Decision Making Feature

Have We Lost the Ability

to Listen to Bad News?
BY KIM E. VAN OORSCHOT, LUK N. VAN WASSENHOVE,
KISHORE SENGUPTA & HENK AKKERMANS

Research shows that project managers

continuously prioritised good vibes
(positive, but subjective signals) over bad
news (negative, but objective signals),
which resulted in decisions of poor quality.
Without understanding the root causes that
generate the bad news and the good vibes,
managers could make the wrong decisions.

1. Introduction
Managers are frequently surprised by problems
in complex new product development projects
(Browning and Ramasesh, 2015). Often these
surprises come from “unknown-unknowns”:
the things we don’t know we don’t know. In
response, many tools have been developed to
help managers discover these unknown un-
knowns: to turn them into known unknowns
to which risk management procedures can be
applied. These tools are both hard and soft,
targeting both the analytical, mechanical side
of the project, and the behavioural, organic
side. Examples of the former are: checklists,
decomposition, scenario analysis (Browning
and Ramasesh, 2015) and stage gates (Cooper,
2008). The latter includes: informal dialogues
with project sponsors (Kloppenborg and Tesch,
2015), building a wide range of experiential
expertise (Browning and Ramasesh, 2015), fre-
quent communication (Laufer et al., 2015), help
seeking (Sting et al., 2015), and focusing on weak
signals (Schoemaker and Day, 2009).
What all these tools have in common is that
they aim for clarity in projects that follow an un-
certain path through foggy and shifting markets
and technologies (Eisenhardt and Tabrizi, 1995).
The price to pay for this is more information that
needs to be processed by the project manager.
Project managers need to make sense of all sorts
of signals, whether they come from analytical
tools or informal dialogues and communica-
tion, whether they are strong or weak, positive
or negative, objective or subjective. Eventually,
all signals need to be merged to make project
decisions. Yet, little is known about how project Project managers
managers actually make sense of a multitude of
need to make sense
(often mixed) signals.
of all sorts of signals,
2. Information Overload whether they come
Managers operating in fast-paced and from analytical tools
demanding environments face the dilemma or informal dialogues
that numerous factors and options surround and communication.

