The FINANCIAL -- Even strategic leaders with rigorous decision-making processes are susceptible to making promotion decisions based on subjective evaluation -- unconsciously rejecting data that do not support their personal feelings. Cognitive biases can compel leaders to make specific, predictable errors when selecting candidates for advancement.
Executives with a status quo bias might choose an internal leadership candidate with average performance over an external applicant with more experience but unknown performance, according to Gallup.
Other leaders conform to preconceived notions about candidates -- confirmation bias -- or overestimate the talents of familiar people or people like themselves -- in-group bias. Others believe that a candidate with a series of performance achievements will continue to have future successes -- hot-hand fallacy.
At best, cognitive bias produces "good enough" replacement planning. Worst case, biased leaders and managers promote individuals who cannot excel in a new role.
Organizations can mitigate bias and optimize succession planning by understanding a few key factors about cognitive bias and adopting a data-driven approach.
How Cognitive Bias Influences Decisions
First, leaders need to understand three major insights about cognitive bias and decision-making:
Cognitive bias correlates with manager talent.
Gallup asked 559 managers how they would respond if a good employee began routinely arriving to work a few minutes late. Only 25% said they would withhold judgment and talk to the person to learn more.
The rest considered the behavior unacceptable and stated they would take immediate corrective action. This is an example of confirmation bias -- trusting your own conclusions and not requiring other data to take action, according to Gallup.
Gallup found that the managers who jumped to conclusions were often better performers. Why? In-depth Gallup analytics show that capable managers are highly confident and unafraid to make quick decisions.
Cognitive bias convolutes leaders' and managers' views of their own capabilities.
Effective managers may be better at jumping to the right conclusions in some circumstances, but cognitive bias still inflates -- and sometimes deflates -- their sense of their own performance and potential in future jobs. When people don't understand their strengths and weaknesses, they are more likely to think that they can perform well in positions that aren't right for them.
But when leaders become self-aware of their strengths and weaknesses, they can decrease bias toward themselves and in their hiring decisions. They can also recognize the same tendencies in others and address them.
When leaders understand employees' strengths and weaknesses, they can be realistic about how and in what areas each person can truly excel. Not only that, people who know their strengths and use them every day are 8% more productive, 15% less likely to quit their job, six times more likely to be engaged at work and three times more likely to report having an excellent quality of life.
Leaders who make data-driven decisions achieve better performance outcomes.
Gallup asked 645 leaders where they would put their best performer if they had two manager-level promotion opportunities with equal upside potential: one loss-making and the second highly profitable.
A majority -- 66% -- said they would put their best leader in the loss-making opportunity, while 34% would assign their top candidate to the profitable position. These decisions are evidence of loss aversion bias, or the tendency to prefer avoiding losses to reaping similar gains.
These percentages change when considering leadership performance. High-performing leaders went against the grain by saying that they would assign their best person to the more profitable opportunity. This is a data-driven decision because research shows that overall return on investment tends to be higher when a company's best managers are in profitable assignments where they can deliver better results, faster, according to Gallup.
These examples suggest that exceptional leaders rely on data to make decisions, not gut feelings.
But some leaders do not have the right analytics to make informed succession decisions. Without rigorous data about candidates' ability to perform, leaders cannot make analytics-based decisions that boost business outcomes.