Data-Driven Decision Making: Beware Of The HIPPO Effect!

Data-Driven Decision Making: Beware Of The HIPPO Effect!

Beware of the HiPPO in the room. When a HiPPO (highest paid person’s opinion) is in play, your organisation is most likely not relying on data to inform decision-making. In fact, I believe the HiPPO effect is one of the biggest barriers to more evidence-based and data-driven decision-making. With the quantity and quality of data available today, it is just poor business for organisations to ignore data in favour of making decisions solely based on what the HiPPO wants done.

What is the HiPPO Effect?

Avinash Kaushik was the first to coin the term HiPPO in his book Web Analytics: An Hour a Day. When a HiPPO is in the room and a difficult decision needs to be made but there’s not data or data analysis to determine the right course of action one way or another, the group will often defer to the judgement of the HiPPO. HiPPOs usually have the most experience and power in the room. Once their opinion is out, voices of dissent are usually shut out and in some cases, based on the culture, others fear speaking out against the HiPPO’s direction even if they disagree with it.

Why is the HiPPO Effect dangerous?

First, humans have a tendency for an authority bias as illustrated in the Milgram experiment conducted in 1963 and reaffirmed in subsequent studies. This experiment focused on the conflict between obedience to an authority figure versus adhering to our personal conscience. Turns out we tend to believe those we perceive as “experts” and do what they tell us to do. Of course, this tendency serves us well in many instances, but in business it can shut down dissenting—and valuable—opinions.

A study from the Rotterdam School of Management found that projects led by senior leaders failed more often while projects led by junior managers were more likely to be successful. The junior managers had the benefit of critiques to their project plans from others that helped them build a stronger plan, while employees didn’t feel as able to give critical feedback to high-status leaders.

When a leader has lost touch with customers or fails to remember that the team has valuable insight, the HiPPO effect is in full force. Since the highest paid person experienced success, promotions and typically consensus from others in the organisation, they can run the risk of believing they are always the one in the room with the best idea. Hey, they have a track record of success, why would that change? When others in the room acquiesce to the highest paid person’s opinion without a challenge, it just adds to the highest paid person’s confidence and sense of superiority. Alas, a vicious cycle begins and it is hard to stop.

When Ron Johnson, former head of retail at Apple who was responsible for the highly profitable Apple Stores, took over as CEO at J.C. Penney, he suffered from the HiPPO Effect. Without reviewing the existing data or investing in new data about the very different retail store he was now leading, he went full throttle ahead on his strategy for the department store chain. When his strategy was launched and he checked in to see if it was working, few had the courage to give him the unvarnished truth and be labelled as a resistor. Needless to say, his strategy wasn’t succeeding with J.C. Penney’s customers.

Once the highest paid person articulates their opinion, it’s difficult, without data, for organisations to go against that opinion. The HiPPO will be weighted more than any other voice involved in the decision-making process. Well-meaning leaders who wish to engage with the team and be present in the conversation don’t necessarily want their opinion to have more weight, but employees are eager to please and do what the leader wants done.

HiPPO’s opinions are presented as fact, but they are subjective. This can be incredibly problematic when other plans are derailed to focus on what the highest paid person wants done, even if there is no research or data to back it up. Not only does this change of direction increase costs, waste time and jeopardise confidence, it may simply be the wrong action to take.

How do you tame the HiPPO?

You need data to depersonalise decision-making. Although the reality will be that decision-making in organisations will still rely on gut distinct in some way, decisions should be informed by insights provided by the data. The Harvard Business Review found that while 80% of survey respondents rely on data in their roles and 73% rely on data to make decisions, 84% still said managerial judgement is a factor when making key decisions.

Data can take the emotion and opinion out of decision-making. First, try to find a data set that informs your decision. If there isn’t a data set that works exactly, try to find something similar that you could use as a fact-based foundation to help guide the decision-making.

When you depersonalise decision-making, it’s not about you or what you think or what the HiPPO thinks. It’s about what the facts state. Be hyper focused on what your customers are saying, get competitive data and other external benchmarks in your analysis.

Build your data arsenal to cover the most important things the highest paid person will be concerned with or judged by—usually that’s the bottom line. If you have data that speaks to the highest concerns of the highest paid person, it will help drive decisions.

Before heading into a meeting where a decision needs to be made, try to build consensus among others. The more prepared and informed the larger group is about the facts around a decision, the more apt they will be to challenge the highest paid person. Challenges to the HiPPO won’t seem as daunting if there is evidence to support the position.

If you are the HiPPO, follow the example of Alfred Sloan, long-term president, chairman and CEO of General Motors who “had a strong belief about making decisions; they shouldn’t be made until someone had expressed why the ‘preferred’ option might not be the right one.” Invite disagreement; make yours a culture that you seek multiple opinions and even ask someone to play devil’s advocate prior to an important decision being made.

HiPPO’s must remember the role others have played in past successes and to make the most of the people around them.

Today, everyone in the organisation needs to be well-versed in using data to make decisions. Make sure that every employee has access to the data flow and tools to analyse it.


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Written by

Bernard Marr

Bernard Marr is a bestselling author, keynote speaker, and advisor to companies and governments. He has worked with and advised many of the world's best-known organisations. LinkedIn has recently ranked Bernard as one of the top 10 Business Influencers in the world (in fact, No 5 - just behind Bill Gates and Richard Branson). He writes on the topics of intelligent business performance for various publications including Forbes, HuffPost, and LinkedIn Pulse. His blogs and SlideShare presentation have millions of readers.

 

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