This article appeared in October 2019, in Romanian, in BIZ Magazine
Words have power. I am not writing about the (obvious) power in interpersonal communication today, but about the major and underestimated effect of articulating our own thoughts, in the dialogue with ourselves, when we make decisions. We believe that the fluid, natural way in which we decide is good enough, but I want to argue here that the simple verbalization or writing of some elements of the decision-making process can lead us to better choices.
The way we make decisions has not changed much throughout human history, the way we think we make them, however, is dependent on scientific trends. Laplace and Descartes idealized reason, generating the paradigm based on the metaphor of the brain as a computer, a paradigm that remained in operation for about two hundred years.
People thought they decided rationally or at least they should, the ideal model being lt. Commander Data from Star Trek. Psychological research from the last century has shown that most of our decisions are based on less rational mechanisms. Herbert Simon’s concept of bounded rationality in the mid-1950s, which showed that the human mind cannot calculate all variants and all probabilities, and then the research program heuristics and biases, launched by Tversky and Kahneman in the 1970s, taught us that we make a lot of decisions based on automatisms.
And that’s not necessarily a bad thing. Capt. Picard’s rather intuitive decisions always led to better results than Data’s complex algorithms. Okay, I know, Star Trek is just a movie, but recent research by German psychologist Gerd Gigerenzer has shown that often human decisions based on less information have less error than decisions based on a lot of data and complex algorithms.
When I ask participants in MSM Romania programs (adults, managers) how they make decisions, their first description is related to classic mechanisms such as pros and cons or decision trees. However, when they are asked how they chose their career, car or whether to stay in Romania, most describe processes rather instinctual or emotional, or, at most, based on a single criterion (“Salary and prospects were better if I accepted the job in France, but I realized I couldn’t take the puppy with me, so I stayed”).
As I argued above, these less rational decisions are not necessarily worse. However, the decision-making process can be improved by putting the elements of the decision into words and writing on paper, without giving up the emotional or intuitive component.
Ray Dalio describes the key to his success in his book “Principles” (he is the founder of Bridgewater, one of the largest investment firms in the world): “Experience has taught me how valuable it is to reflect on the criteria on which I make a decision and write everything down on paper”. Here’s what we can do to make better decisions:
Articulating the problem
The first step in solving a problem is to define it correctly. And this is best done in writing. Here is an example: companies die not from lack of profitability, but from cash flow problems. If a start-up sees its cash flows in the second year going into insolvency, the founders can define the problem like that: “Soon we run out of money”.
It is difficult to start from here with the diagnosis and treatment. But if founders try to put (in writing) the problem in a more precise form, such as: “In August we will need 12,000 euros to pay the X bill, and in September we will recover by collecting what we sold over the summer”, the vague problem turns into a precise need for a precise period of time, which is easy to manage.
Articulating the goal
Whether it is a negotiation, starting a company or our whole life, the articulation of the goal is very important. Writing helps in clarifying things as well. Chris Voss has an interesting book on negotiation, “Never Split the Difference”. Voss ran the FBI’s hostage negotiation department and then specialized in teaching business negotiation techniques.
At the end of the book, he offers a “cheat sheet” to prepare for any negotiation, and the most important point here is to write in advance the big purpose of the negotiation (“Why am I going to see this man?”) and the immediate goal, with good and bad scenario (“What is the best result I expect? But the worst?”).
This triple articulation gives us weapons in the subsequent argument, but, just as importantly, it mentally prepares us for negotiation. When it comes to starting a new project or even setting up a company, especially if there are several partners involved, articulating and writing down the goal is the most important preparation step and can prevent a lot of further problems.
If my goal for the start-up we want to set up is to sell after five years, and for my partner to leave it to his grandchildren, then it is better to clarify things before going to the Trade Register. What about the purpose in life? Do you have one? Can you, please, write it on paper? What are your goals for this year? But for over 10 years? The exercise of writing down our goals on paper helps not only to set and clarify, but also to increase the chances of achieving them.
There are many studies that confirm it. For example, Matthews (2015) shows that writing goals, then writing the commitments that flow from them, and then sending a weekly report (yes, all written) to a friend, doubles the chances of meeting these goals. Will you try it?
