Decision Making

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Decision MakingHow do effective managers make decisions? We like to see ourselves as rational, as able to weigh hard facts objectively in order to make sound decisions. The reality is that our decisions are highly influenced by subjective preferences, biases and unconscious drives.

Often, when we think we are making rational decisons, we are really just rationalizing decisions made for non-rational, if not irrational reasons. Our ability to make sound decisions is hampered by a number of factors other than our subjective preferences and feelings. We feel that we should be self-reliant and we value our independence.

This motivates us to think for ourselves and use our own view of the facts to make decisions. By not consulting others or asking for advice, we severely limit ourselves, both because we may lack much of the needed information but also because we are immersed in our own feelings and emotional needs.

In addition, decisions are often hard to make simply because there is too much that is unknown. It is not as well known as it should be that we often stumble upon a solution and then kid ourselves that we made a rational decision. That is, a lot of decisions are like deciding whether you like a certain kind of unfamiliar food. Such a decision is a matter of discovery, not of rationally weighing evidence before acting.

In other words, we often need to try things and discover the best course of action. This is how entrepreneurs behave. A famous story of such backward decision making is how Honda decided to make and sell small motor scooters in California. They first went out there to sell large motorbikes but the executives round around on small scooters. Because they got so many questions about the scooters, they decided to sell them in the first instance instead of the larger bikes.

Making Good Decisions

Emotional intelligence can help us make sound decisions because it means being aware of how our emotions influence our actions. This can help us to avoid our subjective preferences and biases to some extent. It can also help us realize when we are simply rationalizing a preference rather than taking a fully balanced view of a problem or situation.

Consulting other people or a wide range of sources can also help. Reading reviews of a product and asking for recommendations can both lead to better buying decisions for example. In business, the value of benchmarking is that we can adopt the best practices that others have proven to work.

Overly independent managers who think that the "buck stops here" and that they need to make all the key decisions on their own are more likely than others to make a number of bad decisions.

Also, recognizing that some decisions need to be discovered can help. For instance, you can't decide exactly what kind of house you would like to buy until you start looking at some. You will have a general idea of what you want but you might revise your criteria significantly when you see features you like but hadn't thought of in advance. Making career decisions also works by discovery, by trying out various kinds of work or by talking to people doing jobs that seem interesting. It is like window shopping. You decide what to buy when you discover something you like.

You can't totally control this kind of decision. It is not as simple as deciding where to go on vacation. The best you can do, when there are so many unknowns, is to put yourself in front of a number of likely options to see if something clicks for you.

Leadership and Decision Making Style

  • What is often called leadership style is really decision making style.
  • Autocratic leaders make their own decisions while participative leaders involve others in making decisions.
  • Supposedly, good leaders vary their decision making style according to the situation.
  • They make decisions unilaterally or use a degree of participation as appropriate.
  • A participative style should be used whenever employee commitment is required.
  • But commitment is nearly always critical - except with trivial decisions.
  • Also, commitment is harder to obtain with confident knowledge workers who scoff at arbitrary authority and don't respond unless involved.
  • Unilateral decisions must be made on occasion, especially when time is short. Management is very much like investment which calls for the making of smart decisions to get the best return out of all resources at the managers disposal.
  • Important decisions are increasingly made on a partnership basis - multiple expert input.
  • Today's managers need to think more about how they can coach employees and facilitate the making of sound decisions from those best positioned to make them.
  • Top executives who appear to be making unilateral decisions are, more often than not, only pulling together multiple inputs from others.
  • In any case, there is a choice to make - decide or lead. When the boss decides, that is not leading. When the decision is fully democratic, no leadership has occurred.
  • It is only when someone explicitly tries to persuade the group to make a particular decision that leadership is shown.
  • Leadership style is therefore really management style or simply decision making style.

Backwards Decision Making

  • The "rational" manager thinks...decides...acts - in that order.
  • Real world decision making is not that rational or linear.
  • Trial and error action often occurs first, followed by reflection, and only then a decision.
  • It's like house hunting - you start with some criteria, but revise them once you have seen features in houses that you hadn't thought of in adance.
  • Decision making in such cases is a process of discovery rather than one of prior thought before doing anything.
  • Consider Honda executives riding around on small motorbikes when they first arrived in California and, seeing how bystanders reacted, started selling them.
  • Managers don't admit the blind alleys they blunder down before arriving at decisions.
  • So they pretend to arrive at decisions solely through reason.
  • We often like to try something before we make our minds up about it
  • The best decisions often occur only after several mistakes are made.
  • By pretending otherwise, managers perpetuate the myth of rational decision making.
  • This makes it extremely difficult for anyone to admit mistakes.
  • If you feel ashamed because you don't make decisions in the ideally rational way, your confidence could be undermined.
  • This feeling will only make you more resolved to keep up the pretence.
  • The morale of the story is to start celebrating backwards decision making.
  • This means admitting the blind alleys we pursue enroute to decisions.
  • Entrepreneurial behaviour calls for more risk taking and improvisation anyway.
  • Struggling to think it all through  in advance of trial and error action is too risk averse.
  • Research shows that people who make decisions instinctively often make better decisions than those who painstakingly gather all the facts before committing themselves.