SEPTEMBER 2004


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Not Beyond Repair

How Organizational Practices Can Compensate for Individual Shortcomings

Research by Joshua Klayman

More than 30 years of research in cognitive psychology has resulted in rather mixed reviews for human judgment and reasoning. Some researchers have marveled at what the human brain can accomplish. Others have concluded that human reasoning is seriously riddled with flaws, self-serving biases, and shortcomings. How can we explain the apparent discrepancy between the pessimistic literature on human shortcomings and the optimistic evidence of human accomplishment? As one skeptic put it, "If we are so stupid, how did we get to the moon?"

University of Chicago Graduate School of Business professor Joshua Klayman, Richard Larrick of Duke University's Fuqua School of Business, and Chip Heath of the Stanford Graduate School of Business propose a resolution to this paradox in their study, "Cognitive Repairs: How Organizational Practices can Compensate for Individual Shortcomings." The authors would answer the skeptic by observing that individuals did not make it to the moon, NASA did.

In other words, the authors believe that although individual thinkers are flawed, an organization can provide its employees with "cognitive repairs"-institutionalized practices that repair the flawed ways in which people think-that help combat potentially serious biases in individual judgment.

"As a result, the organization shields others inside and outside of the company from suffering the consequences of one individual's flawed thinking," says Klayman.

While most organizational practices focus on motivational repairs-incentives that make people work harder-most organizations overlook cognitive repairs or use cognitive repairs inefficiently.

"Organizations are used to thinking about complex, 'top-down' repairs, such as using outside consultants to work with upper management to design and implement an improvement plan from the top down," says Larrick. "What we are saying is that there are many repairs that might be just as effective in correcting the flawed thinking of employees. These repairs may be quite simple and designed by employees within the company. Corporations may be overlooking a rich source of innovations."

Short-circuits in Human Software

Psychological research indicates that individuals are not ideal learners; they think and act in ways that reduce their ability to learn effectively. Many studies have documented that people draw conclusions too quickly, using unreliable evidence or unexamined assumptions.

For example, individuals often gather a biased collection of evidence to explain success or failure because their search favors evidence that makes them feel good about themselves. Research shows that individuals typically conclude that their successes resulted from stable, internal factors (such their abilities), but that failures resulted from unstable, environmental factors (often called "bad luck").

How might organizations repair self-serving biases? Some cognitive repairs can be quite simple. Traders on Wall Street are warned, "Don't Confuse Brains and a Bull Market." This compact phrase prompts individual traders to consider the base rate of success in the market, and makes it more difficult for them to indulge in self-serving explanations for their successes.

The authors explain that organizational cognitive repairs are not limited to company slogans, although slogans are catchy and easy for employees to remember. Organizations also develop techniques and practices that help individuals think more clearly. For example, researchers note that individuals tend to stop searching for the cause of a problem as soon as they locate a plausible explanation. One organizational repair for this general tendency is a technique known as the "Five Whys." Workers at Toyota learned to ask "Why?" five times before they stopped generating hypotheses to solve a problem. When they did so, they were more likely to find a root cause rather than a superficial one. For example: (1) Why did the machine stop? Because the fuse blew due to an overload. (2) Why was there an overload? Because the bearing lubrication was inadequate. (3) Why was the bearing lubrication inadequate? Because the lubrication pump was not functioning right...and so on.

In general, when individuals ask "why" the first time, they are likely to develop answers that invoke some recent event. Subsequent "whys" are likely to cause individuals to think more deeply about underlying problems that may recur.

Habitual ways of thinking about events can lead to a narrow understanding of problems, as well. Too much familiarity with an event can thus blind people to new insights.

One way to repair narrow thinking in an organization involves the gathering together of individuals with a wide variety of perspectives. A good example of this is provided by Bridgestone Tire, which conducts "kokai watches" to generate alternative hypotheses for improving work practices. During a kokai watch, a group of up to a dozen people from different areas of the factory gather for a few hours to watch others work. In one four-hour watch, a dozen people identified 63 potential dangers with a new machine.

In a similar example, when Motorola forms cross-functional teams to evaluate new products, they do not allow employees who have participated in one product team to participate in another team with a similar product. This prohibition limits the pool of potential team members in a costly way, but by consciously disregarding previous experience, Motorola allows new teams to develop recommendations independently from previous teams. At the same time, Motorola avoids losing the knowledge of the previous "veterans" by using them to review the new team's work.

