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Strategy

A good night’s sleep will help you to make better strategic decisions

Published 6 April 2022 in Strategy • 7 min read

Warning: late nights and early starts will lead to memory loss, illness, recklessness, lack of sociability and failure to spot a good business opportunity.

 

“You can sleep when you are dead”. This longstanding maxim remains prevalent in society and is especially embraced within the business sector. However, decades of sleep research have demonstrated that if you adopt such a mentality, you may be dead sooner, and the quality of that now shorter life will be significantly worse. Testament to this fact are findings demonstrating that insufficient sleep is associated with all major health conditions afflicting people in developed nations, including heart attacks, stroke, hypertension, diabetes, obesity, depression, anxiety, suicide and dementia.   

Beyond these health consequences, more recent work within the workplace context has demonstrated a simple truth: less sleep does not equal more productivity. Quite the opposite. Despite such evidence, many senior leaders believe that their years of climbing toward high-level positions have allowed them to become immune to the effects of sleep deprivation, training themselves within the span of several decades to not require something that has been put in firm place over three million years of evolution as a biologically mandated, non-negotiable need. Indeed, when choosing between spending an extra hour at the office or getting an extra hour of sleep, most will choose to work, with the erroneous belief that they can “catch up” on sleep at some later date. 

In this article we describe an evidence-based case that runs counter to these scientifically invalid beliefs. We outline how a lack of sleep has a dramatic effect on work outcomes, including the bottom-up impact of how well individual employees accomplish their job, and the top-down diminution of how effectively managers and CEOs are at leading teams. We offer a special focus on the impact to senior leaders in terms of making high quality (versus poor quality) strategic decisions and conclude with ideas of preventive countermeasures leaders can take to avoid the costly dollars and cents traps of sleep deprivation. 

 

Strategic decisions: trade-offs, choices and alignment

Strategic decisions are characterized by trade-offs, choices and alignment across different activities that help organizations to achieve a competitive advantage in the marketplace. These decisions influence the long-term direction of a company, including examples such as the launch of a new important product line, a merger or divestiture, or an organizational restructuring. When making these types of decisions, you need to engage in numerous different mental activities.  

First, given the forward-looking nature of strategic decision, there is an element of anticipating the future to identify relevant opportunities and risks. To do so, you benefit from having a broad and open-minded view about strong and weak signals in the environment and being able to process and evaluate these data points to determine where to focus attention.  

Second, you and your team need to develop ideas how to address the opportunities or challenges you might face and make concrete choices, which, in part, depends on your capacity to take note of and remember relevant insights, examples and best practices from within and outside your industry. The more diverse and creative ideas you develop, the more options you will later have to choose from. However, pursuing all the options that are on the table is typically neither a viable nor desirable path forward. Instead, to focus, you need to pick out those options that are most promising by considering multiple competing objectives, analyzing expected risks and returns to ultimately arrive at a well-calibrated decision that best manages the inherent trade-offs.  

Third, good strategies are defined not just by an individual choice, but by the fit that leaders achieve across different activities. Think of IKEA’s success: it’s not just the products they offer, but also the low-cost production sites, the store’s location and lay-out, the catalogue, the playground for kids (and, of course, the Swedish meatballs at the family restaurant). As a senior leader, you need to coordinate across different functions to ensure that the whole of these decisions is bigger than the sum of their parts. In other words, the decisions across various parts of the company need to support and reinforce one another, in turn leading to an advantageous position of your offering in the market.  

Fourth, since you don’t have a monopoly on good ideas, nor on good decisions, it makes sense to engage with your colleagues and team members throughout the process, by creating, a safe and trusted environment that allows to solicit honest input from others to help overcome your own blind spots and biases. In addition, creating trust and good will with critical stakeholders is also important to ensure that decisions do in fact get executed once they have been made. 

Arianna Huffington
“I can tell you with authority that when I’m exhausted, when I’m running on empty, I’m the worst version of myself. I’m more reactive. I’m less empathetic. I’m less creative.”
- Arianna Huffington

Sleep deprivation impairs our ability to think strategically 

A lack of sleep substantially impairs all mental functions required to execute these strategic decision-making activities. Broadly speaking, research has shown that after one to two weeks of just five hours of sleep a night, you are as impaired as you would be if you had gone 36 hours straight without sleep. Alternatively, after remaining awake for only 20 hours straight, you are as impaired as you would be if legally drunk.  

