Senior Management Committees: Do More Diverse Perspectives Lead to Fewer Project Selection Errors?

Abstract

Senior management committees are instrumental organizational structures that make strategic decisions about highly uncertain projects. As such, they are prone to the two fundamental types of errors: failing to support an initiative that would have been successful, or pursuing projects that eventually fail. We study how the presence of diverse member perspectives affect these two error probabilities. We disentangle the effects of diverse perspectives that stem from either a priori different preferences (e.g., perceived cost or value estimates), or different interpretations of the new project information (e.g., to what extent this information is perceived as accurate or not). We build upon studies that explicitly account for strategic considerations among the committee members. In particular, each member knows that her payoff is also determined by the decisions of her peers, and she factors such contingencies into her decision. We show that diverse perspectives due to different preferences are always detrimental for the organization's ability to select the right projects. On the contrary, the effect of diverse perspectives due to different interpretive lens is dependent on the project characteristics, and specifically on its a priori valuation by the organization.