How To Build a Good Decision Process
After some thought, I have come to the realization that the thing in common between a founder and any other executive is quite clear: They spend their days taking lots of decisions.
And if there is a growing awareness about the need to (re)learn how to manage people, meaning to support people and to ensure the right level of communication (btw you should try Butterfly), too few people are talking about how to make good decisions.
Many people believe that making a good decision is mostly linked to someone’s ability to think analytically and creatively (“outside the box”). Many organization believe that the key is making sure that people think in groups, leading to endless live brainstorming sessions. (And the phenomenon known as Groupthink) There are also lots of (incredible) discussions between the role of intuition vs the role of more careful analysis. We’ll talk more about that part in next piece.
Individual Talent vs Process
Do the careful analysis and the individual’s creative skills matter that much? Dan Lovallo, a researcher at the University of Sydney, and Olivier Sibony, a director of McKinsey, wanted to test that. They investigated 1048 major decisions over 5 years (including product launches, M&A decision & large investments), taking into consideration both the way decisions were made and the outcome in term of revenues, profits and market share.
The researchers found that all teams conducted rigorous analysis and developed sophisticated financial models and forecasts. Yet the answer was blatant: Process mattered more than analysis — by a factor of six!
A good process lead to better analysis (for instance by revealing a faulty logic or biases) but the reverse isn’t true: “Superb analysis is useless unless the decision process gives it a fair heating.”
A good decision-making-process takes time to build. But I thought we could share with you a very useful framework that will allow you to avoid the most common errors. This framework has been developed by Dan & Chip Heath in their book Decisive.
Building Your Process
Here are four main recommendations to build a good process, with actionable tips and questions:
1. Widen The Options
Common error: Narrow Framing
It leads us to overlook options (we all tend to make “whether or not” decisions.)
Tips:
- Uncover new options and, when possible, consider them simultaneously through multi tracking. (Think AND not OR.)
- Shift between prevention focus (look for safety and responsibilities, ie: non-losses) and promotion focus (hopes and accomplishments, ie: gains).
Questions to ask ourselves:
- Where can I find new options?
- Is there someone who has already solved your problem? (First look for current bright spots (local), then best practices (regional) and then analogies from related domains (distant).
2. Reality-Test The Assumptions
Common error: Confirmation Bias
In assessing our options, we tend to collect skewed, self-serving information.
Tips:
- To combat that bias, we can ask disconfirming questions (have concrete, factual answers and do not rely on a shared reference frame). Break out filter bubbles: Seek out multiple independent points of view and don’t contaminate them by sharing data between them.
- Whenever possible we should conduct small experiments, especially when you are convinced that someone is wrong. Try an experiment and agree beforehand on the criteria for success. It may even take less time and energy than arguing to consensus.
Questions to ask ourselves:
- What if the the opposite of our assumption is true?
- What is the base-rate for this phenomenon?
- What are our specificities that could lead to a different rate?
3. Attain Distance Before Deciding
Common error: Short-term Emotion
We are often tempted to make choices that are bad in the long term.
Tips:
- When decisions are agonizing, we need to clarify our core priorities — and go on the offensive for them. To avoid that, we need to attain distance by shifting perspective.
Questions to ask ourselves:
- What would I tell my best friend to do?
- What would my successor do?
- How will we feel about it 10 minutes, 10 months & 10 years from now?
4. Prepare to be Wrong
Common error: Overconfidence
We think we know how the future will unfold when we really don’t.
Tips:
- We should prepare for bad outcomes (pre-mortem) as well as good ones (pre-parade).
- Protect yourself against disappointment (e.g. ‘realistic job interviews’ in call centres that are up-front about the level of stress and abuse lead to higher retention).
Questions to ask ourselves:
What would make us reconsider our decisions? (We can set tripwires that snap us to attention at the right moments.If X happens, then I revisit my position.)
You know what? Now you’re prepared to make excellent decisions.