Other repairs involve company practices that encourage the development of new ideas. Disney instituted a "Gong Show" in which employees presented new ideas in a group setting where they could hear immediate feedback from colleagues at every level in the corporation.

"This encourages people to bring their ideas into the open, instead of feeling that their input is of no use to management," says Klayman. "Managers may not realize the range of ideas that exist in their own companies-ideas from the line workers to the high-technology engineers."

Finding the Best Repair

"Cognitive repairs differ in a couple of key ways," says Larrick. "Some are more general than others and can be applied across various industries, whereas some are very specific and generated from within the company. And although some derive from formal academic disciplines like economics or statistics, many involve very informal procedures."

In order to be successful, a cognitive repair must not only be effective, but it must be accepted into the organization and actively used. To identify the best repairs, the authors describe dimensions that may affect the costs and benefits of each kind of cognitive repair, enhancing or diminishing its success. Important dimensions include the following.

Simple Versus Complex

Simple repairs, such as company slogans or short corrective procedures, have profound advantages over complex repairs such as formal financial or statistical analysis. Simple repairs are easier to remember and implement than complex repairs and can be passed on from person to person with less distortion. However, the tradeoff between simple and complex repairs is a tradeoff between ease of use and accuracy. For example, a simple aphorism such as "Don't Confuse Brains and a Bull Market" suggests the correct direction to adjust one's judgment, but provides no guidance about exactly how much one should discredit individual success. To precisely estimate the amount of credit due to brains versus the market, an individual would have to perform a more complex repair procedure.

Domain-specific Versus Domain-general

Domain-specific repairs are tailored narrowly for a specific context or industry, such as the slogan "Don't Confuse Brains and a Bull Market." Domain-general repairs, such as the "Five Whys," are more abstract, and can be applied across most industries. While both types of repairs have benefits, domain-specific rules have the advantage. Individuals find it easier to recognize that a domain-specific rule is relevant because the situation itself reminds them of the rule (traders/bull market). In addition, individuals find it easier to apply domain-specific rules to their jobs. The slogan about brains and the bull market is easier to use for traders on Wall Street than shop managers on Main Street, although the underlying concept of the repair is relevant for both groups.

Top-down Versus Bottom-up

Cognitive repairs may originate from either top-down or bottom-up within an organization. Typically, top-down repairs are designed and implemented by managers or outside experts. Bottom-up repairs appear through informal observation and are often discovered by the people who are doing the work. The source of the repair is important because it is likely to affect its form and effectiveness. Top-down repairs may be perceived with suspicion or hostility because they originate outside of the organization or because they are imposed from above. Front-line workers may doubt that outsiders understand their situation well enough to make wise recommendations. Often, when managers suggest a repair, they seem to imply that employees have been performing poorly.

Bottom-up repairs, such as employee-derived slogans or procedures, will often benefit from their local, homegrown origin. Local repairs have a meaningful history that makes them memorable and appealing, and they may be more acceptable if organizational members see them as their own inventions. Just as lawyers feel entitled to tell lawyer jokes, organizational members feel entitled to develop self-critical repairs and to convey their insider status by using them. Homegrown repairs furthermore evoke a stronger sense of ownership; at the same time that they call attention to a potential shortcoming, they also give the user credit for fixing it.

Based on their research on the advantages and disadvantages of various cognitive repairs, the authors believe that many of the most successful repairs will be simple, domain-specific, socially administered (the repair works because individuals interact with others) and evolve from bottom up rather than top down. This conclusion is intriguing because it describes repairs that differ sharply from those that are recommended in academic literature on decision analysis, statistics, and economics.

"We do not think that cognitive repairs will overcome every individual problem," says Klayman. "Like the mental processes they repair, cognitive repairs are pragmatic and often efficient, but also approximate and inexact. In addition, there are often instances when organizational intervention can make problems much worse. But managers who think explicitly about cognitive repairs will be in a better position to foster improvements in their organizations."

Successful cognitive repairs may already be in use in an organization, but their effectiveness may remain unappreciated or underutilized. In order to recognize these repairs and encourage their use, a manager must begin with an appreciation for the flaws in individual learning documented by psychologists. Managers who understand these limitations can then look for practices to address them.

"Managers already think about factors such as incentive systems and information technology as tools to foster learning and innovation," says Klayman. "We believe that cognitive repairs will be a useful addition to the toolbox."

 

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Joshua Klayman is professor of behavioral science at the University of Chicago Graduate School of Business.

>> View the study: Cognitive Repairs: How Organizational Practices can Compensate for Individual Shortcomings