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How to overcome biases and decision-making challenges

Dr Mat Hughes discusses how we can recognise biases in managerial decision-making and how to limit this to get the most from open innovation.
© Durham University

Both the beauty and the downside of successful open innovation networks means we can potentially access considerable amounts of information, but in doing so we risk becoming overloaded with information.

What biases and decision-making challenges are there?

When managers are overloaded with information, they start making decisions based on what they know best and what they feel most comfortable with―the familiar, not the new.

The result is biased decisions that are not aligned with innovating truly new things. Incremental change is likely, but stagnation and inertia are just as possible.

The origins of the problem

The origins of this problem lie in an idea called ‘bounded rationality. Given constraints to time, resource and energy, managers will not operate in fully rational ways, examining all pieces of information to arrive at the single best, optimal, profit-maximising decision.

They simply do not have the time. Also, this is made more likely by the fact that we live in times of continuous change and disruption (as we saw earlier).

That continuous environmental upheaval coupled with a flood of new information from open innovation networks means the potential for information overload is high.

Absorptive capacity

This is why we need absorptive capacity – to filter and to examine information encountered so that we determine what is most valuable to take forward.

But this is also why we need to think of absorptive capacity in terms of routines to identify, acquire, assimilate and exploit knowledge and not just rely on our stocks of prior knowledge to filter information encountered (because that itself can introduce bias).

This is one reason why organisational learning can be such a powerful source of competitive advantage.

Attention-based view

The second feature of this problem lies in the ‘attention-based view’ of the firm. Managers deserve a lot of credit for having to regularly make decisions under uncertainty.

We’ve talked about the need to filter and examine information to make sure we act on the most valuable information and create productive new knowledge.

But even then, we can’t attend to all opportunities, threats or situations. Managers must therefore allocate attention just as much as they must allocate resources.

Managerial attention

So what takes up managerial attention? Intuitively the answer would be customers or clients, competitor actions, and demands from shareholders and stakeholders for value and wealth creation.

Innovation is a response to this. But the activities that fuel (or hinder) innovation themselves absorb managerial attention and nowhere is this more likely than with open innovation because the flow of information managers will encounter will be vast, potentially conflicting and capable of challenging their assumptions and worldview.

If you’d like to learn more about harnessing open innovation in business, check out the full online course, from Durham University, below.

© Durham University
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