In 1984, Bill Cosby approached ABC TV in the US seeking to pitch a new show about an upwardly mobile black family. ABC executives thought about it for a while but eventually turned him down. The rest is history, of course. Cosby later sold his idea – The Cosby Show – to NBC where it remained the number one show for four straight years, was a ratings winner for much longer, helped to lift NBC to first place nationwide and was the most profitable series ever made.
Every manager makes bad decisions from time to time, so missing out on one series, no matter how successful, is going to happen at some point to a TV executive. That said, poor management decision-making is a bigger problem than you might think across large and small businesses alike. In his important book, Why Decisions Fail, Paul Nutt highlighted just how problematic it is by reporting on a study of nearly 400 business decisions made by senior managers in medium to large organisations which resulted in the alarming statistic that half the decisions made were not up to scratch because “either they were not able to withstand the uncertainty, conflict, or change common in the work environment, or they could not elicit the buy-in necessary to make them stick.” This kind of indictment of managerial decision-making crops up in study after study; it’s not an isolated finding, nor is it an exaggeration to say that many decisions fail in the workplace.
In Nutt’s findings, the causes of the bad decisions included:
- The decision-making process itself was flawed; in addition, little analysis was undertaken as to the shortcomings within the process meaning that the same failures occurred time after time.
- Decision-makers based many decisions on prior commitments. In other words, they arrived at a conclusion first and the decision-making process was designed to justify that conclusion. Essentially, they put the cart before the horse.
- Decision-makers spent time and money on the wrong things, tasks that did not add value to making the best possible decision.
Given the importance of decision-making for any manager, this is an area of competence well worth reflecting upon. One commonly asked question here is what role does, or should, gut feeling play in decision-making? So, that’s perhaps a good place to start.
1. Gut feeling is good … or is it?
You may already know that in the weeks and months immediately after the attacks of 9/11, air travel within the US fell by up to 20%, whereas road travel increased dramatically. People, out of fear, and perhaps as a result of the mass hysteria that understandably took over at that time, followed their gut instinct and chose not to fly; this was likely to be the safer option they assumed. As it happened, that wasn’t accurate. Not by a long shot. Travelling long distances by car is infinitely more dangerous than covering the same distance by plane. All the statistics confirm this. What’s more, Gerd Gigerenzer, a German expert on risk, later calculated that over 1,500 additional Americans died on US roads in the year after 9/11 than would normally be the case. It turns out that the ‘gut feeling’ decision – avoid flying at all costs – was incorrect in this instance because it was largely driven by fear; those who took the rational decision and believed that flying was actually likely to be safer than before, due to heightened security, turned out to have made the better choice.
To a greater or lesser degree, we all use gut feelings to support decision-making. And we all know too that we should not over rely upon it, especially when it is driven by irrational forces. Particularly in business life, depending solely on intuition can prove fatal. Still, we all have examples of decisions taken in the past which were based on instinct alone and that turned out to be great choices, so is there any guide to help us to decide when gut feeling is good?
Andrew Campbell and Jo Whitehead, directors of London’s Ashridge Strategic Management Centre, writing in the McKinsey Quarterly, provide some guidance on that question. The authors make several interesting points. First, the general thrust of their article is that we cannot prevent gut instinct from influencing our judgements, but what we need to do is to identify situations where it is likely to be biased and then strengthen the decision-making process to counterbalance the resulting risk. In other words, to protect decisions against bias, we first need to know when we can trust our gut feelings and be confident that they are drawing on appropriate experiences and emotions. According to Campbell and Whitehead, there are four tests to assist in this:
(a) Have you experienced similar (and comparable) situations before?
They provide an example to illustrate this test. General Matthew Broderick, an official at the US Department of Homeland Security, made a decision on 29 August 2005 to delay initiating the Federal response following Hurricane Katrina. He did so because he had previous experience of hurricanes and felt that it was worth waiting to see whether the levees had been breached and, as a result, how much danger people really faced in New Orleans. He felt that, as he was familiar with hurricanes in the past, he knew what he was doing. Unfortunately, Broderick’s previous experience with hurricanes was in cities above sea level. His delayed response, based on his gut instinct, proved disastrous because it did not result from analysing like-for-like experiences. Familiarity is important because our subconscious works on pattern recognition; if we have plenty of appropriate memories to scan, our judgement is likely to be sound, but they have to be comparable experiences.
(b) How effective were past decisions taken – do you know, did you get the necessary feedback?
Previous experience is useful to us but only if we have actually learned the right lessons. When we make a decision, our brains ‘tag’ it with a positive emotion – recording it as a good judgement. However, only subsequent feedback can verify whether it actually was or not. According to Campbell and Whitehead, the question is whether we always get that feedback. There are lots of reasons we may not. Perhaps we change positions, or even companies, before the outcomes of our decisions can be measured. We may simply move on without knowing, or checking; or, it might result from the fact that some managers have people around them – intentionally or otherwise – who filter the information they receive, or protect them from bad news so they might not actually get the feedback they need. As a result of such factors, we could continue to believe that a past decision was the correct one and naturally this feeds into future gut decisions we make.
(c) What are your emotional triggers associated with this decision?
