Making Good Decisions

In a recent McKinsey Quarterly survey of over 2,200 executives, less than a third said the quality of their decisions was “generally good,” almost two-thirds thought bad decisions were “as frequent as good ones” and the remaining 12% felt good decisions were “altogether infrequent.” How do you feel about the quality of choices made in your enterprise?

History is replete with examples of bad decisions. Why? In simple terms, the process employed is flawed. Good information may go in but poor decisions frequently come out. What happens in between? Maybe it’s an inability to manage air time and big egos when tough choices are needed. Many executives allow the insights of a few eloquent, assertive or senior people to dominate the conversation. Not everyone is encouraged or even expected to provide input or pull their weight.

Schisms and fault lines develop around demographics, status differences and group dynamics: older vs. younger, engineers vs. accountants, introverts vs. extroverts, females vs. males. Executives do like to defer to expert opinions (a hard-wired aberration that overvalues presumed authorities) and everyone succumbs to confirmation bias – believing what we already know despite evidence to the contrary. Understanding our biases doesn’t make us immune to them.

Apart from individual traits, group behaviours severely undermine the ability to make good decisions. Silo thinking, while sometimes efficient, can fail to acknowledge the enterprise as an integrated entity and thus overrides the organization’s central strategic direction. Too many leaders force or manufacture collective agreement and fail to embrace and formalize the notion of advocating alternatives (by utilizing decision-altering tools like pre-mortems, scenario forecasting and business case thinking).

Decision makers often downplay the potential costs and consequences of risk. This can result from overconfidence (derived from past successes), sunk costs (too much already invested to let go of perceived opportunities), rigid communication protocols (that impede information transfer) or a preference for analytical data over intuition and gut feelings.

Is putting one’s faith in disciplined analysis better than listening to your gut? Hunches also constitute data. Years ago, Richard Dean and Henry Mintzberg concluded that “the most brilliant business decisions tend to come from the gut.” The practical implications of their seminal study are profound. We now know that in complex or chaotic situations, such as those arising from today’s brutally competitive but unpredictable global marketplace, intuition usually beats rational analysis.

A study of over 1,000 “major” business calls during a span of five years found that most decisions were not made on “gut calls” but rather were the result of rigorous analysis. The authors noted that “Contrary to what one might assume, good analysis in the hands of managers who have good judgment doesn’t naturally yield good decisions.” In sum, the study determined that the gut-call process mattered more than analysis “by a factor of six.”

Does Warren Buffet, arguably one of the best investors on the planet, prefer quantitative analysis over common sense? Here’s his answer: “I have no use whatsoever for projections or forecasts. They create an illusion of apparent precision. The more meticulous they are, the more concerned you should be. We never look at projections .…” His highly regarded lieutenant, Charlie Munger, adds: “(Detailed analyses) are put together by people who have an interest in a particular outcome, have a subconscious bias, and its apparent precision makes it fallacious.”

Analysis can certainly be helpful when given a fair hearing among other inputs. Good decisions require sharing, unfettered candour and respectful dissent. The warning signs of insufficient frankness and non-constructive dialogue are detected by asking questions. Do subordinates wait for cues from leaders before commenting on controversial issues? Do the same people tend to dominate discussions? Are the participants highly concerned about “following rules” when communicating across or up the chain of command?

Situations in which the rules supply all the right answers are becoming an endangered species in corporate decision making (and just about everywhere else). More and more, all you can do is admit you simply don’t know and go with your gut. Albert Einstein said “The intuitive mind is a sacred gift and the rational mind is a faithful servant. We have created a society that honours the servant and has forgotten the gift.”

Leaders determine how decisions are made. They must be directive on the process but non-directive on the content of discussions. They must establish a road map for making smart choices and insist these behaviours be emulated, particularly by the executive team. The objective must be contrarian but constructive dialogue and appropriately articulated dissent.

A good decision-making process encourages the expression of alternatives in an environment of emotional safety. It ensures that all assumptions and risks are made explicit, then reality tested. It solicits broad, not narrow, perspectives. The role of devil’s advocacy is encouraged, real, respected and formalized. Experts are never accorded undue deference – their views are simply that. Opportunities are provided to hear outside, objective, proven, unbiased counsel. Discussants are skeptical generalists, not positional advocates.