Click here to read part 1.

Every club owner and executive by and large think they make pretty good business decisions.  Yet when they are examined in the harsh light of a peer business review, their shortcomings are revealed.  We know because REX Roundtables regularly conducts these reviews for its members.

So how do you avoid bad, ineffective and costly decision disasters when you don’t have such a review at your disposal? 

LEARN HOW TO RECOGNIZE THE COMMON DECISION FALLACIES

There are eight business decision fallacies that are so prevalent in the common sense of business, that they have been researched in several business schools.  I have reported on these in the previous REX article for ABC.  Read about them.  Read business disaster stories in places like the Wall St Journal.  Learn to recognize these critters before they creep into a decision.  For once they have moved in, executives tend to think they are domesticated, while in fact they are still wild animals that will eat you and your cash and your reputation alive.  Learn how to identify them at a distance!

BEWARE OF YOUR EXPERIENCE

For all the emphasis in the business world on numbers and hard-nosed facts, extensive research points out again and again that close to 90% of executive decisions are made largely through an unconscious or intuitive process. After the decision is made, we marshal the facts to support. This makes for quick, effective decisions in most cases, but important factors can undermine intuitive or experienced decision making – 1-your past experience, 2-your emotional attachments and 3-your self-interest.  Here is an example of how past experience undermines decisions.

Matthew Broderick had worked in operation centers in Vietnam and other military settings.  He had led homeland security operations centers during hurricanes. All of these experiences taught him that early reports surrounding a potential disaster are often faulty, and that it is better to wait for the “ground truth” to surface before taking action.  Unfortunately he had no experience with a hurricane hitting a city built below sea level-Katrina.  This is an example of how misleading memories and experience can lead to a bad decision.  Our experience that seems relevant and comparable is not, and it leads to decisions that are exactly wrong and at times disastrous.  In this case the broken levees were not officially identified for 12-18 hours after they began breeching.  Basing decision on the wrong experience is a factor in poor decisions.

EMOTIONAL CONNECTIONS CAN DAMAGE DECISIONS

Here is an example of how emotional attachments undermine decisions. In the 1980’s, Wang Laboratories was an important Boston high tech company and the leader in the word processing industry.  Wang recognized his company would be challenged by the rise of the personal computer and built a machine to compete.  He chose to create his own operating system software despite the fact that the competing IBM PC was becoming the dominant standard in word processing.  The operating system IBM had chosen was Microsoft. Early in his career, Wang believed he had been cheated by IBM over technology he had invented.  This led to a strong dislike of IBM and the avoidance of anything used by IBM even though the software itself had been developed by Microsoft.  This serious blunder contributed to the rapid decline of Wang Laboratories within a few years.  When you have an emotional connection to people, places or things, your decisions are in jeopardy.  Such emotional attachment is often a factor when you are making a choice about filling a new position with an in-house promotion or an external hire. 

BEWARE OF SELF INTEREST

The third factor that leads to poor decisions is inappropriate self-interest.  All leaders are aware that self-interest should not be a significant factor in decision making, yet even well trained and well intentioned professionals such as doctors, auditors and engineers are unable to prevent self-interest from biasing their judgment.  A prominent surgeon continued to tout the benefits of a hip replacement module as evidence mounted on its widespread early failure. Not publicizing this sooner led to significant legal penalties, disastrous public relations and much personal embarrassment.

BUILD A TEAM OF EQUALS-WHO WILL CHALLENGE YOU THINKING.

In order to avoid making poor decisions, you need a deliberate and structured ways to identify your likely biases and a procedure for improving the quality of your decisions.  The simplest solution is to involve others, at least one other, who has no appropriate attachments or self-interest.  This is the value of an outsider who has little experience with the situation and thus, is more objective.  Step two is to create an environment where this group can challenge your thinking and force you to review your logic and consider other opinions.  Without a culture of challenge and without a team of equals to further the debate which explicitly confronts your biases you are apt to make expensive and poor decisions.

