As a leader, your career depends on making the right decisions – from what you say, to what you do, to how you delegate and spend resources.
“The normal state of your mind is that you have intuitive feelings and opinions about almost everything that comes your way.” ~ Daniel Kahneman, Nobel Prize laureate in Economics
We are quick to pass judgment and make snap decisions. The smarter and more educated we are, the more overconfident we are about our conclusions.
But let’s stop and think about it for a minute. Humanity doesn’t have a good track record for decision-making. Corporations are even more notorious for failed business decisions on product launches, mergers, and acquisitions.
Clearly, our brains are flawed when it comes to making sound choices. We are easily biased, prone to influence from emotions, and at times irrational without conscious awareness. And yet, we don’t often see our own reality. Or we see it only from our limited perspective. I talk about this “view from inside our heads” with my executive coaching clients. Just about everybody I know struggles with decision making.
Researchers have long studied failed business decisions to identify common stumbling blocks. Given that we’re more irrational than we’d like to believe, how can we improve the quality of our leadership decisions?
Decisions: Based on Analysis or Process?
Leaders often carefully analyze numbers to make important decisions:
- Should we launch a new product or service?
- Should we change our organizational structure?
- Should we expand to a new country?
- Should we acquire another firm?
They also consider intuitive decision processes:
- Discussion of uncertainties,
- Inclusion of contrary perspectives,
- Interviewing a range of people with other ideas, and
- Exploration of alternative ideas.
Business professor Dan Lovallo and consultant Olivier Sibony tracked more than 2,200 business decisions over five years to determine how they were made: analysis or process (“The Case for Behavioural Strategy”).
After examining outcomes (revenues, profits, and market share), they found that “process mattered more than analysis—by a factor of six.”
“Superb analysis is useless,” they concluded, “unless the decision process gives it a fair hearing.”
Yet, many business leaders are skeptical about the value of a decision process over hard-number analyses. The research is nonetheless clear – a better decision process substantially improves results and associated financial returns.