My qualification to talk about this subject is that in over twenty years in strategy, I have been party and witness to many decisions about important and difficult strategic issues. As some people are connoisseurs of wine or food, I have come to develop a particular interest in the act of decision making. I have come to appreciate at least some of the subtle ways that we subvert and undermine the decision process - unintentionally, this has nothing to do with politics - and reach wrong conclusions.
Businessmen are by nature and necessity pragmatic. One would not wish to change that. However pragmatism leads to at least two biases that impact strategic decision making.
1. Fact-based bias
Firstly, we like to make decisions based on facts - nothing wrong there. Indeed my firm, Bain, has a favourite saying that, 'facts are our friends'. However, there is a problem - we cannot wait for all the facts to be in before reaching strategic decisions. Why? Because others will have moved before us, and the game will be over. As military strategists tell us, most battles in history are decided before the first shot is fired. The side that has correctly chosen where and how to fight, wins.
In other words, to make strategic decisions, we need to be guided by a 'theory' that allows us to act before all the facts are in. Theory is, at best, viewed with suspicion by many businesspeople. It should not be. A causal theory about the future - 'if we do this, then the following will happen' - lies at the heart of strategic decision making. We cannot wait for all the facts.
2. 'Cut-through' bias
The second consequence of a pragmatic mindset is that it drives people to 'cut-through' and jump to a decision, by making a call. It is the other side of the fact-based bias. We wait for the facts, get impatient and cut-through.
Again, there is nothing wrong with cutting-through. Indeed the word 'decision' derives from the Latin root meaning 'to cut'. But it is risky. Unless it is done with great skill, it can lead to wrong decisions. Following are the traps that people fall into.
Trap one - over-simplification
Few strategic decisions are not complex, at least at the outset of the decision-making process. Complex in the sense that there are many moving parts, which are interrelated in ways that are not always apparent. Complex also in that we never have all the facts and certain risks are unquantifiable and unknowable.
The trick is to have all the facts and factors that can be gathered in one's head at the same time. In other words, to have the whole problem in one's head. This is hard work. Chesterton had it right when he wrote 'man will go to almost any lengths to avoid the real work of thinking'. The simple act of keeping all the facts of a complex problem together is undeniably hard work. We keep forgetting bits. But it is in the interrelationships between various facts that the solution lies. If we have partial facts, with unexplored second and third order consequences, we over-simplify the problem. Many decisions are made through over-simplification, based on the facts that are remembered at the point of making the decision.
Trap two - embedded assumptions
Every decision we make is supported by assumptions - about facts, about competitive and customer reactions, and about the needs and interests of other parties. When these assumptions are visible to us, we can test them in discussion with others. It is when they are subconscious - embedded - that they are dangerous. Many decisions are based on embedded assumptions that are not discussed, assumptions that often turn out to be wrong.
Trap three - incomplete criteria
We choose between options based on decision criteria. Thinking hard in an explicit way about what the correct set of criteria is and how each option should be weighted against the criteria is fundamental to good decision making. If we do not do this explicitly, poor judgement is the likely result. In practice many important decisions are made without an explicit, agreed set of criteria.
It is sobering to realise how limited our natural capacity is to make correct decisions in complex situations. The research is quite clear on this. Unless we have explicit ways to step through the complexity, we make mistakes. Strategic decisions will have multiple options, to be tested against multiple criteria. The weightings of the criteria will be critical - and people will disagree about the correct weightings. The scoring of the different options against the criteria is critical, and is moreover likely to be different over different time periods. So we have multiple options, multiple criteria, multiple weightings and multiple time periods. The human brain cannot reliably cope with such levels of complexity.
In these circumstances, a formal, explicit process will yield a surer judgement. At Bain we have come to use an analytic tool called 'Think Tools', developed at the Max Planck Institute in Germany, to help provide this rigour.
To avoid these traps, make the decision process visible. Work hard to consider the whole problem at the same time. This provides a great incentive to expedite the process. Identify important embedded assumptions. And spend real time talking through the decision criteria, weightings and scoring. This way, the decision process will do justice to the hard work done in fact gathering and analysis. Better decisions are the expected result.
