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Take a fifty-minute deeper dive
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Start with the too-optimistic forecasts that arise from the “inside view,” rebalancing them with a reference class of similar projects to provide a view from “outside” your company.
Step outside
Want to reduce the staggering cost of bad decisions? Turn your organization into a “decision factory.”
Decision factories
In this edition:
Bias busters: Taking the ‘outside view’
Article - McKinsey Quarterly
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Bias busters: Taking the ‘outside view’
Bias busters: Being objective about budgets
Bias busters: Being objective about budgets
Article - McKinsey Quarterly
Dive deeper
A quick briefing in five—
or a fifty-minute deeper dive
Debiasing the corporation: An interview with Nobel laureate Richard Thaler
Debiasing the corporation: An interview with Nobel laureate Richard Thaler
Interview - McKinsey Quarterly
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Document your reasoning
Everyone’s a genius after the fact. It’s called hindsight bias. The simple remedy? Write decisions down when you make them.
Discover more Five Fifties
Bias busters: Being objective about budgets
Bias busters: Being objective about budgets
Article - McKinsey Quarterly
Debiasing the corporation: An interview with Nobel laureate Richard Thaler
Debiasing the corporation: An interview with Nobel laureate Richard Thaler
Interview - McKinsey Quarterly
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inside view
Bias busters: Taking the ‘outside view’
A next-generation operating model for source-to-pay
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Anchors away
Then counter the concepts and numbers that stick in your mind and influence the decisions you make—like when budget choices create inertia by “anchoring” to the past.
Bias busters: Taking the ‘outside view’
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Inside view
Outside view
50
20
60%
lower
Estimated rate of return, %
Reanchor
Use your model’s output as a second anchor to change the dynamics of the target-setting discussion.
Debug the model
Your model should answer the question: “If you did not know what your sales targets were this year and were relying only on the fact-based criteria you defined, what would the targets for next year be?”
Get factual
Determine sales targets with fact-based, nonhistorical criteria such as market growth over a set period of time.
—Richard Thaler, University of Chicago professor and Nobel laureate
You can imagine all kinds of good decisions taken in 2005 were evaluated five years later as stupid. They weren’t stupid. They were unlucky. So any company that can learn to distinguish between bad decisions and bad outcomes has a leg up.”
“
Beating the odds in market entry
Beating the odds in market entry
Article - McKinsey Quarterly
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Know thine enemy
Market entrants often miss the likelihood their rivals may enter the same market they have targeted. Open your eyes to “competition neglect” by testing as many hypotheses as possible.
Liquid soap in pump dispensers was an incremental improvement, could not be patented, and was easily imitated.
Consumer-marketing giants such as Dial would rush to compete and easily crush Taylor’s product.
Taylor signed contracts to lock up existing capacity for the dispensing pumps that were essential to the product, resulting in an 18-month lead on the competition.
Competitive hypothesis
Solution
Example: The entrepreneur Robert Taylor launching Softsoap in 1978
Lessons from the front line of corporate nudging
Lessons from the front line of corporate nudging
Article - McKinsey Quarterly
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Nudge it
Nudges are subtle interventions that guide choices without restricting them. They lead to better decisions for companies and customers alike.
Help save the environment by reusing your towels.
35%
participation
Standard
Almost 75% of your fellow guests are helping to save the environment by reusing their towels. Join them.
44%
participation
Social Nudge
Example: Hotel guests are more willing to reuse their towels [PDF] when given a social cue that others do so.
Beating the odds in market entry
Beating the odds in market entry
Article - McKinsey Quarterly
Lessons from the front line of corporate nudging
Lessons from the front line of corporate nudging
Article - McKinsey Quarterly
reuse their towels [PDF]