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Homework answers / question archive / Research: 3 Biases That Shaped CEOs’ Pandemic Response The Covid-19 pandemic has required leaders to make decisions under considerable pressure

Research: 3 Biases That Shaped CEOs’ Pandemic Response The Covid-19 pandemic has required leaders to make decisions under considerable pressure

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Research: 3 Biases That Shaped CEOs’ Pandemic Response
The Covid-19 pandemic has required leaders to make decisions under considerable pressure. Many CEOs have been acting as the “chief crisis officer” as they work to ensure their firm’s survival and to manage the physical, mental, and social well-being of their employees. Because there is no road map for a crisis like Covid-19, CEOs have had to manage largely by relying on their existing skills and personality traits. We wanted to understand which decision-making biases they were bringing to the table and how those have impacted their decision-making.

Because China was weeks ahead of the rest of the world in experiencing Covid-19, we surveyed the CEOs of more than 500 Chinese firms during February and March of 2020. We focused on three areas: CEO background and firm characteristics, how CEOs responded to Covid-19’s spread, and their expectations for the post-pandemic future. Our research revealed three pairs of opposing biases. In

what follows, we explain the managerial implications and offer ways for leaders to combat each.

1. “The glass is half full” versus “the glass is half empty.”

Optimists (52%) and pessimists (48%) were almost equally represented among the CEOs in our study.

The optimists were mainly founders and business owners. Founders’ strong ties to their personal networks kept them confident that they could maintain and leverage business opportunities during the downturn. For example, the founding CEO of a leading architectural-lighting design firm said that

thanks to “our brand, long-term customer relationships, and mutual trust, we gain our clients’

commitment to keep business projects going. … We stand for quality, and it’s not the first time that our

growth depends on how we behave in a tough business environment.” Most of the pessimists worked in

B2C markets. Shaped by consumer sentiment about economic uncertainty in China, they were mainly

concerned about a drop in market demand and precautionary savings.

3Each trait has managerial implications. Optimistic CEOs tend to develop positive psychological

states, such as confidence, hope, and resilience, in themselves and their teams. But positivity can be

counterproductive if leaders neglect the severity of a crisis and lose touch with the concerns of

employees, clients, or business partners.

For their part, overly pessimistic CEOs run the risk of creating a climate of fear and anxiety, which

can lead to employee disengagement. Leaders need to be realistic about the challenges facing their

firm while also motivating employees to meet them.

As a check against your natural bias — whether you’re an optimist or a pessimist — we recommend

adopting an open, approachable leadership style. That will help you obtain feedback on whether your

style conveys the right message for your team.

2. Costs versus people.

Crises prompt firms to cut costs, hoard cash, and tighten controls. The logic is simple: When markets

and future revenues are difficult to predict, margin-expansion strategies are a safe bet. But those

measures have a direct impact on employee well-being, motivation, job satisfaction, and job security.

. 4Female and generalist CEOs with transferable skills and competences across industries and

functional domains were more aware of the pandemic’s deteriorating effects on employment

conditions and attitudes. They actively tried to address employee dissatisfaction and low

commitment. The female CEO of China’s leading online mutual insurance company emphasized that

“people and innovation are key for our business. These success factors don’t change during Covid-19 and

won’t change in the future. I did not hesitate to invest in our employees’ training and development …

and recruited skilled managers from other companies. These people will help us grow once the pandemic

is over.”

Ultimately, CEOs cannot afford to focus on either costs or people at the expense of the other. Both

negative operating returns and demotivated employees could cause your firm to fail. Instead of

asking, “How can we decrease costs?” try asking, “How can we continue to compete?” By doing so,

you can avoid a vicious cycle with negative consequences for productivity, creativity, and

innovation.

Knee-jerk reactions are a major risk during a crisis. CEOs who are overly focused on the short-term

may take actions that could harm future business. Those who are overly focused on the long term

may fail to address short-term business needs essential for survival.

Most of the CEOs in our survey showed a bias toward long-term thinking, particularly in B2B markets.

As the CEO of the biggest Chinese office real estate management company explained, this orientation

stems from B2B markets’ “high entry barriers,” which force leaders “to handle our business partners’

properties in their best interest.” There were exceptions: CEOs in B2C markets, who understandably

were occupied with short-term retrenchment measures as consumer behavior rapidly changed. But

even some in that group were looking ahead to new business models. For example, the founding CEO

of a Chinese consumer products firm described how her organization was seeking to strengthen its

market position by connecting online-offline offerings to its customers after the pandemic.

CEOs with a short-term bias need to be mindful of their activities’ potential long-term impact on the

firm’s competences, brand, and stakeholders. CEOs with a tendency toward long-term thinking risk

underweighting the pandemic’s impact on profitability. Having a counterpart who can function as a

voice of reason can help those leaders avoid unrealistic goals and maintain short-term accountability.

6During a crisis, leaders need to stay objective and rational. That’s often easier said than done,

especially when you’re making important decisions with limited time and resources. Knowing which

decision-making biases you bring to the table — and how to combat them — will help you better

manage future crises.

Achim Schmitt is a professor of strategic management and associate dean graduate programs at Ecole hôtelière de

Lausanne, HES-SO // University of Applied Sciences & Arts Western Switzerland. As former turnaround and bankruptcy

consultant, his research, teaching and advisory activities focus on helping companies during times of crisis and

uncertainty.

Katherine Xin is a professor of management, Bayer Chair in Leadership, Associate Dean (Europe) at China Europe

International Business School (CEIBS). She specializes in the areas of high-performance leadership and organizational

change and transformation.

Robert Langan, Ph.D. is a postdoctoral researcher at the University of Geneva and an independent consultant. He

specializes in CEOs, TMTs, and board leadership. may apply including the use of this content as assigned course material. Please consult your institution's librarian about any restrictions that might apply under the license with your institution. For more information and teaching resources from Harvard Business Publishing including Harvard Business School Cases, eLearning products, and business simulations

Paper title: Biases That Shaped CEOs' Pandemic Response. By: Schmitt, Achim; Xin, Katherine; Langan, Robert. Harvard Business Review Assignments: 1- Write an executive summary of the paper (8 - 10 single-space sentences). 2- How a crisis, like a pandemic, could affect managers' decision making? Explain your answer. 3- Of the biases & perception errors discussed in chapter 6, which ones could you add to the list discussed in the paper? Explain your answer. no cover 1-2 pages single space

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