Massimo Garbuio

Delusion and Deception in Large Infrastructure Projects: Two Models for Explaining and Preventing Executive Disaster

Over budget, over time, over and over again appears to be an appropriate slogan for large, complex infrastructure projects. This article explains why cost, benefits, and time forecasts for such projects are systematically over-optimistic in the planning phase. The underlying reasons for forecasting errors are grouped into three categories: delusions or honest mistakes; deceptions or strategic manipulation of information or processes; or bad luck. Delusion and deception have each been addressed in the management literature before, but here they are jointly considered for the first time. They are specifically applied to infrastructure problems in a manner that allows both academics and practitioners to understand and implement the suggested corrective procedures. The article provides a framework for analyzing the relative explanatory power of delusion and deception. It also suggests a simplified framework for analyzing the complex principal-agent relationships that are involved in the approval and construction of large infrastructure projects, which can be used to improve forecasts. Finally, the article illustrates reference class forecasting, an outside view de-biasing technique that has proven successful in overcoming both delusion and deception in private and public investment decisions.

Looking Inside Psychological Influences on Structuring a Firm’s Portfolio of Resources

This article explores ways that behavioral decision theory can predict and explain patterns of decisions that managers make in their efforts to maximize the economic value and scarcity potential of a firm’s portfolio of resources. The authors argue that psychology can offer a deeper and more nuanced look “inside” resource-based theory (RBT) as an efficiency-oriented, resource-focused analytical tool for discerning firm performance differences. The authors focus their inquiry on the resource acquisition, accumulation, and divestment processes that determine the components of a firm’s resource portfolio, developing a two-dimension framework to facilitate and extend the implementation of a decision-based approach to RBT. The first dimension describes three key psychological contexts of decisions, distinguishing among (a) perceptions of a firm’s existing resources, (b) the experience or competence of the decision makers, and (c) the framing of how alternatives are presented to decision makers. The second dimension captures the psychologically meaningful distinction between single choices made in isolation and simultaneous choices. Drawing on experimental and field research, the authors develop six testable propositions and explore potential for future theoretical and empirical contributions. The framework can help scholars specify the psychological foundations of a firm’s resource portfolio’s economic value and scarcity potential while helping managers delineate relevant considerations they must adopt to enhance a firm’s profitability.

Generative Sensing: A design perspective on the microfoundations of sensing capabilities

The ability to sense valuable strategic options and then to organize effectively and efficiently to embrace them is at the core of a companys dynamic capabilities. This article identifies and discusses a specific type of sensing that we call “generative sensing.” Companies and executives that display generative sensing capabilities proactively generate hypotheses about observed events and then test these hypotheses to generate new data in a recursive process. Borrowing from design cognition research, we discuss the two microfoundations of these capabilities—framing and abduction – and provide examples of how they are embedded in companies to enhance option generation.

A Design Cognition Perspective on Strategic Option Generation

Abstract nStrategic option generation is a fundamental step in strategy formulation. Several lenses have been proposed to explain its foundations, including the microeconomics positioning school, and the resource and capabilities based view of the firm. These approaches are largely based on inductive and deductive logics, which are not the logics that provide strategic options that are potentially novel, profitable, and largely differentiated from competitive offerings. In this chapter, we propose a unifying framework of the cognitive foundations of strategic option generation. Building on five fundamental cognitive acts – imitation, framing, analogical reasoning, abductive reasoning, and mental simulation, this proposed model both synthesizes the extant literature and provides guidance about promising avenues for future theoretical and empirical research.

Overcoming biases in M&A: A process perspective

Mergers & acquisitions (M&A) are an important element of any companys growth plan. However, the actual performance of most M&A activity fails to live up to the expectations of the acquirers. The psychological biases that affect decision-making have been posited as a source of this disappointing performance. The broad strokes in which these biases have been offered up as explanation for M&A failure dont offer much insight into the specific causes, and therefore the actions business leaders can take to mitigate their impact. We review a 4-step M&A process, identify the different biases that affect the different stages, and then offer practical debiasing techniques targeted at that particular stage of the decision-making process. This targeted debiasing can help business leaders find practical solutions to this vexing problem. Finally, we review two biases that motivate decision makers to avoid pursuing M&A deals at all – to the detriment of achieving their growth targets.

Robust Design Review Conversations

Design reviews and executive conversations at the point of strategic decision-making share an important outcome: they both result in the (nearly) irrevocable allocation of resources to pursue a design concept or strategic option. Our study aims to contribute to the strategic decision- making scholarship by investigating the robustness of these conversations. We define a robust design review conversation as one in which the participants discuss evidence in favor of and against the option and at the same time propose new hypotheses to explain or resolve the evidence in favor of and against the option, hypotheses that can eventually be tested. We describe this second process as generative sensing. Whereas the first process is likely to rely on deductive reasoning from established rules to a definitive conclusion, the second is likely to rely on abductive reasoning, a form of reasoning that generates new hypotheses that are candidate parsimonious explanations for the evidence. We analyze and compare the design review conversations from a junior-level undergraduate course in industrial design and an entrepreneurship course. We find more instances of generative sensing in the industrial design review sessions than in the entrepreneurship project presentations. We believe that generative sensing serves three instrumental purposes: to resolve problems; to provide signals on option quality; and, to test the commitment to the present design concept.

Does organizational politics kill company growth

Purpose n n n n nWhether an organization’s political behaviour is positively related to its performance has been a long-standing question. Most studies elaborating on this issue, although rich in detail, primarily have been limited to case studies, apart from a niche set of studies in international business. This study aims to explore this question through a survey study of managers and executives from around the world, across a range of industries. n n n n nDesign/methodology/approach n n n n nThe study explores the link between politics, the ability of a firm to speedily reach the market and its growth rate through a study of 382 executives from across the world. It also investigates alternative explanations of slow speed to market due to power centralization, decision-making layers and conflict. n n n n nFindings n n n n nThe results show that politics – the observable but often covert actions through which executives influence internal decisions – has a direct negative effect on a firm’s ability to reach the market first and on its growth rate. That is, not only is politics time-consuming but it may also have a detrimental impact on the selection of the best growth opportunities. n n n n nOriginality/value n n n n nPolitics does have a negative impact on growth; it slows down a firm’s growth and its ability to reach the market. This study eliminates possible alternative explanations of a slow pace to market: slower companies are not so because they have too many decision-making layers but because they use consultative processes in resource-allocation decisions, or because of conflict.

Does scheduling matter? When unscheduled decision making results in more effective meetings

Purpose – Managers spend a great deal of time in meetings making decisions critical to organisational success, yet the design aspects of meetings remain largely understudied. The purpose of this paper is to elaborate on the potential impact of one critical design aspect of meetings – namely, whether a decision to be taken (or the meeting in general) was scheduled or not – on the use of distributed information, information elaboration, conflict, speed of decision making, and, ultimately, decision-making effectiveness. Design/methodology/approach – The research presented in this paper combines a literature review with empirical data obtained from questionnaires and direct observation of decision making meetings on organisational issues in a hospital. One meeting was scheduled, the other two were unscheduled. A second questionnaire was administered 12 months after the respective decision making meetings to explore and evaluate the efficiency of the decisions made and their implementation. Findings – This pap...