Again and again, research into poor business decisions made by executive teams and by the boards of the largest businesses such as Enron, Tyco, Lehman Brothers, UBS, Bear Sterns, etc. point out two factors.  First the members of the executive team or board were highly qualified and experienced. Second, decisions by the leader were never challenged or seriously examined.  Often individual members had concerns, but the elephant in the room was never named.  As Peter Drucker famously said the purpose of an executive team is to foster conflict.  Meaning conflict that challenged everyone’s thinking to produce higher quality decisions.  This sort of challenging does not occur unless the trust level is very high.

Trust is the foundation of all human interaction.  It could be called a measure of the bandwidth that exists between those who are communicating.  Low bandwidth gives a slow and inefficient communication.  Low trust is like adding friction to the organization which means energy is consumed overcoming the friction, and that energy is not available to operate and drive the business.  Energy consumed in friction is converted to frustration.  See The Five Dysfunctions of a Team by Patrick Lencioni for a solid explication of why even a modest and a low trust climate undermines commitment, accountability and results. The book reviewed at http://www.rexonline.org/showreviews.php?action=fivedysf2 .

Here are a set of statements which can assess the level of trust on your executive team.

1– My experience is that my team members intend to care for me.

2– Team members know my goals and interests.

3– Team members understand how we are linked and how our behavior can affect one another’s work.

4– Team members consider my interests in their decisions and behavior.

5– Team members stand up for me when I am not present.

6– Team members admit their mistakes.

7– Team members admit their weaknesses to one another.

8– Team members ask for help from one another without hesitation.

9– Team members acknowledge and tap one another’s skills and expertise.

10– Team members willingly apologize to one another.

11– Team members are unguarded and genuine with one another.

12– Team members ask for other members input regardless of their areas of responsibility.

Using this assessment with your executive team can identify the areas to improve and protect your business from poor decisions.

AVOIDING DECISION DISASTERS

There are five more specific ways to largely avoid the seven decision fallacies and the poor decisions they produce. If you would like information on them contact the author.

Will Philips is the founder of REX Roundtables serving 150 of the world’s best clubs with 5,000 sites and 30,000,000 members.  Improving performance of their clubs and the quality of the leader’s lives.  You can reach Will@rexroundtables.com.

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Recent research points out that the common mental shortcuts (called heuristics) that we use in making decisions lead to faulty decisions.  Of even greater concern is the research that shows the faults can be amplified in a group, and spiral into an even worse decision than an individual would make.  The real challenge is that even the best and brightest CEOs cannot see these weaknesses. They self-report that they have excellent decision making skills. Here are the executive heuristics that have been researched and reported in a recent Harvard Business Review Article.

The planning fallacy leads us to always underestimate how much time something will take and how much money it will cost.  One executive in a company that made dozens of acquisitions each year said that they knew about the planning fallacy so after they did their due diligence on the acquisition they multiplied key factors by three, yet they still always found it took longer and cost more.

The overconfidence fallacy leads us to believe our forecasts are more accurate and precise than they are.

The availability fallacy leads us to seize on whatever springs most readily to your mind as a solution either because it’s memorable we recently experienced it.  Doctors tend to diagnose what they have been seeing recently so that the same signs and symptoms get widely different diagnoses.

The egocentric fallacy leads us to exaggerate the extent which our tastes and preferences and insights are typical.  This explains why so many new products/services and businesses fail.  The leader thinks he or she knows what the customer wants.

The sunk cost fallacy leads us to stick with hopeless projects because we have already invested so much and if we quit now we will lose that investment.

The framing fallacy where decisions are affected by how the options are presented. People are more likely to agree to an operation if they are told that 90% of the people are alive after five years than if they are told that 10% of the people are dead after five years.

All the above fallacies are in play when a leader makes a decision.  They operate in the back ground of the mind so the thinker is rarely aware of their influence.  When the leader is aware of them, he or she experiences them as ‘my intuition’ or ‘my experience’ coming into play to help me make a good decision.

