MH-001

Strategic Decision Making

Professor Beta Mannix

Ann Whitney Olin Professor of Management

Associate Dean for Executive MBA Programs

S.C. Johnson Graduate School of

Management

Ice on the launch tower morning of the launch

Challenger Shuttle

January 28 1986

Figure #5

1986 - NASA’s MATRIX ORGANIZATIONAL STRUCTURE:

LAUNCH (PROGRAM) AND INSTITUTIONAL CHAINS OF COMMAND

LEVEL IVMorton Thiokol, Inc.(Contractor)Wasatch, Utah

LEVEL IIIMarshall Space Flight Center (NASA)(Shuttle Components – SRM, ET etc.)Huntsville, Ala.

LEVEL IIJohnson Space Center(Integration)Houston, Texas

LEVEL INASA HeadquartersWashington, D. C.

CEOCHARLES LOCKE

Senior Vice PresidentWasatch OperationsJERRY MASON *

Vice President,Engineering,BOB LUND

Vice President,Space Division,

CALVIN WIGGINGS

Vice President,Space Boosters Program

JOE KILMINSTER

Director,Solid Rocket Motor Project

ALLAN McDONALD

SRM Seals Engineer,

ROGER BOISJOLY*

SRM Case Engineer,

ARNIE THOMPSON

SRM Ignition Engineer,

BRIAN RUSSELL

Director,Science & EngineeringJAMES KINGSBURY*

Deputy DirectorGEORGE HARDY*

Staff Engineers

Center DirectorWILLIAM LUCAS*

Manager,Solid Rocket Booster Project

LARRY MULLOY*

Staff

Manager,Shuttle Projects OfficeSTANLY REINARTZ*

Deputy Manager,Shuttle Projects,

JUDSON LOVINGOOD

Staff Staff

Acting Center Director,ROBERT GOETZ

Manager,National Space

Transportation System,ARNOLD ALDRICH

AdministratorJAMES BEGGS*

Deputy AdministratorWILLIAM GRAHAM*

Associate AdministratorFor Space Flight,JESSE MOORE*

Staff

Deputy AssociateAdministrator,

MICHAEL WEEKS

Key: Launch Chain of Command (Level IV Level III Level II Level I)

Institutional Chain of Command

SRM = Solid Rocket Motor, ET = External Tank

* Left or retired within

One year of Challenger.

George Hardy – Deputy Director,

Science &Engineering;

Judson Lovingood – Deputy Manager,

Shuttle Projects

Ben Powers – Propulsion Engineer

John Miller – SRM Technical Ass”t

(and others)

Marshall Space Flight CenterHuntsville, Alabama

Challenger Launch

Final Tele-Conference Participants

January 27, 1986

Stanley Reinartz – Manager, Shuttle Projects (MSFC)Larry Mulloy – Solid Rocket Booster Manager (MSFC)Allen McDonald – Director, Solid Rocket Motor Project,

Morton Thiokol, Inc.(and others)

Kennedy Space CenterCape Canaveral, Florida

Morton Thiokol, Inc.Brigham City, Utah

MANAGEMENT

Jerry Mason – Senior V.P.

Joe Kilminster – VP, Space Boosters

Bob Lund – VP, Engineering

ENGINEERS

Roger Boisjoly – SRM Seal Expert

Arnie Thompson – SRM Case Expert

Brian Russell – SRM Ignition Expert

(and others)

Figure 6

(Composite – Handout)

2003 - Columbia Accident Investigation Report

• Cultural traits and organizational practices detrimental to safety and reliability were allowed to develop, including: reliance on past success as a substitute for sound engineering practices…; organizational barriers which prevented effective communication of critical safety information and stifled professional differences of opinion; …the evolution of an informal chain of command and decision making processes that operated outside the organization’s rules.

Quotes from the Columbia Accident Investigation Board• In the board’s view, NASA’s organizational culture

and structure had as much to do with this accident as the External foam tank.

• NASA’s … culture has become reactive, complacent, and dominated by unjustified optimism.

• At every juncture of STS-107, the Shuttle program’s managers in charge resisted new information.

Decision Making & Learning

What interferes with your ability

to make good decisions?

Experience is Inevitable, but Learning is Not

• Decision Making is prone to errors:• Time pressure

• Insufficient / Limited information

• Technical experts disagree

• Expertise & status are not always correlated

• Previous decisions or processes (positive & negative) not reviewed or assessed

We are “ cognitive misers” relying on mental shortcuts & heuristics that work most of the time

Experience is Inevitable, but Learning is Not

Organizational norms can hamper our ability to

share, create, and retain knowledge:limited communication & openness

avoidance of conflict

safer to stay silent

mistakes cannot be admitted

failures are punished

achievement more important than learning

Overall psychological safety is absent

The Big Four Biases

• Confirmation Trap

• Anchoring

• Framing

• Overconfidence

We get what we expect

• The Beer experiment

• Stereotype Threat

• The Placebo Effect (I shall please)

Confirmation Bias in Action

We tend to look for confirming evidence that supports our preferences –creating closure, validation, support. Once we have made a decision we tend to reject information that discredits our preferences (e.g., the decision of management in both shuttle disasters)

Think of effects on hiring decisions, treatment choices, conclusions on political candidates, medical studies, investments….any of your personal decisions?