www.europeanbusinessreview.com 7
 Decision Making
PREVIOUS RESEARCH SHOWS THAT
DECISION-MAKING IMPROVES
WHEN BOTH THE RIGHT AND LEFT
SIDE OF THE BRAIN ARE USED.
every decision (Seo and Barrett, 2007). They
must make decisions against a background of
ambiguous information, high-speed change and
a lack of ability to verify all facts (Bourgeois
and Eisenhardt, 1988; Oliver and Roos, 2005).
This makes it extremely difficult or even
impossible to make an optimal decision within
a limited time frame. Information overload
occurs because either too many messages are
delivered and it appears impossible to respond
to them adequately or incoming messages are
not sufficiently organised to be easily recognised
(Antioco et al., 2008). To prevent overload, in
practice, people “satisfice” or seek solutions
that seem good enough in a given situation,
making decisions that are – at best – based on
bounded rationality (Oliver and Roos, 2005); i.e.
“the limits upon the ability of human beings
to adapt optimally, or even satisfactorily, to
complex environments.” (p. 132, Simon, 1991).
Information overload and bounded rationality
force decision-makers to use heuristics,
“standard rules that implicitly direct our
judgment [and] serve as a mechanism for coping
Left:
conscious with the complex environments surrounding
deliberation our decisions.” (p. 6, Bazerman, 1994).
and analysis Previous research shows that decision-mak-
ing improves when both the right and left side
of the brain are used (Seo and Barrett, 2007;
Oliver and Roos, 2005). The right side has been
Right:
referred to as information processing system
Intuitive and
experiential
1 (Kahneman, 2003). System 1 is rapid. This
decision-making process is non-conscious, with important par-
allels to perceptual processes and linked to in-
tuitive and experiential decision-making (Dane
and Pratt, 2007). The right side reads between
the lines, uses intangible information, gut
feeling and previous experiences. The left side,
system 2, uses the facts: tangible, objective,
8 The European Business Review November - December 2016
and measurable information. This is the slower
system and involves conscious deliberation and
analysis (Dane and Pratt, 2007; Fenton-O’Creevy
et al., 2011). Using both sides not only improves
the speed of the decision making process, but
also the quality of the decision (Damasio, 1994).
To reap the full benefits of the rapid infor-
mation processing system, and to prevent the
potentially harmful biases that can be induced
by this system (Dane and Pratt, 2007; Fenton-
O’Creevy et al., 2011; Seo and Barrett, 2007), in-
tuition and gut feelings need to be attributed to
correct causes (Forgas and Ciarrochi, 2002; Seo
and Barrett, 2007; Schwarz and Clore, 1983).
However, for managerial intuition to be effec-
tive, years of experience in problem solving is re-
quired (Dane and Pratt, 2007; Fenton-O’Creevy
et al., 2011; Khatri and Ng, 2000). Research
has tended to characterise intuition as integral
to expert performance (Dreyfus and Dreyfus,
2005). Experts seem to be better calibrated and
less overconfident than novices (Koehler et al.,
2002; Tsai et al., 2008). Experts are accurate
and quick to make decisions in ill-structured
situations because they use their experience to
recognise a situation, and then make decisions
that have worked previously. Over time, experts
increasingly use their accumulated knowledge
to make decisions and take advantage of their
prior knowledge (Gonzalez and Quesada, 2003;
Gonzalez et al., 2003).
But, experience also has a darker side. It in-
troduces the possibility of biases (Sleesman et
al., 2012; Staw, 1981). Furthermore, people tend
to access previous knowledge that bears surface
(or what is most accessible in memory), rather
than structural (what is more useful), similar-
ity to the problem at hand (Thompson et al.,
2000). In a stable decision making context, it
is expected that eventually decision makers, by
mere repetition, will learn what is useful and
what not. However, in a complex and chang-
ing context, experience is often a poor teacher.
Even highly capable individuals are confused by
the difficulties of using small samples of am-
biguous experience to interpret complex worlds
(Levinthal and March, 1993). Especially in dy-
namically complex environments, characterised
by a large number of interacting components