Most failed business plans are based on wrong assumptions. Major business decisions, such as the freemium pricing model inspired by the American market or the payment of those in the sales department based on individual percentage of sales, can lead to surprisingly bad results because we relied on some wrong assumptions, without realizing it.
In the above cases, these assumptions would be “What works in the United States will works for us too” and, respectively, “A potentially unlimited monthly income will motivate salespeople to maximize their effort.” In fact, reality has shown that a freemium model is more difficult to implement in Romania because, once accustomed to a free service, the local consumer prefers to give it up than to pay anything extra.
As for the sales agents, I have encountered cases in which they ensured a sufficient income by working hard until the middle of the month and then doing nothing for two weeks. The vulnerability of managers who design these business plans does not lie in the inability to analyze whether or not those assumptions are true, but in the fact that they are unaware of their existence.
If, for any new project, we write on a piece of paper: “In the planning this project I relied on the following assumptions: X, Y and Z”, we can avoid some mistakes. Assessing the assumptions can then be done by a simple mental analysis or, in more complex cases, by testing.
In such a testing exercise, my MBA students learned from existing accounting data that the (already implemented) measure to extend payment terms (hoping that they would finally receive the money on time) was based on a false assumption. By the way, what are three assumptions on which your business strategy is based? Can you write them?
When faced with a complex problem, the first thing the Romanian manager does is rush with the solution. Only one solution. Why this one? “Pff! Listen to me, it’s not for nothing that I have a hundred employees!”. If, however, the problem is approached systematically, after defining it (see above), finding the original cause and analyzing all the data we have available, then we are ready to find a “consideration set” of alternative solutions.
After that, based on defined criteria (see below), we choose the final solution. Finding a solid set (at least three) of alternative solutions requires creativity and is best done as a team. The classic method, brainstorming, can lead to the premature invalidation of ingenious solutions but insufficiently well formulated. Or to more shy participants who do not utter a word. The writing is used here as well.
An alternative to brainstorming is brainwriting, a method in which each participant proposes, on a piece of paper, three solutions, then the sheets are redistributed and each reads and improves what he found written or combined with his own ideas to generate three other solutions, and so on, in 3-5 iterations. Then, from all this, through discussion, the final set of alternatives is generated. In my experience, every time I conducted such an exercise, all participants agreed that the final set contains potential solutions much more interesting than their first ideas.
Articulating the criteria and the decision-making process
As Ray Dalio said, it is crucial to put on paper how we make the decision and the criteria we will rely on. If we have to choose a new apartment, we can go on the road without a plan, in which case we will probably choose one of the first apartments we visited because we liked the view from the balcony.
And it’s OK, we can live happily. For a better result, however, we should write a plan: “You will visit at least 10 apartments without deciding anything, to get a picture, then I will choose those that combine the criteria X, Y and Z”. The criteria can be differentiated by giving them different credit or analyzing them in order of importance: “The first criterion is the distance from the subway, if I walk more than five minutes, I don’t want to buy it”.
Even if it seems complicated (although the written plan should not be longer than this paragraph) and even if we choose everything on first impulse: “OMG! It had the kitchen that I like, I didn’t even expect to find something like that, I signed on the spot “, a plan is better than no plan.
An article published in the Psychological Bulletin in 1999 by Lerner and Tetlock states that we make better decisions when we know we will be held accountable to third parties (public, jury, board, boss, wife). If we do not have a board to help us choose the apartment, the sheet of paper on which we wrote our plan will take the role of the board and will determine us to make a better decision.
An empirical study (Whitte, 2007) showed that a structured approach to decision-making leads to better results. If we use pen and paper to articulate the problem, assumptions, alternatives, criteria, and decision-making process, it is very likely that we will reach better solutions.
On the other hand, I’m sure you knew that. The hard part is not convincing yourself that this is better, just as the hard part in quitting smoking is not convincing yourself that smoking is bad. The hardest part is implementing. In our case, a first and very easy plan for any manager is to make a decision diary, in which to write, when appropriate, what decision needs to be made and how he plans to do it. From here to the articulation of a systematic process is just perseverance. Please let me know how it went!