Beyond these broad effects, sleep specifically influences several capabilities that are centrally important to thinking strategically. One such set of capabilities is storing, processing, and remembering facts. Sleep deprivation impairs both the ability of the brain to initially make new memories, and thereafter, the ability of the brain to effectively “hit the save button” on those new memories, consolidating and recalling them. That is, a lack of sleep degrades both short-term and long-term memory. In other words, sleep-deprived decision-makers are likely to have access to fewer strategic options, decision criteria and other information in their long-term memory. This knowledge, however, is crucial for making informed strategic decisions. 

Senior leaders must often connect disparate, seemingly unrelated ideas in the process of creativity and innovation. Creativity draws disproportionately from the prefrontal cortex, and the prefrontal cortex is especially vulnerable to impaired function during sleep deprivation. Thus, a lack of sleep prevents the brain from assimilating new information and extracting overarching rules, as well as solving problems through creative insights. There is a reason you have never been told to “stay awake on a problem”, a realization that is often absent in typical business culture. 

Effective strategic decision making also requires accurately processing risk. A moderate body of research indicates that sleep deprivation distorts the manner in which people process risk. Compared to when they are not sleep-deprived, people who are sleep-deprived tend to be more likely to chase high levels of risk. This is especially the case in attempting to avoid losses. People often already tend to chase risk to avoid losses, but that tendency is enhanced under sleep deprivation. Moreover, these tendencies to chase risk while sleep-deprived are not simply a matter of being bold; from an expected utility perspective, sleepy people chase unjustifiable levels of risk which provide insufficient potential for reward to offset the potential for loss. The strategic decisions faced by senior managers are often wrought with ambiguity which provides ripe ground for their sleep deprivation to drive them toward recklessly risky choices. 

People who are sleep-deprived tend to be more likely to chase high levels of risk

An especially important context in which senior leaders must process risk is in evaluating new opportunities. There is an interesting asymmetry in the effects of sleep on opportunity evaluation. Especially promising opportunities are relatively easy to spot, even if the evaluator is sleep deprived. However, those who are sleep-deprived are significantly less effective in evaluating opportunities which are less promising. Specifically, sleep-deprived managers are especially likely to engage in surface-level processing of an opportunity rather than examining the deeper threads necessary to fully vet the opportunity. As a result, sleep-deprived strategic decision-makers are disproportionately likely to rate a bad opportunity as a good opportunity, putting their organization at risk of wasted resources, opportunity costs, and quagmire projects. 

Strategic decision-makers must manage complex trade-offs over time and fight the temptation to pursue only immediate utility in the short term. This requires the use of self-control. The act of self-control also draws heavily from the pre-frontal cortex, and thus suffers during sleep deprivation. Research across several disciplines shows that sleep deprivation increases impulsivity, and leaves people more vulnerable to caving in to temptations. As a result, sleep deprivation increases the probability of unethical behavior. Moreover, sleep deprivation leads people to select the easiest possible task and procrastinate on more difficult tasks. This indicates that sleep-deprived strategic decision-makers may value short-term outcomes to the detriment of long-term outcomes. 

On an emotional level sleep deprivation has a range of negative effects on how leader engage with their colleagues, teams, and the wider organization. Sleep deprivation decreases the desire for social interaction. Instead, sleep-deprived individuals experience social withdrawal, loneliness, lack of trust, and impairment in recognizing human emotions in other people. Overall, sleep-deprived leaders are more disconnected from the people with whom they interact, and are less charismatic when they do interact with others. This is problematic both for getting the critical input for compensating for one’s own blind spots and for winning over stakeholders. 

Beyond failing to make positive interpersonal connections with stakeholders, sleep deprivation can put strategic decision-makers in a position in which they form negative interpersonal relationships with stakeholders. Sleep deprivation undermines an individual’s ability to accurately discriminate emotional threats from emotionally positive opportunities. Under-slept individuals are more emotionally hyper-reactive, with erratic emotions in general but with a disproportionate bias towards negative emotions. This emotional roller coaster of those who are sleep deprived also tends to increase the degree to which people perceive threats. Sleep-deprived leaders are more hostile towards subordinates, engage in more interpersonally negative behaviors toward subordinates, and suffer lower relationship quality with subordinates. This suggests that sleep-deprived strategic decision-makers will be at risk of souring important relationships with key stakeholders who are necessary to implement strategic decisions. 

