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Covering Your Ass

“The Damages of a Hedging Culture and How to Establish a Better Risk Culture in Organisations.

Between 20% and 50% of all important decisions are not made in the interest of the organisation, but are primarily made so that decision-makers can protect themselves in case something goes wrong. We have investigated this phenomenon in several scientific studies and have developed effective solutions for our clients.

Whether in a large private company or in a public administration, leaders and managers constantly have to make decisions that have an impact on colleagues, the organisation and, of course, themselves. Ideally, they choose the option that is best for the organisation. But this is far from always the case. Often they choose the alternative that is worse from the organisation’s point of view in order to protect themselves. This alternative may be more convenient, involve fewer headwinds or offer the possibility of someone else being in charge if something goes wrong.

To explore the frequency and reasons for these so-called defensive decisions, we conducted an anonymous survey of 950 managers at all levels of the public administration hierarchy. About 80 percent of the respondents said that at least one of the ten most important decisions of the past twelve months was defensive. On average, about 25 percent of the most important decisions were not in the best interest of the organisation. At the same time, initial results from DAX companies show that defensive decisions are still much more widespread here.

“A hedging culture is widespread in many organisations. It exists in public administration, in private business as well as in hospitals. Even at the highest levels of management, one encounters decision-makers for whom many of the most important decisions are not primarily in the best interest of the organisation, but serve first to protect themselves. In our study, we were also able to show that there is a connection between the work culture in the team and the frequency of defensive decisions,” says Florian Artinger, co-founder of Simply Rational GmbH. The decision-makers were also asked how they felt about the communication and error culture in their team. Those who rated the error culture as poor made defensive decisions significantly more often than those who felt the error culture was good.

By a positive error culture, we mean the acceptance that the best solution is often not to avoid risks and hedge one’s bets. Instead, a positive approach to risk should be encouraged. This also means that failures are not stigmatised and that people support each other even when they make mistakes. We also found a connection with the communication culture. In a positive communication culture, all members of a team have the opportunity to talk about ideas, opinions or concerns without having to fear disadvantages. Decision-makers who reported working in a team with a good communication culture were less likely to make defensive decisions.

“A hedging culture not only causes significant additional costs. It also has a negative impact on innovation, employee leadership and customer satisfaction. In order for managers to make the best decisions for the organisation again, we need a culture of error instead of a hedging culture,” says Gerd Gigerenzer, co-author of the study and director of the Harding Centre for Risk Competence at the Max Planck Institute for Human Development, since 2020 at the University of Potsdam.

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