Business thinking for the last few decades has encouraged leaders to make decisions with their teams to improve the quality of the decision and the engagement of the managers.  Engagement usually occurs, but improved decisions do not.

The above six individual fallacies are exacerbated in a management team setting.  We ‘go a long to get along’ because we want to be liked, so we agree regardless of whether it makes sense.

In the 1970s an experiment would have seven people sitting in a U-shaped table. Perceptual illusions were shown on a screen. They were all told to answer the opposite of what they thought was true. At this point the last participant entered, and was not briefed on answering the opposite.  Again and again the un-briefed member caved in close to 95% of the time and agreed with an answer that fit the group but did not make sense to them.  Most of us care so much what others think that it is very difficult for us to be truly honest in the face of disapproval.  This phenomenon was labeled Group Think.

The loyalty fallacy occurs naturally in ever hierarchy.  Good employees want to be loyal to the boss at best and are fearful of stepping out of line at worst.  Everyone is thoughtful about making waves and going against the grain.  The recent spate of millions of car recalls by GM was caused by the ‘loyalty’ fallacy and the ‘go along to get along’ fallacy.  A culture of niceness which has persisted for over three decades at GM.

There are five specific ways to largely avoid these fallacies and the poor decisions they produce.  REX trains all of its Roundtable chairs in these tools. We will cover them in future articles.

Will Philips is the founder of REX Roundtables serving 150 of the world’s best clubs with 5,000 sites and 30,000,000 members.  Improving performance of their clubs and the quality of the leader’s lives.

Click here to read part 2

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We have seen many frustrated gym owners, managers and salespeople; many of whom are working hard and can’t understand why they are not more successful.  They are doing all the things they know to do, but the results are not there.

Before we start to look at the sales process and fundamental, and before we consider any operational issues, we should first consider the following;

1. Obscurity. This is problem number one.  No one knows the gym even exists and if they do, they aren’t thinking about it.  As a gym owner, not only are you competing with other fitness options for your customer, but you’re also competing against all the noise your customer hears each day.  Most gym owners significantly underestimate what it will take to attract attention to their business….and then when they try to attract attention, if they get a complaint or criticism, or if it doesn’t work like they think it should, they stop.  That’s the one time we can guarantee results. The answer is to take massive, determined action.  How do you know if you are taking massive action?  You create a new set of problems.  Commit to everything.  Look for ways to say yes.
2. Uncertainty. This works both ways as a challenge for the gym owner. Your customer is uncertain.  Will they stick with it?  Will they fit in? Can they afford it?  More than information, this is what your customer really wants.  Certainty. Same for the gym salesperson.  They are not always sold themselves which creates uncertainty in the sales process.  This is where training and staff development is crucial.
3. Persistence. We don’t follow up on leads like we should.  That person that inquired 6 months ago – are we still in contact with them? We have found that clubs can increase their business by a minimum of 15% if they simply handle their lead follow-up properly.  We don’t ask for the sale and we become discouraged and stop our outreach program. Being persistent will also help you earn trust. Here’s what happens: you get an objection, you get a complaint or you get criticism and you stop. You must have the determination to continue to push forward.  You must understand there will be obstacles, have a plan B ready to go and don’t quit.  When is the last time someone commented on the strength of your follow-up?

Do this and you will be well on your way to success, but you must first commit.  The first thing I hear when we discuss this is…”I don’t have time to do all that.”  Sure you do, just commit to it.

Want to be the best?  Go for it!

Now, go overcome your gym’s biggest challenges!

Jim Thomas is the founder and president of Fitness Management USA Inc., a management consulting and turnaround firm specializing in the fitness and health club industry. With more than 25 years of experience owning, operating and managing clubs of all sizes, Thomas lectures and delivers seminars and workshops across the country on the practical skills required to successfully build teamwork and market fitness programs and products. Visit his Web site at: www.fmconsulting.net.

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