A checklist for decision-making
The ways in which humans can be triggered into making irrational decisions are many and varied. Investors make higher bids for stocks when the sun is shining. If you add paper packaging to a product wrapped in plastic, people will perceive it as being more environmentally friendly than the same product without paper. The act of sharing an article makes people feel more knowledgeable: people who read a story on investing and share it are likely to take more risk in investment decisions than those who read the same article but do not pass it on. It’s a wonder the species has done as well as it has.
In an ideal world, individuals would correct for their own biases when they make decisions. Good luck with that, says Olivier Sibony, who studies decision-making at HEC Paris, a business school. A distinguishing feature of biases is that people are unaware of them. “If I show you a visual illusion and you fall for it, you would never say ‘I will watch out and I will never fall for any visual illusion again.’” Instead, it’s up to organisations to encourage better decision-making, the subject of the latest episode of our Boss Class podcast. That means asking three questions in particular.
The first is what kind of decision is being taken. When he was leading Amazon, Jeff Bezos used the idea of one-way and two-way doors to separate decisions into two categories. A one-way door is a big decision which is hard to reverse and should absorb more thought. A two-way door is a decision where changing course is not that difficult and it’s better to move fast even if mistakes are made. (A revolving door is presumably for people who never come to a decision at all.)
Whatever vocabulary you choose, it’s useful to think about the costs of botching a decision and to calibrate things accordingly. Michelle Gass, now the chief executive of Levi Strauss & Co, was one of the team at Starbucks that gave the world the pumpkin spice latte. In focus groups, consumers balked at the idea of a beverage full of pumpkin. Inside the coffee company, confidence was much higher that the firm was onto a winner, and they decided to press ahead. “Very few things have irreparable consequences if you’re wrong,” says Ms Gass.
Having a sorting mechanism like this works only if bosses have a reasonably high tolerance for reversing course if mistakes are made. But it does mean the pace of decision-making can increase.
The second question is who is taking the decision. Disagreements can quickly lead to an impasse unless someone has the authority to make the choice. There are lots of formal frameworks designed to specify decision-making roles. RAPID stands for Recommend, Agree, Perform, Input and Decide (this is not actually the order in which things happen but in management, acronyms always trump logic).
The RACI framework makes tremendously confusing distinctions between people who are responsible, accountable, consulted and informed.
Even then, decisions can end up being countermanded by someone higher up the ladder (a framework informally known as BIG CHEESE). So an awful lot depends on whether bosses are willing to live with decisions if they disagree with them. Supercell, a Finnish mobile-games company responsible for titles such as “Clash of Clans”, preaches the gospel of autonomy. Games teams are able to kill off new titles unilaterally before they get into users’ hands, even if games have been years in the making. That degree of decentralisation will not appeal to everyone, but the clarity over where decision rights really lie is something to replicate.
The final question is how to reach your decision. Should it follow a codified process? Should there be structured ways to gather opposing views? Should it involve a pre-mortem, which asks people to imagine the things that are likely to cause a decision to turn out badly? For strategic choices, the answer to all these questions and more is probably “yes”. However a decision is made, some rules are better than none. “When you wash your hands, you don’t know specifically which virus or bacterium you are washing away, but you know it’s a good idea,” says Mr Sibony. A process makes big decisions more hygienic, too.
In an ideal world, individuals would correct for their own biases when they make decisions. Good luck with that, says Olivier Sibony, who studies decision-making at HEC Paris, a business school. A distinguishing feature of biases is that people are unaware of them. “If I show you a visual illusion and you fall for it, you would never say ‘I will watch out and I will never fall for any visual illusion again.’” Instead, it’s up to organisations to encourage better decision-making, the subject of the latest episode of our Boss Class podcast. That means asking three questions in particular.
The first is what kind of decision is being taken. When he was leading Amazon, Jeff Bezos used the idea of one-way and two-way doors to separate decisions into two categories. A one-way door is a big decision which is hard to reverse and should absorb more thought. A two-way door is a decision where changing course is not that difficult and it’s better to move fast even if mistakes are made. (A revolving door is presumably for people who never come to a decision at all.)
Whatever vocabulary you choose, it’s useful to think about the costs of botching a decision and to calibrate things accordingly. Michelle Gass, now the chief executive of Levi Strauss & Co, was one of the team at Starbucks that gave the world the pumpkin spice latte. In focus groups, consumers balked at the idea of a beverage full of pumpkin. Inside the coffee company, confidence was much higher that the firm was onto a winner, and they decided to press ahead. “Very few things have irreparable consequences if you’re wrong,” says Ms Gass.
Having a sorting mechanism like this works only if bosses have a reasonably high tolerance for reversing course if mistakes are made. But it does mean the pace of decision-making can increase.
The second question is who is taking the decision. Disagreements can quickly lead to an impasse unless someone has the authority to make the choice. There are lots of formal frameworks designed to specify decision-making roles. RAPID stands for Recommend, Agree, Perform, Input and Decide (this is not actually the order in which things happen but in management, acronyms always trump logic).
The RACI framework makes tremendously confusing distinctions between people who are responsible, accountable, consulted and informed.
Even then, decisions can end up being countermanded by someone higher up the ladder (a framework informally known as BIG CHEESE). So an awful lot depends on whether bosses are willing to live with decisions if they disagree with them. Supercell, a Finnish mobile-games company responsible for titles such as “Clash of Clans”, preaches the gospel of autonomy. Games teams are able to kill off new titles unilaterally before they get into users’ hands, even if games have been years in the making. That degree of decentralisation will not appeal to everyone, but the clarity over where decision rights really lie is something to replicate.
The final question is how to reach your decision. Should it follow a codified process? Should there be structured ways to gather opposing views? Should it involve a pre-mortem, which asks people to imagine the things that are likely to cause a decision to turn out badly? For strategic choices, the answer to all these questions and more is probably “yes”. However a decision is made, some rules are better than none. “When you wash your hands, you don’t know specifically which virus or bacterium you are washing away, but you know it’s a good idea,” says Mr Sibony. A process makes big decisions more hygienic, too.
Source: The Economist, Business | Bartleby