‘Research has shown that after one to two weeks of just five hours of sleep, you are as impaired as you would be if you had gone 36 hours straight without sleep’

Are you invulnerable to these effects?

A large portion of the population (and, in particular, senior managers) believe that they are impervious to these effects of sleep deprivation. You might be thinking this, too. People holding such beliefs are unfortunately, though perhaps understandably, fooling themselves. If we look at the primordial importance of sleep from an evolutionary perspective that covers millions of years of adaptation, it’s only been in the past 100 years that widespread adoption of electricity has fully enabled us to make use of night hours for activities other than sleeping. Indeed, average sleep duration has decreased significantly over the past three to four decades by about 10 minutes per decade. In the larger picture of evolution, this is a minuscule time window that does not provide any room for adaptation to the dramatic changes that we have unleashed in our sleeping patterns. 

In fact, we know that a small proportion of the population can continue functioning at their highest level under continued sleep deprivation, in part due to specific genetic variations causing them to require less sleep. At this point, you may be thinking, “I’m one of those people”. Sadly, this is very unlikely, since only 1-2% of the population is estimated to have this genetic mutation. Most people who believe that they can function on fewer than five or six hours of sleep a night are just not getting sufficient sleep to be as productive as they could be.  

Indeed, after being awake for 19 hours, you are as cognitively impaired as someone who is legally drunk. No business leader would brag about or be proud of the fact that their employees are drunk all the time, yet we do often laud an employee business warrior who is flown through three different time zones in the past 72 hours, who is on email until 2am, and then back in the office at 6am the next day. 

Arianna Huffington, founder of The Huffington Post, was famous for working long hours and going without sleep. During the early days of her online site, after severe sleep deprivation she passed out at her desk, falling on her cheekbone and shattering it. Huffington now speaks frequently about the dramatic effects of sleep deprivation: “I can tell you with authority that when I’m exhausted, when I’m running on empty, I’m the worst version of myself. I’m more reactive. I’m less empathetic. I’m less creative.”  

Similarly, Tesla CEO Elon Musk has noted how his workload has led to severe sleep deprivation. His erratic behavior on Twitter is consistent with impulsivity created by sleep deprivation, and he acknowledges that sleep deprivation has impaired his total productivity. Margaret Thatcher, the former British Prime Minister, famously slept for only four hours each night while she was in office. Like her American ally, another short-sleeping head of state Ronald Reagan, she died of Alzheimer’s disease. Research suggests that these may be related: people who are short sleeping in mid- and later-life have a 30% higher likelihood of developing dementia.   

Interestingly, sleep deprived people don’t necessarily notice to what extent their performance is impaired by the lack of sleep. Instead, research has shown that they behave like a drunk at a bar who has had six beers and says, “I’m fine to drive home”. Getting into the car to drive home in such a state is illegal and risks heavy punishment; however, making critically important business decisions that influence the success of an organization and the livelihood of thousands of employees frequently takes place under similar if not worse conditions.  

On the other end of the spectrum, you find top executives who have prioritized sleep, both for the sake of their personal wellbeing and the quality of their decision making. For instance, Jeff Bezos points out the trade-offs of not getting sufficient sleep: “Say, I slept four hours a day. I’d get four so-called productive hours back. So, before I had, say, 12 hours of productive time during any waking day, now all of a sudden, I have 12 plus four — I have 16 productive hours. But is that really worth it, if the quality of those decisions might be lower because you’re tired or grouchy or any number of things? Probably not.” Others senior leaders, such as Bill Gates or Warren Buffet, are similarly focused on getting sufficient sleep every night. 

Sleep-deprived decision-makers are likely to have access to fewer strategic options, decision criteria and other information in their long-term memory

What can you do for yourself and your team?

