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Unwise Decisions and Unanticipated Consequences

October 15, 1999 | Michael Magasin , Frieda L. Gehlen | Strategy

In this case study, the authors examine the unwise business decisions of a once highly profitable ordnance manufacturer in light of psychological research about how people make decisions and process information. Their analysis provides insight into what could easily happen to many executives.

Other than providing 400 entry-level, high-turnover manufacturing jobs, the firm had little involvement with the middle-class suburban community that gradually surrounded its facilities. It deliberately chose to remain as inconspicuous as possible, an arguably valid approach given the dangers of designing and producing explosives. Managers did not question the policy of ignoring the community and were totally unprepared when controversy arose.

By the 1970s, nearby homeowners began to complain to the firm and to government agencies about air quality and noise pollution. Finally, disgruntled employees -- lacking any formal grievance procedure and fearing for their own health -- reported the firm's alleged misuse of recycled waste-water and its illegal transportation and dumping of toxic waste. Eventually, an interagency task force and the county sheriff's department searched extensively throughout the company's facilities. The firm had violated the law by illegally storing barrels of hazardous waste material.

To contain the damage caused by the investigation's disruption of business and by negative publicity, the firm took several actions, including hiring outside consultants. Some actions were successful; most were not. Although the firm eventually incurred heavy expenditures in corrective measures and fines, officials also held three managers personally liable, even though they had inherited the problems from their predecessors.

In a 1996 SMR article, Messick and Bazerman identified three types of interrelated theories that executives apply when making decisions -- theories about the world, theories about other people, and theories about ourselves. Using these concepts as a theoretical framework to analyze six decisions made by firm managers, Magasin and Gehlen conclude that most negative outcomes illustrated in this case study were avoidable. Noting that particular psychological tendencies are generally associated with weakness in thinking and poor decision making, they offer fourteen tips for actively managing companies that adeptly sidestep the "moral minefields" of today's business world.

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