All memories come with emotional triggers, but some are more highly charged than others. A simple example was again used by Campbell and Whitehead in their article to highlight this key consideration. If a situation brings to mind highly charged emotions then these can unbalance our judgement. Knowing dogs can bite is very different from having had a traumatic childhood experience with dogs. The first will help you interact with dogs in a positive way: you always know to be a bit wary. The second can make you afraid of even the friendliest dog to the extent that you are frozen by irrational fears; this is similar to what happened in the case of the post 9/11 travel decisions mentioned above. In terms of potential impact on decision-making, a second example here could be if you had been unfortunate enough to lose significant amounts of money on property investment in the past, and the emotional effect that would likely have on you. How might such a loss influence your ‘gut’ decisions in relation to any future property investment opportunities that were to arise?
(d) Do you have any inappropriate personal interests or attachments associated with this decision
When there is a personal connection to the outcomes of a decision then this has implications for whether we can trust our gut instinct. Campbell and Whitehead offer the following example. If you are trying to decide between two office locations for your company, one of which was much more personally convenient, you should be cautious, as your subconscious will have more positive emotional associations for the personally more appealing location than the alternative. It is for this reason that it is standard practice to ask those with self-interest in a particular decision to refrain from voting.
The authors’ conclusion is that unless your gut decisions can pass all four tests then you need to strengthen the decision process to reduce the risk of a bad outcome. They also add:
“If we are to make better decisions, we need to be thoughtful both about why our gut instincts might let us down and what the best safeguard is in each situation. We should never ignore our gut. But we should know when to rely on it and when to safeguard against it.”
2. Improving how you think about issues
If you analyse your typical day, what opportunities do you have for ‘thinking’ time, in the sense that you can sit quietly and refl ect at length upon an issue without disruption? Not a whole lot if you are like most managers. In fact, for many, the only meaningful time for refl ection comes aft er the day’s work is done, when they are tired and least primed for thinking effectively. So, the first thing you can do to improve your capacity for thinking is to actually make time and space for it. A second step is to broaden how you think about matters at hand, and this can start when you involve others in the decision-making process. Too often we make decisions in isolation because it is quicker, or doing so enables us to retain control, but no single individual has the capacity to make all important decisions successfully on their own. Input from relevant parties is always valuable, and the bigger the problem, the more input needed. When you are collectively exploring any problem or challenge, in terms of broadening the thought process, you need to try to take a more ‘holistic’ view of the matter. By nature we all have different ways of looking at issues: rational or emotional, optimistic versus pessimistic, unimaginative or creative. Added to that, certain individuals are more comfortable with facts and figures while others thrive on uncertainty and gut feeling. The trick when making decisions is to try to bring as many of these perspectives as possible into play, and this can be achieved by using a variety of questions to stimulate your discussions and analysis.
Depending upon the specific issue, such questions might include:
What do we know about this? Where’s the evidence for that assumption?
What has happened in the past when comparable decisions were made?
What will this cost? What will the projected return be?
Can we aff ord to do/not to do this?
What might we have missed out on here?
Do we have all the facts we need?
What opportunities does this present us with? What other potential might arise?
What benefi ts will this bring?
How can we maximise those positive outcomes?
Why can’t/shouldn’t we do this?
What prevents us progressing on this? What’s the downside?
Why won’t this work for us?
What could happen if we get this decision wrong?
What’s your gut feeling?
How excited are you about this?
What’s scary about progressing with this?
Why not just stick with the status quo?
What other ways could we approach this?
What’s new in this area?
If you had a blank sheet of paper, how would you design this?
In a perfect world, how would the solution work?
This questioning approach encourages you to consider all angles associated with any potential decision of importance that you might take, and it doesn’t require a genius to understand that individuals and teams that do take the broader view tend to make sounder and more resilient decisions than would otherwise be the case.
3. Have a decision-making process
As with any important management activity, decision-making should be structured. Along with applying an approach such as the holistic questioning model above, your route map for making decisions should be clearly defined. The following framework is widely used:
Establish all the facts
Consider all the options
Evaluate the effects of each option
Evaluate the advantages and disadvantages associated with each option, benefit analysis for each.
Identify the downsides for each alternative and how they might be mitigated.
Select and implement the best option
You might not suddenly become a better decision-maker overnight, but you can increase your potential to do so. Making time for thinking, investing in it as a process and using tried and tested techniques, will help you, and your people, to broaden the parameters for how you examine given subjects; after all, considering all the constraints you operate under these days, every decision you take has to be a good one. And you don’t have to be Einstein to understand what he meant when he said “The important thing is not to stop questioning. Curiosity has its own reason for existing.”
A good starting point is to be curious about how you think and make decisions at present.
Enjoy your day!
 Nutt, Why Decisions Fail: Avoiding the Blunders and Traps That Lead To Debacles (Berrett-Koehler 2002).
 Reprinted with permission of the publisher from Why Decisions Fail: Avoiding the Blunders and Traps That Lead To Debacles, © 2002 by Paul C. Nutt, Berrett-Koehler Publishers, Inc., San Francisco, CA. All rights reserved. www.bkconnection.com [This is the citation they wanted for the extract]
 Gigerenzer, “Dread Risk, September 11, and Fatal Traffic Accidents”, (2004) 15 (4) Psychological Science, pp. 286-287.
 Campbell and Whitehead, “How To Test Your Decision-Making Instincts”, (2010) March McKinsey Quarterly.
 Campbell and Whitehead, “How To Test Your Decision-Making Instincts”, (2010) March McKinsey Quarterly.