There are several different measures that the current research proposes to improve both the quality and quantity of sleep. Some of this is focused on empowering individuals to improve their own sleep. For example, there are some behaviors which are consistent with a good night of sleep, and some behaviors which are inconsistent. Increasing the former and decreasing the latter is referred to as improving “sleep hygiene”. Some of the most powerful ways to improve sleep hygiene include having a consistent bedtime, enhancing exposure to bright light in the morning (daylight is best, if that is not possible, blue light is next best), keeping a cool bedroom, avoiding bright light exposure for a few hours before bedtime (especially blue light), avoiding caffeine consumption within 10-15 hours before bedtime, and avoiding alcohol consumption and nicotine use within a few hours of bedtime. These tactics help an individual shape their own behavior and sleep environment in a manner which aids consistent, healthy sleep. 

Rumination and anxiety make it difficult to fall asleep, stay asleep, and sleep deeply. For short term relief, mindfulness exercises can cut the rumination loop and lower anxiety, leading to better sleep. For longer term changes which may lower baseline rumination (especially rumination about sleep difficulties specifically), cognitive behavioral therapy for insomnia (CBT-I) is an especially powerful tool. CBT-I is widely available, either face to face with an expert or online through automated versions. 

 

Beyond insomnia, there are many other sleep disorders which are prevalent and harmful to sleep. For most of these, there are very effective treatments which can dramatically improve the patient’s sleep. For example, sleep apnea can be effectively treated with continuous positive airway pressure, and circadian disorders can often be treated through structured light and melatonin use. 

Beyond these individual level interventions, there are more systematic factors which can be addressed. An especially powerful approach is to address work overload issues by cutting workload. This typically requires management being involved in the decision, perhaps authorizing a longer timeline on a goal, or additional personnel to share the workload. Managers themselves may need to delegate more to address their own workload issues, which only works if the rest of the team is sufficiently staffed. Employees may benefit from being empowered to use flexitime to match their work schedules to their optimal sleep schedules. Late night chronotypes might come later and work later, while early risers start before dawn and finish earlier. Nap room infrastructure can be another layer of support for sleep. 

Some of these work-based solutions may involve costs which will raise the eyebrows of managers at higher levels. Those managers must appreciate the long-term benefits of a more sustainable workforce that can come from investments in workload management. In other words, leaders are key to this process, because they can be the fulcrums for positive sleep-based changes in workplaces. Leaders must understand how sleep is a human sustainability issue which is critical to maintaining valuable human capital. For most leaders, this necessitates training regarding the importance of sleep not only for health, but for work outcomes as well. With such training, leaders can avoid being the cause of poor sleep and can instead be champions for the idea that employees are only the best versions of themselves when they get the sleep they need. An example of a leader who explicitly pushed for a sleep-friendly environment is former AETNA CEO Mark Bertolini, who set up a bonus program to incentivize sleep for the company’s employees. 

So, what does this mean in sum? Just like you make trade-offs and choices in your strategic decisions, you also make trade-offs when it comes to sleep – both for yourself and the people you lead. We argue here that many senior managers trade-off too much sleep for marginal improvements in productivity; and they do so without even being completely aware of the damaging side effects, both for their long-term health and their short-term decision-making capabilities. It’s time to wake up to this reality. 

Authors

Albrecht Enders

Professor of Innovation and Strategy at IMD

Albrecht Enders is Professor of Strategy and Innovation at IMD and co-director of the Business Leadership Training program. His major research, teaching, and consulting interests are in the areas of managing discontinuous change and top-team strategy development processes. Before joining IMD, Professor Enders spent three years as a consultant with The Boston Consulting Group in Cologne where he worked on projects in the areas of financial services, energy, and industrial goods.

Christopher Barnes

Christopher Barnes

Professor of Management and Evert McCabe Endowed Fellow at the Foster School of Business at the University of Washington, Seattle

Christopher Barnes is Professor of Management and Evert McCabe Endowed Fellow at the Foster School of Business at the University of Washington, Seattle. His research is focused in three main areas: human sustainability in organizations focusing on sleep and sleep deprivation, behavioral ethics, and leadership.

Matthew P. Walker

Matthew Walker

Professor of Neuroscience and Pscychology at the University of California, Berkeley

Matthew Walker is Professor of Neuroscience and Psychology at the University of California, Berkeley, and is the Founder and Director of the Center for Human Sleep Science. He is author of the international bestseller Why We Sleep. His research examines the impact of sleep on human brain function in healthy and disease populations.

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