Optimism vs. Realism: How to Strike a Balance to Make Better Business Decisions

Colleagues in literal a game of tug-of-war with a rope in the office.

The Windows Phone was a make-or-break product during Steve Ballmer’s tenure as CEO of Microsoft. Before the device launched in 2010, there were signs that investors and employees had lost confidence in Ballmer’s performance according to Reuters. Capturing a share of the mobile market must have seemed like an effective way to regain their support.

Fast forward to 2019. Microsoft is transitioning out of the mobile market to focus on cloud technologies and artificial intelligence. This was not Ballmer’s decision. He stepped down as CEO in 2014 after the Windows Phone failed to compete with the iPhone and Android devices.

Microsoft’s lackluster foray into the mobile market may have stemmed from decisions that were plagued by delusional optimism. According to Harvard Business Review, delusional optimism occurs when business leaders are sure their plans will come to fruition despite the likelihood that outside factors may impede their success.

This demonstrates that unbridled optimism doesn’t necessarily lead to business success. Companies need to balance decisions with data-driven realism to invest in sectors that offer the best chance for success. To do so, they must employ people who favor both optimism and realism at work, as there are measurable benefits when they do.

Optimism vs. Realism in Business Decisions

There is an obvious reason that leaders tend to exhibit optimism in the workplace. Part of their job is to motivate their employees, and expressing doubt may undercut performance. So, many leaders set lofty stretch goals while exuding confidence to power an overachieving workforce.

By contrast, leaders who subscribe to realism take a pragmatic approach to decisions. They ground their leadership in what is likely, not pie-in-the-sky aspirations. This doesn’t mean realists aren’t ambitious. They are simply less likely to chase longshot odds when risks and costs far outweigh potential rewards.

In many ways, optimism vs. realism isn’t a fair fight. That’s because 80 percent of people favor optimism over realism, according to TechWell, a technology and process management company. Unfortunately, when realism always takes a backseat to optimism at work, companies can suffer the consequences of optimism bias.

According to Project Times, optimism bias occurs when someone believes a decision will produce a positive outcome even when a negative result is just as likely. This can spur people to start or invest in new companies even though 7 of 10 go out of business in less than a decade, according to Entrepreneur. Despite those odds, many investors believe they will succeed where others have failed.

In a sense, this shows a positive side of optimism bias. It helps people avoid stasis that stems from a fear of defeat. But that doesn’t mean failure is a necessary cost of doing business. Instead, business professionals should refine their decision-making process by balancing optimism in the workplace with a healthy dose of realism. This requires them to reflect what influences the decisions they make.

Benefits of Understanding How You Make Decisions

Business professionals shouldn’t view decisions as a debate of optimism vs. realism. Instead, they should work to shed biases and make decisions based on established best practices.

This may be easier said than done. According to Forbes, 98 percent of managers make decisions without considering best practices. This increases the chances that leaders will make mistakes instead of quality decisions.

Business professionals can overcome this problem by examining instincts that drive their decisions. People who favor optimism in the workplace should consider whether their optimistic approach in decision-making always produces positive results. People who practice realism at work should consider if limiting risk also limits their growth potential.

During these examinations, workers may find ways to merge elements of both philosophies to make better decisions. After all, true optimism at work requires workers to ground themselves in what is possible. Geoffrey James, a contributing editor at Inc., exemplified this point in an article intending to update the definition of optimism. He wrote, “A true optimist sees things as they are, visualizes how they might become better, and then takes action to make them so.”

Seeing things as they really are is key. This allows optimists to make decisions that lead to achievable results instead of chasing the impossible.

Consider Microsoft’s decision to nix its smartphone division. No amount of optimism was going to help wrestle substantial market share from Apple or Android devices, which have cornered the smartphone sector, according to ZDNet. That said, writing off the Windows Phone has allowed Microsoft to invest in markets in which it has a realistic chance of succeeding.

Cloud technologies are a prime example. Unique advantages have poised Microsoft for success in this space. For instance, its lean stable of internet investments has allowed the company to prioritize cloud computing above all other initiatives. Contrast that with Google, who must juggle cloud initiatives with myriad other internet ventures.

So far, transitioning out of the mobile space has reinvigorated Microsoft. In fact, a focus on cloud computing helped the company regain its position as the top publicly traded company in November 2018.

A Checklist for Making Bias-Free Business Decisions

Harvard Business Review published a checklist that can help professionals make informed decisions. By following these seven steps, workers may overcome their inclinations to favor realism or optimism in the workplace:

  1. Account for Company Goals. Before making decisions, workers should consider how company goals may be impacted. This can simplify choices that workers face by steering them toward options that align with core objectives.
  2. Consider the Alternatives. When making major decisions, workers should examine three or four sound alternatives. If possible, they should forecast outcomes of alternatives so metrics guide them to the best option. Business News Daily offers helpful tools that managers can use during this process, such as a decision matrix for listing and rating alternatives.
  3. Consider the Unknown. There are inherent risks to every decision. So, it’s important for managers to brainstorm about unknown aspects of decisions they face. This can help them anticipate risks and plan for worst-case scenarios.
  4. Visualize Possible Outcomes. Before committing to a plan of action, managers should visualize its long-term impacts. This exercise can broaden the perspective of managers as they consider how decisions may affect their employees and company as a whole.
  5. Seek More Perspectives. Managers should seek input about decisions from other team members. This provides a wider range of options they may not have considered on their own. To prevent information overload, managers should limit the number perspectives to no more than six.
  6. Establish Trends. Managers should document all options they consider, decisions they choose, input collected from stakeholders, and results. This can establish trends for outcomes and help managers avoid repeating mistakes.
  7. Conduct a Decision Debrief. Managers should debrief about decisions to examine the results of each course of action. This provides a chance to document lessons learned and triage solutions to unintended consequences.

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“A true optimist sees things as they are, visualizes how they might become better, and then takes action to make them so.” – Geoffrey James