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Group Therapy

"Groupthink" can result in spectacularly bad decisions, but the malady can be prevented.

Alkermes CFO Jim Frates puts a lot of stock in the power of the group, particularly when it comes to choosing a vendor or making hiring decisions for the $240 million drug-development firm based in Cambridge, Massachusetts. To avoid groupthink, though, he is careful to keep his own opinion close to the vest, and tries to open up discussions by taking the opposite view of whatever idea prevails in a meeting. “I like to support an idea that isn’t getting much airtime,” he says. “That way, anyone who is quiet [but supports it] can get on board and defend it.” He also likes to ask: “What happens if we’re wrong in this assumption? Will we still be OK?”

Frates believes that his method recently helped Alkermes avoid a potential hiring mistake. After he and four of his colleagues separately interviewed a candidate for a senior finance position, Frates says his colleagues were gung-ho about extending an offer. But using his typical process, Frates asked for some negatives as well as positives. “As we went around the room, it evolved that what we really wanted was someone with a little more management capability,” he says. That led them to turn down the interviewee. “It was another three months before we found somebody, but that turned out to be the right decision,” says Frates.

Better Brainstorming

Maximizing group performance from creative tasks, such as brainstorming, takes slightly different skills than guiding a group decision. “We find that groups tend to shut themselves down after about 15 or 20 minutes, long before they hit their potential,” says Paulus. His research shows that brainstorming groups typically generate only half as many ideas — and half as many good ideas — as do the same number of individuals working alone.

For optimal brainstorming, Paulus advocates a combination of individual contributions and group work. Prime a group beforehand, he recommends, so members will bring ideas into the meeting. Then let people express ideas, but aim to create a flow — don’t allow explanations or interesting anecdotes to distract from idea-making. Hold back on judgment, or comments like “we did that already,” since, says Paulus, “even stupid ideas can lead to better ideas.”

Plan on 30 to 40 minutes of hard work, with short breaks (no phone calls or E-mail checking), and press the group to come up with more ideas, even after they say they are tapped out. Ask people to keep thinking about the discussion after the meeting, and schedule a follow-up to see if you can gain any improvements.

Digital River, a $308 million E-commerce company based in Minneapolis, follows Paulus’s model to an extent in its brainstorming sessions. Several times a quarter, CFO Thomas Donnelly bats around ideas about how to drive growth and save money with up to 100 other senior employees. While they try not to follow any one structure slavishly, one common method is to have attendees write down ideas on Post-it notes, but without signing their names. Sometimes participants are prepped ahead of time with teasers, and sometimes they are asked to start fresh in the meeting, depending on the task. Once the individual work is done, the ideas are posted in the front of the room and discussed. “It forces engagement but also protects people who are more reserved,” says Donnelly. “If you had me or the CEO directing it from the front of the room, you’d get input from a very small subset of people.”

That type of brainstorming has led to some important innovations at Digital River, Donnelly says. Close to his own heart was a new cost-saving method for transaction processing. And brainstorming led to a solution for a customer problem that is almost as common — and damaging — as groupthink. The software that Digital River sells can now be copied onto a backup server, says Donnelly, “in case a customer drops his PC in the bathtub” or otherwise destroys it.

Alix Nyberg Stuart is a senior writer at CFO.

Recognizing the Causes

These five conditions are “especially conducive” to groupthink, according to Hersh Shefrin of Santa Clara University’s Leavey School of Business:

  1. The group dynamics feature amiability and esprit de corps.
  2. A powerful, opinionated leader runs the group.
  3. Group members operate under stress.
  4. Group members are strongly influenced by a desire for social conformity.
  5. There is no explicit decisionmaking procedure.

Source: Hersh Shefrin, Behavioral Corporate Finance (McGraw-Hill Irwin, 2007)

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