that feedback to influence themselves, learn-
ing can break down and lead to the experience
trap (Diehl and Sterman, 1995; Sengupta et al.,
2008). As a result, individuals can create their
own potentially inaccurate beliefs, based on sub-
jective interpretations of events (Lapré and Van
Wassenhove, 2003; Staats et al., 2015).
When learning breaks down, we cannot
trust our gut feeling that is based on previous
experiences. As such, we expect that when
decision makers use both system 1 (gut feeling)
and 2 (rational) to process large amounts of
information in complex dynamic situations, like
new product development projects, the quality
of their decisions will suffer. Over time, poor
quality of decisions will lead to problems in
the project. These problems will generate more
information that needs to be processed, which
forces managers to rely even more on system 1,
thereby only making matters worse. Although
some project problems may indeed have been
caused by unknown unknowns (Browning and
Ramasesh, 2015), it is likely that some project
problems are generated as side effects of project
managers’ past decisions.
Through an in-depth study of a multimillion
dollar new product development project in the
semiconductor industry, we find that managers
discuss both objective and subjective informa-
tion before making decisions. However, due to
the lack of time to process every piece of in-
formation, they rely more on subjective infor-
mation. This becomes problematic in situations
characterised by mixed signals of bad news
(negative, measurable project facts) and good
vibes (positive, subjective feelings). An example
of such a mixed signal is: “the project is delayed
with one week (bad news), but we have made
great progress and team spirit is high (good
vibe).” Without understanding the root causes
that generate the bad news and the good vibes,
managers can make the wrong decisions.
It took the project management team in our
study over 80 weeks to realise that the project
could not be realised within the given time,
budget and quality constraints and the project
was cancelled after spending over 20 million
dollars. During these 80 weeks, the team was
convinced that they could finish the project
Feature
successfully. How could they make themselves Without
and the steering committee believe this?
understanding
3. Feedback Loops of Information Processing the root causes
From analysing the discussions the team had that generate
during their weekly project management meet- the bad news
ings, we find that the team repeatedly made the and the good
decision to postpone the due date of the current
vibes, managers
project phase, at the expense of the due date of
the next phase, but not at the expense of the could make the
final project deadline. When these decisions wrong decisions.
were made, negative facts were outnumbered
by positive feelings. The team seemed to give
more weight to good vibes than to bad news. As
such, the team members persuaded themselves
that they could make up for current delays in
the future, thereby enabling them to stick to the
original deadline that was communicated to the
customer. This decision to allow more time for
the current phase gave instant relief. Therefore,
this decision seemed to be good and helped to
resolve a lot of the current scheduling prob-
lems in the project. The project seemed to be in
control. This is expressed by a balancing feed-
back loop. (See “Information, Gut Feeling, and
Quality of Decisions.”) This feedback loop de-
scribes that when managers need to process a lot
of information, they do not have the capacity
to analyse every signal rationally and as a result
they have to rely on gut feeling. In doing so,
www.europeanbusinessreview.com 9
 Decision Making
Our findings indicate that the more
information managers need to process in a
short time, the more managers tend to rely
on their gut feeling when making decisions.
they increase their ability to process information
which reduces the number of pending informa-
tion or signals waiting for a response.
However, when the next phase in the project
approached, it became clear that the short time
that was allocated to this next phase was not
a solution but a huge problem. This problem
created more information that needed to be
processed, forcing the team to rely even more
on gut feeling. This is reflected by a reinforc-
ing feedback loop that spirals the system out of
control. Gut feelings lead to decisions of poor
quality which cause problems that increase the
amount of information that needs to be pro-
cessed. This only reinforces the need to use gut
feeling in dealing with the information overload.
(see figure 1 below)
FIGURE 1. Information, gut feeling and quality of decisions
Making decisions based on gut feeling in dynamically complex projects seems
to help on the short term but it only makes matters worse on the long term
desired information available rational
processing capacity information processing
capacity
+ +
- cision making. When in the face of project
instant relief
information pending reliance on
(signals waiting to be
gut feeling
processed)
- should be careful. Where do these statements
+ -
information generated
by new problems +
long term disaster
quality of decisions
+ -
new problems
10 The European Business Review November - December 2016
4. Trusting gut feeling leads to poor decision quality
Our results indicate that managers discuss
both objective and subjective information
before making decisions. However, due to the
lack of time to process every piece of infor-
mation, they rely more on subjective infor-
mation. This becomes tricky when the signals
consist of a mix of bad news and good vibes.
By not focusing on the root causes, managers
could make wrong choices. Because these de-
cisions seem to be good on the short-term, it
takes a long time before they realise that the
project is in trouble and that problems are ag-
gravated instead of solved. When problems
suddenly escalate, this may seem surprising,
but these problems are simply a side effect
of poor decisions made in the past, not by
unknown unknowns that are usually blamed
for project failures.
In dynamically complex projects, manag-
ers surround themselves by all sorts of Gantt
charts, MS project files, tasks lists, tracking
items, red flags, output charts, and resource
profiles. It seems that the more complex the
project is, the more information is desired. But
more is not always better. Paradoxically, our
findings indicate that the more information
managers need to process in a short time, the
more managers tend to rely on their gut feeling
when making decisions. Our study shows that
this can be very dangerous. Managers should
not ignore their feelings (or the feelings of
their team members). But, feelings should be
handled with care when they influence de-
problems, team members report how well they
are working together, that they are making
good progress, or that they are expecting to
make good progress in the future, managers
come from? Is it sheer hope, or is the remark
based on an actual understanding of how
the dynamic system works? In the former, it
is recommended to ignore the good vibe and
stick to the facts, in the latter, it is better to
acknowledge the vibe and use it as a decision
facilitator (and as such, use gut feeling to make
decisions). In case managers operate in a dy-
namically complex system that they fail to fully
 Feature

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Henk Akkermans is a professor of Supply • Seo, M.G. and Barrett, L.F. (2007), “Being emotional during decision making – good or
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