Outer and Inner Routes to Better Business Decisions

In a business environment where agility and innovation are becoming universal requirements, good decision-making from the C-suite is more vital than ever

Even a small increase in the percentage of good decisions can have significant bottom-line impact.

Combining intuitive and systematic decision-making

For all the attention given to systematic decision-making, the case has been made that intuition and rules of thumb often work better, especially when risks are unknown or hard-to-calculate1.

In fact, although leaders often couch their decision-making in rational, data-driven terms after the fact, they reach many of their decisions intuitively or using a mixture of systematic thinking and intuition.

Whether they are aware of it or not, leaders are more likely to leverage intuition over data when they don’t have all the information they’d like or can’t be certain which information to trust. Is it, for example, the latest information? Were any errors made in the way it was gathered? Is it really relevant to the issue at hand?

Barriers to good judgment

Having worked with leaders in a range of industries, I’ve observed that decision making and judgment can be skewed by a fairly common set of pressures and by fixed behavior patterns and mindsets.

For example, a bias toward action may have helped a particular leader rise to her current position, but then her self-imposed pressure to “do something” may not be appropriate in the new role and lead her to expensive, time-wasting directives or overly risky ventures.

Under other conditions, pressure from shareholders and other stakeholders to maintain the status quo can persuade leaders to forego essential forward-looking initiatives. At Eastman Kodak, for example, where engineers had invented the digital camera and the company had begun developing it, leaders called a halt because they were concerned that digital sales would eat into revenue from selling film. Kodak ended up filing for bankruptcy in 2012.

Critical decisions like Kodak’s are usually made collectively, but there are a host of impactful, lesser decisions that leaders routinely make on their own. When these involve uncertain risks, savvy leaders have come to accept that their judgment can be vulnerable to distortion, and there are two sets of remedies they can turn to.

The outer route: corroboration
To confirm that they’re on the right track, leaders can turn to time-tested practices such as:

• Seeking—and valuing—input from direct reports When the consequences are significant and there’s no need for secrecy, direct reports can offer new perspectives, free from the pressures leaders face.
• Gathering new information This may include hard data to make sure decisions are not overly influenced by one or two surveys, studies, or trends in sales figures. It can also include finding out more about key stakeholders whose support is essential and exploring other factors impacting the decision.
• Identifying cognitive biases that may be in play, such as anchoring, loss aversion, and the confirmation bias—along with social and interest biases among influencers and other stakeholders.
• Making sure decisions align with key objectives, values, and learnings If the intended course of action goes against corporate objectives, institutional values, or proven approaches leaders have learned over time, it’s not necessarily a deal breaker, but it deserves closer consideration.

The inner route: self-examination
With major decisions, it’s also important for leaders to examine their own motivations.

The first question to ask themselves is, “If no one would ever know that I was responsible for this decision, is this the choice I would make?”

Or they can be more specific by asking, “What’s in this for me personally? What am I worried about? What am I looking for”?

Are they pushing ahead because they feel the need to “do” something? Going with the safe option to avoid looking bad? Looking to get credit or to prove something?

Leaders with a good sense of their own limitations and tendencies may want to consider if they are:

• Over-preparing before acting
• Moving too quickly without considering all available options
• Overly attached to legacy products or brands
• Being influenced by their own personal history or relationships with others.

When it’s an important decision, leaders can look to both corroboration and self-examination to reinforce their confidence and help them stay the course if difficulties arise.

A bias toward action

While re-visiting the rationale for certain decisions may be essential for leaders, second-guessing themselves doesn’t have to be a chronic practice.

More often than not, a bias toward action works. Most leaders have discovered that 1) we learn by doing, whether we succeed or fail and 2) finding an effective solution often involves trying one that isn’t.

A classic example is Coca Cola’s introduction of New Coke in 1985 in response to losing market share. It’s commonly referred to as a fiasco, and certainly in the short term it was. Only 77 days after launching New Coke, the company had to re-introduce its original formula.

But the company went on to eventually gain substantial market share, in part because the New Coke fiasco revealed the strong attachment the brand had for its customers.

In the end, although the immediate results were not at all what its leaders intended, the company benefited from taking action.

We should note that Coca Cola’s decision was more easily reversible than many other major initiatives are. It didn’t involve re-tooling their production facilities, re-training staff, or changing their distribution system. They just went back to using ingredients they’d used before.

In the end, a bias toward action is usually beneficial, along with leaders’ confidence that, if problems do arise in the course of a new venture, they can be solved.

But when important decisions involve unknown risks and uncertainty, leaders can move ahead with more assurance if they’ve sought additional corroboration and filtered out subjective biases that could reduce the probability of success.

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Footnote 1

https://hub.jhu.edu/2014/12/29/decision-making-intuition/

Johns Hopkins Journal