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How To Make Better Decisions

 


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"The more important a decision, the more important it is that it not be left in the hands of a single person. " - James Surowiecki (1)

Paul Van Riper, a retired Marine Lieutenant General, is famous in military circles for out-thinking and beating the Pentagon's battlefield decision support system during war game exercises. He once tried an experiment to test his theory that there were better ways to make decisions than the military's top-down approach. Van Riper got a group of marines, trained in the military's rational decision-making techniques, to compete in a trading simulation game with traders on the New York Mercantile Exchange. The instinctive traders wiped the floor with the methodical marines. When they tried the same with war games back at the marines’ HQ. . . the traders wiped the floor with the Marines there, too. (2)

LESS IS MORE

The lesson Van Riper learned is that, in fast-moving situations, a decision based on 80% of the information plus informed intuition is often far better than waiting for a 100% informed solution. By the time your perfect information has been gathered, the world has moved on. “Decisions don't wait; investment decisions or personal decisions don't wait for that picture to be clarified, " as Andy Grove, employee number 3 of Intel put it. (3)

ON THE OTHER HAND

Leaders often assume they have to make decisions quickly, that lingering over decision-making indicates weakness. This is particularly true of leaders in new positions who have read all the literature telling them to make an impact in the first ninety days and who want to stamp their mark as a decisive leader. But, former New York Mayor Rudy Giuliani advises us not to make decisions until you have to. The ability to reflect and ponder outcomes before acting is a sign of strength, not weakness, he stresses:

"One of the trickiest elements of decision-making is working out not what, but when. Regardless of how much time exists before a decision must be made, I never make up my mind until I have to. Faced with any important decision, I always envision how each alternative will play out before I make it. During this process, I'm not afraid to change my mind a few times. Many are tempted to decide an issue simply to end the discomfort of indecision. However, the longer you have to make a decision, the more mature and well-reasoned that decision should be. " (4)

DECISION MARKETS

The very phrase ‘group decision-making’ probably has you reaching for the Scotch and shaking your head in despair. The objections are well-rehearsed: nobody built a statue to a committee, consensus decisions are inherently weak, ‘group think’ is slow and herd-like. And yet, and yet. . . the received wisdom on this may now be past its sell-by date. The Boeing 777 jet airliner emerged from an exercise in group decision-making to help identify where Boeing should go next. See the work on participative leadership through critical mass interventions described later in this book.

SMART GROUPS

Using ‘smart groups’ as a decision-support mechanism brings the power of the market into your organization. Hewlett-Packard and Innocentive, a spin-off of Eli Lilley, have both experimented with the smart groups principle to create internal decision markets, tasked with predicting which products would win out in the marketplace. The markets - made up of a diverse group of employees from across each business - out-performed the decisions made by the companies’ leaders.

Smart groups do not consist of particularly smart or expert individuals. They are a cross-section of people. James Surowiecki (1) has explained the four conditions that allow a group to be smart:

Smart groups beat individual decisions if they have

1. Diversity of opinion (each person should have some private information, even if it's just an eccentric interpretation of the known facts)

2. Independence (people's opinions are not determined by the opinions of those around them)

3. De-centralization (people are able to specialize and draw on local knowledge)

4. Aggregation (some mechanism exists for turning private judgements into collective decision)

The mathematical principle is simple, says Surowiecki: “Ask a hundred people to answer a question or solve a problem and the average answer will often be at least as good as the answer of the smartest member. With most things, the average is mediocrity. With decision-making, it's often excellence. "

USEFUL CONCEPT

OODA Loops. Stands for Observe, Orientate, Decide, Act. A decision-making system developed by fighter pilot John Boyd. If you are steeped in a fast-changing environment, rather than distant from it, said Boyd you ‘wick up’ information like an oil lamp and your resulting fast decision-making is more likely to be right (5). Yet few top leaders spend a significant amount of time out where the action is, absorbing information through their pores, instead of through reports.

SOURCES & FURTHER READING

This article is adapted from Phil Dourado's book The 60 Second Leader: Everything you need to know about leadership, in one minute bites, published by Capstone / John Wiley & Sons, 2007. Available from http://www.amazon.com or http://www.amazon.co.uk

(1) The Wisdom of Crowds: Why the Many Are Smarter Than the Few James Surowiecki. Especially powerful are the last few pages of Chapter 10, which give detail of how the HP and Innocentive internal decision markets worked
(2) Sources of Power Gary Klein's classic book on decision-making, with a slightly misleading title. Klein studied nurses, fire fighters and others who make fast decisions under pressure.
(3) Decisions Don't Wait, a paper in the Harvard Management Update, January 2003, in which Clayton Christensen and other Harvard faculty members interview Andy Grove of Intel.
(4) Leadership, Rudy Giuliani
(5) Boyd: The fighter pilot who changed the art of war

Robert Coram's biography of the fascinating John Boyd.

Article copyright (c) Phil Dourado

FREE ONLINE LEADERSHIP COMMUNITY CREATED BY PHIL DOURADO
http://www.TheLeadershipHub.com

AUTHOR'S WEBSITE INCLUDING FREE DOWNLOADABLE BOOK ‘THE LITTLE BOOK OF LEADERSHIP'
http://www.PhilDourado.com

(1032)

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