents do not have the necessary information to do so). 

and what we can do to solve them (buy the book!):
Ask three questions:
1.  Who is making the bad decision?;
2.  do they have enough information to make a good decision?; and
3.  the incentive to do so?


  1. I think blaming one person is never right, if things aren’t going right it’s a collective mistake. I’m at present working with OctaFX broker, it’s a wonderful company been regulated plus a true ECN broker, it’s always great to be part of such broker and it always give me great benefits, I believe when we are trading with comfort and relaxed mind, it will always help us with the performance, but if we are forever worried about everything then we will obviously struggle.

    1. Correct, it is usually not the fault of one individual, but rather a team. However, accountability of management means each member of the management team is accountable for the actions of themselves and those working under them. Therefore, if situations arise and are not fixed, it is the fault of the manager and begins going up the chain of command until someone reverses the issue.

  2. The Text, Differentiated Workforce talks about creating a competitive advantage through building a differentiated workforce. This means, organizations need to establish strategic goals first. Then, management can hire staff members that will work toward their goals. This means going against common business practice of hiring top talent within the industry. Once staffed, organizational leaders must understand that strategically, not all positions within the organization are equal. Leaders must identify the “A” positions; which are positions that are the top money makers for the organization. These are the positions leaders should focus on first in terms of training and development. These positions rarely are executives or entry level. Instead, they are usually the front line laborers. Once an organization has hired staff that will work toward the strategic goal and focused on developing the top money makers, the culture within the organization should align itself to create a competitive advantage.

  3. The three questions presented: Who is making the bad decision?;do they have enough information to make a good decision?; and the incentive to do so are all great questions. Can one specific person make an organization fail? I believe one person may be a major contributor, but it is the entire human capital who ultimately fails. Sometime people make biased decisions and they can't get beyond their biases to make educated decisions. Some people may "know it all" and not do the research before making bad decisions. There needs to be strategies in place and a good culture for a healthy organization. Clearly defined roles and goals will allow the necessary people to make decisions as long as they are trained and qualified candidates. Of course people make mistakes but one decision shouldn't make an organization fail.

  4. The first step in the problem solving framework is to reduce the problem to an individual mistake. IF THIS CAN BE DONE, then the algorithm works well. However, regardless of where you start attacking the problem, e.g., at the surgeon's decision, or CMS's decision, the algorithm will identify the problems, and may suggest solutions. But the commentators are all correct in that unless a problem can be reduced to an individual mistake, it may not work well.

  5. Why do Organizations Fail?
    Organizations fail for many reasons. One reason we can all agree on is bad decision making and the inability to remove biasness in the workplace. In the book, Judgement in managerial decision making, Bazerman states, “The study of biases is also of immense practical value. Abundant evidence shows that the decisions of smart managers are routinely impaired by biases” (Bazerman, Moore, 2013, pg. 206). We can learn a great deal by studying how other organizations have failed and applying our findings accordingly to maximize our organizations results and outcomes. Bazerman goes on to discuss the book “Moneyball” and how the baseball executives made three mistakes. They were:
    1.) They overgeneralized from their personal experience.
    2.) They were overly influenced by players’ recent performances.
    3.) They were overly influenced by what they saw with their own eyes, when players’ multiyear records provided far better data.
    (Bazerman, Moore, 2013, pg. 207)

    In other words, managers relied too heavily on intuition and did not bring into account facts and statistics. What tools can we use to aid us in better understanding situations while eliminating bias? Bazerman discusses seven concrete and complementary strategies for making better decisions. They are:
    - Use decision-analysis tools
    - Acquire expertise
    - Debias your judgment – Apply this with findings in chapter 4. Chapter 4 is about our systematic and predictable failures to notice critical information that is available to us (Bazerman, Moore, 2013, pg. 60).
    - Reason analogically
    - Take an outsiders view
    - Understand biases in others
    - Nudge people toward wiser and more ethical decisions (Bazerman, Moore, 2013, pg. 208)
    When making decisions you need to take many aspects into account such as awareness, understand the situation and examine what is right in front of you. We will also use framing and the reversal of preferences to better aid us in making sound decisions. We need to be conscious of our emotions when making decisions. It is stated by Bazerman, “Too often, people view their emotions as uncontrollable. The fact is, even if we can’t stop ourselves from feeling, we may be able to limit the negative effects of our emotions on the quality of our decisions” (Bazerman, Moore, 2013, pg. 117). It is important to take all of these into consideration when making decisions. Some decisions are more complex and involve more thought but it is how we handle the situation that makes us and is how other people perceive us. By making sound and rational decisions and treating employees with respect will pave the way for organizations and their success.

    Bazerman, M., & Moore, D. (2009). Judgement in managerial decision making (7th ed.). Hoboken: Wiley.

  6. When employees are given the information and tools they need to perform well while being empowered by leadership there is a greater chance for success.

    Incentive conflicts arise between managers and subordinates who are not motivated with reciprocity from the organization. For instance, the organization that I work for has merged other FTE roles with our roles. While we enjoy the variety of the many different areas of responsibilities, we would like to see a fair remuneration and title change for the work that we have taken on successfully. Although we achieved the required numbers (and more) for the organization, we did not earn incentive compensation. This has resulted in high turnover for our department.

    Our VP (principal) has decided to motivate us (agents) by promising something by year end. In other words, work upfront and return profits for an entire year before earning the incentive compensation. The smarter solution for this principal would be to reward agents who are returning high profits resulting from referrals, enrollments, and other marketing / sales techniques on a quarterly basis. Otherwise, agents are leaving for same positions with other organizations who will reciprocate.

    Froeb, L., McCann, B., Shor, M. & Ward, M. 2014 Managerial Economics A Problem Solving Approach. 4th Ed. Cenage. Boston, MA.