3 of the Worst Decisions Ever Made: A Failure Analysis

Decisions are one of the most unavoidable things in life; each and every one of us face them every single day. There is an old Dutch proverb that goes “he that has a choice has trouble”. Of course, decisions vary in importance and some are more difficult than others are but we can never truly anticipate the ultimate consequences. However, as Peter Drucker once said, “Whenever you see a successful business” you already know that “someone once made a courageous decision.” Replace the  word ‘business’ with ‘person’ or ‘project ’and the phrase still holds true: Whenever you see a successful person or project…’a courageous decision or decisions were made’. These decisions often go awry and lead to failure, but making good decisions comes from experience and experience comes from learning from your bad decisions and failures. Here are 3 of the worst decisions ever made, which all come with valuable lessons in decision making, so let’s do a ‘failure analysis’.

Ross Perot turns down Microsoft

Worst Decisions Failure Analysis-Perot

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When he described this move as being “one of the biggest business mistakes I’ve ever made”, Ross Perot was making something of an understatement. In 1979, Perot’s Electronic Data Systems was worth about $1 billion. The company was looking to invest in a small computer company, and saw Microsoft as an attractive option because it could potentially supply valuable software. Gates was hoping to enter the corporate marketplace, but wanted a fair price for his creation and wasn’t interested in haggling. ‘Cheap’ is a severe description of the asking price. At the time, Ross Perot didn’t view then-23-year-old Bill Gates’ $40-to-$60 million asking price as reasonable, and thus opted not to make a move. To put this in context, at the end of 2016 Microsoft had a little under $72 Billion in total equity, so ‘cheap’ was probably a fair description in the end.

The fact that Perot has still been a phenomenally successful businessman and this decision did not ruin him entirely highlights his acumen. So what led to Perot’s poor decision? This doesn’t seem to be a man who makes costly mistakes very often. To start with, Perot’s decision making process was very black and white; he gauged the company’s current productivity and existing value while neglecting to evaluate the growth opportunities and some more ‘intangible’ factors. Perot did not take the time to fully evaluate the current market and competitors, and map out a possible trajectory. What Perot could have really benefitted from was establishing a consistent decision making process; for every opportunity that was propositioned to him, he could have mapped a criteria of areas to evaluate to weigh up the pros and cons and all the surrounding factors. Clearly, Perot had been making these decisions ‘off the cuff’ each time something came across his desk, and it cost him dearly.

The U.S Enacts Prohibition

Worst Decisions Failure Analysis- Prohibition

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Proposed as the “noble experiment”, prohibition was supposed to lower crime levels and reduce the amount of money spent on prisons. It was envisioned that it would clean America up socially, as well as improve health and hygiene. Between January 1920 when the 18th Amendment was signed until its repeal in 1933, it was illegal to manufacture, transport or sell alcohol (but it wasn’t technically illegal to drink it).

Instead, there was an explosion of alcohol-related crime, and eventually a corrupt law enforcement and political system willing to take bribes or look the other way. Prohibition didn’t stop people from drinking; it just changed the what and where of the equation. Because they were illegal, ‘foot juice’ (slang for cheap wine) and ‘jag juice’ (for those who like something a little harder) were unregulated, and tainted alcohol killed an average of 1,000 during every dry year. Unexpected negative financial effects also fell on a country expecting an economic windfall, for example, states lost revenue previously gained from liquor sales.

So what led to U.S lawmakers making such a poor decision? The democratic decision worked its way through the process in a divide and conquer like fashion – first with house representatives and then senators – before each state fell into line and the law was ratified nationally in January 1919 with the required 36 states of 48 having passed the bill. The so-called ‘temperance movement’ had become increasingly influential in U.S politics and proposed taking a moral ‘step forward’ by banning alcohol. The nature of the decision that each person made along the way was entirely emotional. At no point were either economists or social experts consulted on the overall impact of such a drastic move. Justice departments were assumed to be capable and no one ever questioned the feasibility of effectively enforcing such a law. Decision makers were blinded by moral idealism and failed to consider possible negative impacts of a law that was being passed with such good intentions. A key learning to take way from this is to never make assumptions about positive consequences of a decision when there is scope to research and inform the decision further. Moreover, prohibition highlights the perils of ‘groupthink’ and the adoption of another person’s opinion in place of your own considered interpretation.

 

An Unsanctioned Takeoff leads to the Tenerife Airport Disaster

Worst Decisions Failure Analysis- Tenerife Airport Disaster

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On March 27, 1977, a pair of fully loaded Boeing 747s collided on the runway of Los Rodeos Airport on the island of Tenerife. The collision resulted in the deaths of 583 of the 644 passengers on board the two jumbo jets. With next Tuesday marking its 40th anniversary, the Tenerife Air Disaster remains the deadliest crash in aviation history and has transformed communication and safety protocol in the industry. Captain Veldhuyzen van Zanten had just returned from a six-month safety course for commercial pilots. The subsequent investigation concluded that Van Zanten took off without clearance, thereby causing the crash. How could such a credited and experienced pilot make such a catastrophic mistake?

The events that preceded the accident were a recipe for disaster. A terrorist bomb had exploded at Gran Canaria International Airport, forcing several planes to divert to Tenerife, a small airport not used to handling large commercial jets. The control tower was understaffed; language barriers were an issue, and a heavy fog had set it that prevented Van Zanten and his crew from seeing no more than 300 meters. All of these inputs contributed to Van Zanten making the fateful decision to takeoff without permission from the control tower. The accident was very preventable. Van Zanten could have doubled checked with the control tower or waited for the fog to lift. An expert with years of experience made a serious mistake – why?

As analysed by the Brafmans in Sway, loss aversion (our tendency to go to great lengths to avoid possible losses), value attribution (our inclination to imbue a person or thing with certain qualities based on initial perceived value), and the diagnosis bias (our blindness to all evidence that contradicts our initial assessment of a person or situation) were the named psychological factors that lead to the costly mistake.

What about confirmation bias – the tendency to look for what confirms our beliefs and to ignore what contradicts our beliefs while disregarding the truth? You could say that in the minutes before van Zanten took off he only looked for indications of a safe take-off and ignored indications of a dangerous take-off. Then there is cognitive dissonance – the tendency to hold on to an erroneous belief in the face of overwhelming contradictory evidence. You could also say that as van Zanten became more committed to taking off, it became increasingly difficult for him to change his mind.

But what does this mean for those of us that aren’t psychology experts? This case really outlines the importance in making informed decisions, and the simplest way to get there is with a decision making process. The more difficult and import a decision is, the greater the need for this process becomes, as these psychological and emotional factors become more prevalent. Communication is such a vital aspect of this; the right information needs to be delivered to the right decision makers at the right time. It was a tragic lesson to learn but it has led to improvements in safety protocols in aviation and provides a valuable example of a poor decision that could be avoided with the right approach.

 

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