How to uncover and manage cultural risk in your company

Larry J. Bloom, Author, "The Cure for Corporate Stupidity"

An organization is a factory that depends on its employees to manufacture judgments and decisions. Ironically, people receive very little formal training in the human tendencies that unconsciously threaten these choices. The problem is that a misguided belief left untamed will contaminate judgments, decisions and bottom-line performance.

An Atlanta-based CEO of a midsize company recently told me how his new levels of authority policy for decision-making will mitigate risk. His self-confidence eroded when I asked, “Can internal policies alone change the way individuals receive and filter information, or is the human component of risk management an inevitable limitation on its utility?”

A couple examples of human tendencies that can lead to problems are when workers unconsciously spin information to please the next level of management, or when they reject new facts because they conflict with existing norm. When this is part of an organizational culture, operational risk increases and performance suffers.

Expose the risk

In any business activity, there is one element we cannot fully understand because it is us: the human element. From psychology to cognitive social neuroscience, research points to shortcomings in how people gather and process information and experiences in order to answer questions, solve problems, determine judgments and make decisions. Many are simply unaware of the flaws plaguing some of their decisions. This generates risk associated with an organization’s culture, which I call cultural risk.

If we think of risk management as the entire machine, cultural risk management is one of the critical gears. The machine will not work as well if this gear is faulty. While merely a starting point, asking these questions routinely before recommendations are moved upstream will begin to create an organizational culture in touch with its thinking.

1. Do we have sufficient information to make this decision?

This question addresses the requirement to make decisions based on both relevant and significant information of adequate breadth and depth. One human tendency is that we may present and/or accept data as sufficient for a decision that does not completely frame the situation in a balanced fashion, as long as it supports the decision we subconsciously want to make.

2. What makes us confident that information is accurate?

Clarifying accuracy addresses the requirement to make decisions based on clearly defined, reliable, factual, precise and fair information. If inputs are not accurate, then decisions will be faulty regardless of the quality of the ensuing decision-making process. We may unknowingly confuse unverified information with fact, see patterns that are not real, or experience a reflex-like rejection of data simply because it contradicts existing norms.

3. How do individual beliefs color the decision?

Giving attention to our beliefs considers the influence of one’s own point of view, desires, values, principles and emotional connections in conjunction with any decision. The question addresses the idea that whenever we reason, we do that within a point of view. Any flaw in that point of view is a possible source of faulty thinking. We may unknowingly draw conclusions and make decisions based on limited, unfair or misleading personal interpretations of information. We can get so locked in that we are unable to see the issue from other rational points of view. Once under the control of our beliefs, the truth is hard to see and hear.

4. What is the influence of the group involved with this decision?

This examination considers the group’s definition of reality, as well as bureaucracy, power structure and vested interests in conjunction with any decision. Every organization consists not only of individuals, but a hierarchy of power among those individuals. No matter how noble the group’s goal, there is often a struggle for power beneath the surface. Personal strategies may be obscure or in apparent, even to those who are using them.

Many nuts-and-bolts leaders find talk of culture to be a “soft issue” and give it second-class attention at best. But to lower risk and improve performance, culture must be addressed.

Larry J. Bloom spent 30-plus years helping grow a small family business to more than $700 million in revenue. He is the author of “The Cure for Corporate Stupidity: Avoid the Mind-Bugs that Cause Smart People to Make Bad Decisions” and the owner of a start-up media and software company that promotes better thinking. For more information, visit www.curecorporatestupidity.com.