On business decision making
This article appeared in January 2019, in Romanian, in BIZ Magazine
The beginning of the new year is a good time for an analysis of last year’s decisions and for reviewing the decisions we’ll have to make in 2019. Are you ready? Let’s get to work!
Coincidentally, I write this article after I read a book about decisions, “Thinking in Bets – Making Smarter Decisions When You Don’t Have All the Facts”, written by Annie Duke, psychologist and poker champion (a surprising combination only at first glance).
Starting from a few chapters in this book and from the exercises I just did with my MBA students in the Decision-Making module, I find it useful to write about decisions in the first article for 2019. Also, I would like to promote an innovation: the interactive written press. I have inserted two exercises in the text below (you will have to answer some questions) and I encourage you to answer (honestly!) before moving on.
The past year or how we evaluate past decisions
I suggest a first exercise: What was the best decision you made in the past year? But the worst? What was the result of each? Please do not read further before answering these questions. Seriously!
You finished? OK, now you can move on. Decision-Making’s father, Herbert Simon, likened decision-making to scissors. One of the blades is represented by the qualities of the person who makes the decision, and the other by the context in which the decision is made, a context that we cannot control and which also includes important doses of chance (luck or bad luck).
Inspired by the book above, I did the same exercise in my course (MBA students are top managers, entrepreneurs, etc., so people with vast experience in making important decisions). I asked each participant to tell me what was the best and what was the worst decision they made in the past year.
Then, I asked about each decision, how it turned out. Well, the participants in my course stated that all the decisions considered good had come out excellent and all the decisions qualified as bad had ended disastrously. I bet it’s the same for you.
Decisions and resulting
This exercise validated both the existence and the expansion of a phenomenon called resulting: we judge the quality of decisions exclusively by their outcome and ignore the influence of context and chance. Obviously, there is a correlation between the quality of a decision and its outcome, but given the second blade (the context), the correlation cannot be 100%.
Because of resulting, when we are lucky and everything ends well, we don’t realize that we’ve made a bad decision. If we don’t realize that we’ve made a bad decision, we will not learn anything from it. It would be a good habit to have evaluation sessions not only after a failure, but also after a success.
Also, due to resulting, a negative result will convince us of the poor quality of our decision or that of the team, even if this is not true and we only had some bad luck. And so, we won’t repeat such a decision, which is an obviously wrong lesson.
The key to avoiding such thinking is to evaluate only half the quality of our decisions (and that of our team) after the outcome, thinking that the other half is due to factors out of our control. Let’s look, instead, at the quality of the decision-making process. In fact, the key is in a famous prayer: “God grant me the serenity to accept the things I cannot change, the courage to change the things I can, and the wisdom to know the difference”.
The next year or how we make future decisions
A new exercise: imagine that there are parliamentary elections tomorrow. Who would you vote for? And what would be the decision process? If you already have an answer to these questions, I propose a new scenario: there are parliamentary elections tomorrow. In addition, you were invited to speak on Monday in front of your son’s class (12th grade) about civic participation, democracy and elections.
Specifically, you will need to describe, based on personal experience, how citizens should choose their representatives. In this second scenario, who would you vote for tomorrow? And what would be the decision process? Isn’t the decision process different, this time? Isn’t it true that in the second scenario, knowing that you will have to explain your decision, you avoid voting negatively, you choose to investigate the candidates, read the programs, be up to date with topics of interest, etc.?
An article published in “Psychological Bulletin” (1999) by Lerner and Tetlock states that we make better decisions when we know that third parties (public, jury, students) will hold us accountable for our decisions. For example, when their opinions are unknown to us, when their interest seems legitimate to us, when they are more interested in the decision-making process than in the outcome and when we were informed of the existence of this jury before we formed any opinion.
This complex conclusion validates two things we already knew (and applied): it’s good to have a decision board and it’s good, in general, to have someone to talk to. The startups and non-profit organizations in which I am involved are the clear proof of the benefits of having a board of directors which are accountable for their decisions. Most of the time, managers themselves voluntarily apply this control mechanism for their own decisions. And they consider it very valuable.
So, if you don’t have a board, make one! A knowledgeable interlocutor (mentor, business coach, partner, friend or, in the absence of anything else, our own diary) makes us verbalize presumptions, use cognitive dissonance properly and identify biases or flawed arguments. In short, he helps us to see the reality better and to make better decisions.
It has been shown empirically (Whitte, 2007) that a structured approach to decision-making leads to better results. Consequently, whether or not you use the two mechanisms in the text above (the evaluation meeting after a success and the decision board), I think it’s good to have a well-defined decision process. I wish you a new year full of good decisions, with results to match!