photo: Simon Doggett via Flickr
Why are bad decisions made by capable businesses?
Business decisions are typically green-lighted, if not made directly, by seasoned people within an organization, then why is it so hit or miss? After all, isn’t decision making something that we as individuals do millions of times a day, day in and day out? Pulling together experiences, senses, and expectations into a combination that elicits, hopefully, the right action.
In fact, if you think about it from the instant that we come into the world we are making decisions. Granted those that we make in the beginning are by no means as complicated or complex as those we tackle later in life. The funniest thing is that most of us don’t understand how we do it. This leads to a high level of inconsistency, waste, and the feeling of being stuck.
The same can be said for businesses. Decisions are the essence of management – they are what we do. The only problem is that we don’t have the same level of latitude or time as we do personally to recover for monstrous fables. So what is it that we can learn about making decisions that can help stop wasting time and money?
- exceeding the status quo
- balancing risk with reward
- and, avoiding paths that justify past bad decisions
“’Decision’ implies the end of deliberation and the beginning of action.”– William Starbuck, Former Professor in Residence at the Univ. of Oregon
Sounds Great! What’s Next
Before we move forward let’s take a moment to understand what we’re up against. We can not take this endeavor lightly for the study of decision making cuts across many different disciplines – psychology, economics, and engineering to name a few – and has been a topic of interest almost since man has come into existence. Even so, studies have concluded that a path to perfectionism has eluded us because of both contextual and psychological constraints. Why is this?
- First, there is no perceivable way anyone could gather, yet rap their head around, all the variables that impact a situation.
- And secondly, people – notice I didn’t say a business – at times decide against their economic interest even when they know better primarily due to inaccurate problem framing or excessive optimism.
Risk is an Inescapable Part of Every Decision
“The art of good decision making is looking forward to and celebrating the tradeoffs, not pretending they don’t exist.”– Seth Godin
On a personal level the impact of a poor decision is usually not so disastrous that we cannot quickly reverse course.
However, on a corporate scale the implications are often exponentially greater. That’s why for business entities it’s all about limiting risk. The adoption of Lean Manufacturing principals and more recently the Lean Startup paradigm, which is used to launch and grow businesses, along with scenario planning, business forecasting, and business intelligence analysis is all an effort to calculate and manage risk.
Making Business Decisions
Yes, research studies and professional training on decision-making has existed for years. So why is it that managers reach for half-forgotten half-truths when better, proven ideas are available? Stanford professors Jeffrey Pfeffer and Robert Sutton tackle this quandary in their article “Evidence-Based Management”.
They look toward the institution of medical practice for inspiration on how to craft a repeatable decision-making process. What they find is that on average only 15% of medical decisions are evidence based. So what is it that overrides the evidence factor during the decision-making process? Studies showed that most doctors relied on long-standing but never proven traditions, obsolete knowledge gained in school, and the methods they were most skilled in applying.
I don’t think anyone would dispute us if we take a leap of faith and put out as a hypothesis that doctors are typically more up to date on their specialty’s current thinking than business managers. Then how well does that bold for businesses – aka our patients?
If you want to delve further into this suggested paradigm I suggest that you read Pfeffer and Sutton’s article. More importantly how can we go about putting this practice into reality?
Seven Business Decision Management Linchpins
Here are seven ways to introduce evidence-based management to help you make decisions faster, better, and smarter.
- Demand evidence. Whenever anyone makes a compelling claim, ask for supporting data. Don’t use unsubstantiated data.
- Examine logic. Look closely at the evidence and be sure the logic holds. Be careful of faulty cause-and-effect reasoning.
- Experiment. This is the heart of the Lean Startup concept. Conduct small experiments to test the viability of your assumptions or proposed business strategies. Create a feedback loop that uses your leanings to guide future decisions.
- Have a single point of accountability. Know whose decision it is to make. As a result the business is more decisive and can implement strategy more quickly.
- Know who is going to execute the decision and give them the latitude to make it happen. Very often, a good decision executed quickly beats a brilliant decision implemented slowly or poorly.
- Break though your bounds. At every stage of the process, misperceptions, biases, and other tricks of the mind influence our choices. Failure to recognize these limitations can have grave consequences. The cure is awareness of their existence and the desire to seek, see, and use new information.
- Learn how to be comfortable being uncomfortable. Making choices inevitably means leaving something out. Identify the key business driver(s) and focus on improving that element.
Time to Get Smart[er]
Grow your business by enhancing your ability to collect, analyze, and act on data. There is a reason that today more than ever we’re hearing about leveraging unstructured data (big data), business intelligence, and analytics. It is the lifeline of decision-making, quality information. And remember:
“The number of correct decisions we make often matters less than the relative value of those decisions.”– unknown
How are you going to use this information to become phenomenal?