More Real Life examples?

Average prices paid for products in Anchoring Study

PRODUCT 00-19 20-39 40-59 60-79 80-99 CORRELATIONS

Cordless Keyboard

16.09 26.82 29.27 34.55 55.64 .52

NeuhausChocolates

9.55 10.64 12.45 13.27 20.64 .42

1998 Cotes de Rhone

8.64 14.45 12.55 15.45 27.91 .33

Range of last 2 digits of SS number*

*See D. Ariely, Predictably Irrational (2008)

Anchoring in Action

• First impressions of performance, or expectations based on irrelevant (but salient) information

o Children assigned to “tracks” of varying levels in school; bias in hiring or job assignment

• Housing list prices (or the price you paid for your house!); the price you pay for that Starbucks coffee…

o When the anchor is externally set we often look for reasons to justify it: “Why is the house so expensive? I guess it must really be worth it!”

• Negotiator’s first offers

o Negotiators who make the first offer set the agenda, frame the bargaining zone, and tend to do better – go into these interactions prepared, with a reservation price and a target (take a class on negotiation!)

Big $$

• You can

– A) receive $10 million for a sure

– B) flip a coin and receive 22 million for heads and 0 for tails

– Expected value says pick B. What do you do?

Lawsuit

You are being sued for $500,000 and estimate that you have a 50% chance of losing in court

(EV = -$250,000).

The other side is willing to settle for $240,000. (EV = -$240,000).

EV says settle….Ignoring the court costs, attorney, aggravation, etc, would you fight the case, or settle?

Framing: Prospect Theory Value Function

Summing up Prospect Theory:Decision Making, Risk and Referent Points

• We like certainty

• Losses Loom Larger than Gains• Reference points matter!

• Tendency is for:• Risk seeking under losses

• Risk aversion under gains

• So…? Why does it matter? Disposition Effect in Investing (selling winners, keeping losers)

Overconfidence

• Doctoral students greatly overestimate the likelihood that they will complete their dissertations in a year or less…

• A partner (real story) managing a consulting project had 5 teams working on a different strategy for a client. The alternatives could not be compared until each team had completed their analysis. As the deadline approached, 3 of the 5 teams were behind schedule, but the partner assured the client that they would be ready on time. In the end the firm presented only 3 of the of the 5 alternatives…the client dropped the firm.

• The city of Boston undertook a massive construction project to move Interstate 93 below ground as it passed through the city (The Big Dig). City Officials developed a 2.5 B budget based on each subcontractors’ estimate. The Big Dig finished late and roughly 12 B over budget (NYC Tech Phase One completion date is schedule to be completed in summer, 2017…)

And more Overconfidence!

o Motorcyclists think they are less likely to cause an accident than other bikers.

o Hunters overestimate their knowledge of firearms just before the start of hunting season

o Physicians overestimate their patient interviewing skills

o Medical lab techs overestimate their knowledge of medical terminology & everyday problem solving skills in the lab

o College students scoring at the bottom of a quiz on sexually transmitted diseases estimate that they are outperforming approximately 50% of their peers.

Overconfidence at work:Typical relationship between

predicted & actual performance*

Bottom 2nd 3rd Top

Actual Performance Quartile

Perc

entile

*Kruger & Dunning, 1999

What is the problem here?

• Lack of Meta-Cognition:

– The skills needed for a correct analysis of a problem, and hence a correct result, are the same ones needed to determine whether or not an answer is correct -

– Much of the time, poor performers simply do not know, cannot know, how badly they are performing.

– More information is better! Learning is better – but you have to believe that you might be wrong to engage in it….

What do you believe?

Think about characteristics such as intelligence, creativity, athletic ability, or leadership…do you agree more with statements A or B?

A. Many things about a person are fundamental, such as creativity or intelligence, and they cannot really be changed.

B. You can always change fundamental aspects about the kind of person you are.

Fixed v. Growth Mindsets:The Challenge of Learning

• The Research*

*from Carol Dweck, Mindset (2006)

Puzzles: Hard or Easy?

The brain is like a muscle?

The Role of Failure & Mindset

• With a growth mindset you can handle failure, frustration.

• With a growth mindset, failures are a wake-up call, informative, motivating.

• Failures mean you took a risk.

Michael Jordan was cut from his high school varsity team, wasn’t recruited by the college he wanted to play for (North Carolina State), wasn’t drafted by the first two NBA teams that could have chosen him. In one ad for Nike he lets you know “I’ve missed more than 9,000 shots. I’ve lost almost 300 games. Twenty-six times I’ve been trusted to take the game winning shot, and missed.”

Lessons in Smart Decision Making Be Aware

You probably have a great solution searching for a problems – but this seems like the wrong direction

Acquire Expertise Get feedback

Look to individuals with a diversity of experience and expertise

Evaluate successes, failures, processes

Use a growth mindset – learn!

Gather Data & Analyze It! Consider counter-factuals & alternative scenarios

Examine even minor failures, do after-action reviews