Monday, November 17, 2008

Why Managers Make Poor Decisions!

During my morning reading, I came across an article from Business Week called Bad Management: Why Managers Make Poor Decisions. What caught my eye was this quote: "Why do smart, powerful executives make really dumb decisions?"

The article goes on to review Sydney Finkelstein's new book Think Again which identifies four biases that lead otherwise savvy managers astray. I will certainly buy this book.

The article itself doesn't go into much detail but I did like this one quote as it is spot on regarding eBay's John Donahoe
"Finkelstein has identified four internal biases that often lead to bad decisions: inappropriate prejudgments; inappropriate experience; self-interest; and attachments.

The first two are the most interesting. Prejudgment happens when we choose a course of action and ignore any advice or information that does not hew to that predetermined path. (The lead-up to the war in Iraq comes to mind.) Inappropriate experience, meanwhile, is basically a "What worked before will work again" attitude that's unfortunately quite common in executive boardrooms. It helps explain why financial firms got more and more enmeshed in subprime loans and collateralized debt obligations. "It's not just arrogance—they do these things because they were right before," says Finkelstein. "But it becomes dangerous when you do not heed the warning signs."
This is clearly what is going on with John Donahoe "Prejudgment happens when we choose a course of action and ignore any advice or information that does not hew to that predetermined path."

I'm past the point of believing that JD will turn this ship (eBay) around and now more interested in getting everything on-the-record for the next management team.

Just my 15%


ms.pat said...

People in general are looking for big change this coming year. They no longer can cope with the same old thing. JD's draconian and restricting way of ruling over Ebay has been the same old thing all year and sellers are leaving because of it. The dangerous part is most of these sellers no longer give two cents about Ebay - they neither love or hate it but just want to move on. JD is oblivious to that fact. I just wonder how far this company has to sink before they get the guts to put out the current management and bring in people with solid business experience? They lost a LOT this year and are still plodding on with JD's same old...

nadine said...

Prejudgment happens when we choose a course of action and ignore any advice or information that does not hew to that predetermined path. (The lead-up to the war in Iraq comes to mind.)

I think the Iraq War may be a good example here - but not in the way the author implies. The 'received wisdom'is that the Bush administration was set on war and cherry-picked the WMD intelligence to get their war. This argument is based on the assumption that the public arguments for the war contained the real reasons for war.

That is not true, as central players like Doug Feith and Tony Blair have pointed out. The public arguments were 'arguments of convenience', points that all sides could agree on, such as WMD. But they weren't the real driver. The real driver was fear of what the Gulf would look like and act like, in a post 9/11 world, after the sanctions failed and America had to do a humiliating climb-down from containing Saddam. The anti-war arguments never addressed this fear, except to make rosy assurances that 'Saddam was in a box,' which was at best a highly debatable point. Most anti-war arguments simply assumed that the prewar situation was stable.

Since the anti-war arguments never seriously addressed the real pro-war motives, they naturally had little effect.

I think something of the kind is going on here with eBay. JD is fixated on eBay's presence and critical mass in the ecommerce world to keep it from going out of business. He thinks of eBay as an ecommerce retailer and all the buyers as 'his' customers; we know that. Therefore he is fixated on providing service for them and profits for himself the only way he knows how, by manipulating the sellers.

We know the obvious shortcomings of this view. But only a better vision of eBay's ecommerce future brand can compete for mindshare inside eBay, I think, and not until the current vision has broken down, and been seen to have broken down.

Just like the Surge wasn't adopted until it was clear we were losing the war, to go back to the Iraq analogy.

It's human nature. You don't give up on your high hopes (and grand profit margins, in eBay's case) until you have been forced to. In eBay's case the forcing is taking a long while because they are so big and so rich. eBay is corporation whose culture has been badly spoiled by too much easy money for too long.

Just my 2 cents. (I don't claim a whole 15%)

Anonymous said...

JD came into power with his disruptive innovation thinking, which after reading the Legg Masson speech is pretty weird in itself.

Generally, I like people who think outside of the box. But in JD's case, he was just thinking into Amazon's box.

His approach is Draconian and so tiresome. Manipulating the sellers is spot on. But, like you said in another blog, he'll pretty be able to stay on a little longer because he can blame the tanking economy.

I just don't think too many sellers can hang on until he goes. On the boards, a lot of sellers are making new plans for Jan. 09.