February 1

Improve Your Strategic Decisions with Three Actions

Decision-Making Process

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Knowing more about how managers decide has changed the way I participate in strategy discussions. I listen for different cues; share my trains of thought so that others can follow; and always include long term feasibility. Others tell me that it helps to clarify their thinking and leads to balanced decisions.

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Humans Are Error Prone

Decision-making in management teams is a group process: that means that error making can get quadratic proportions. One manager brings faulty facts to the table, that get misinterpreted by another, and a third is biased in his opinion. It's a miracle that so many decisions go right. It's tough to listen, fact-check, assumption-bust, bias-buffer, and think of an answer at the same time. Unintentionally, errors slip in. 

Experts make fewer mistakes and are faster deciders. That is partly due to the way their reference frame has developed over time. Instead of making serial deliberations, they quickly combine key constructs: a combination of indicative facts and decision-making rules.

Develop Key Constructs

Experts develop key constructs: combinations of indicators and decision-making rules. Using key constructs means that they can be faster and more accurate decision-makers. We can accelerate key construct development by:  

  1. Reflecting on past decisions in their context
  2. Developing hypotheses on cause, effect, and appropriate response options
  3. Pinpointing the cue that signals the emergence of the cause (advance cue)
  4. Actively trying to falsify hypotheses

Example of Expert Decision Making

There is this famous experiment with Ronaldo scoring goals in the dark while others couldn't even guess the ball's trajectory. For the life of him, Ronaldo couldn't tell you why and how. He "just" scored.

They made a video of Ronaldo scoring in the dark and its amazing (see insert below). Watch it in its entirety if you have time or go to the bit where Ronaldo scores in the dark: at 20:30 minutes in.

How to Predict Ball Trajectory

The high speed of soccer frequently leaves very little time for decision-making. So, players have to deduce the direction of the ball as early as possible. Expert players can make earlier and more precise predictions on ball trajectories, based on the posture of their opponents. This skill is known as the advance cue usage.

Watch Ronaldo Score in the Dark (20:30")

Scientists have tried to find  out how Ronaldo does it (here is the paper). This type of reflex-like decision-making is hard to explore, because the response action is taken before the decision has reached consciousness. It's not a deliberate process, but more like the rules of thumb all of us, executives included, develop. Rules like: "A broker must generate sales of ten times his salary", or " Use less than 10% of the credit that's available to you". We call those rules of thumb heuristics.

1. Heuristics Outperform Rational Deliberations, But...

Managers use heuristics for extremely fast, reflex-like decision-making. We develop heuristics on experiences of success and failure. The grounding of rules in actual experience usually ensures that heuristic decision-making is just as accurate as and a lot faster than the more rational deliberations we tend to favor. That's why successful executives are reinforced time and again to use their gut-feeling. Gut-feeling being the pre-conscious use of heuristics; a very advanced stage of the same advance cue usage that Ronaldo exhibited in the video.

But NOT in Foresight

Rules of thumb or heuristics can go awry in situations where information is missing, hidden, or misinterpreted. This is the case in most strategic decisions, because these decisions are forward looking. The future is a synonym for incomplete information, because many aspects of the future state (decision effects) are not known and too complex to predict.

Two other aspects of heuristic decision-making can lead to bad foresight as well. The first is decision-making bias and the second is Freudian slips. I will discuss these aspects below, but first up is missed data.

⦿ Missing Data

Incomplete information sets us off wrong. Like, for example, it wouldn't make sense to jump near a sleeping snake for you might wake him. This is what happens if heuristics kick in too soon:

  • We catch a glimpse of the situation and recognize a familiar cue (snake shape)
  • The heuristics kick in (jump)
  • Unpleasant surprise (snake  wakes up and bites)
  • We find out that we started from a wrong assumption, because the cue did not tell the whole story (we missed that the snake was asleep)
heuristic going wrong

Missing data is more rule than exception in forward looking decisions, because the future is an unknown. However, this innate trait of the future is just one cause of missing data. 

⦿ Missed Data

Our own focus and beliefs are another main cause of missing (or rather: missed) data. When managers are focused on the day-to-day business, long-term developments are banned to the periphery. This means that long-term decision-making requires managers to take a step back from their focus and reexamine the wider environment.

Focus plays a large role in the development of our reference frames. We learn from our successes and mistakes, and these occur mostly within our focus. Therefore, our reference frame holds much information about the business within our focus and much less about the rest. That is a problem for strategic decisions.

The way we interpret new developments is by  matching new information to our reference frame. This is an automatic lookup of similarities. When a match is found, we interpret the new information by comparing it to its counterpart within our frame. This serves as a baseline and the new information is seen as relative to the baseline in our frame. Matching means that we can only see or interpret information that is partly known. We cannot match entirely new phenomena. This is one of the reasons why we don't detect disruption until is late in the day. We need to familiarize ourselves first, by repeated exposure to multiple perspectives on the new phenomenon.

Collect and Synthesize New Perspectives

Like the way you familiarize yourself with a new city (by picking landmarks and filling in a mental map between these landmarks), familiarize yourself to new strategic phenomena. In this case, landmarks are the perspectives of others on the phenomenon. Finding similarities, differences and links between these perspectives will help you to see and interpret disruptions

⦿ Decision-Making Bias

Decision-making biases are always risky, because we are seldom aware that we are biased. Besides, research shows that even the awareness that we are bias prone does not reduce bias.

On the other hand, being biased does not mean that you make bad decisions. However, the odds are that you will if you don't pay attention to your own train of thought and implicit assumptions. Consider this bias: the more you hear about a certain trend, the more important you think it is (availability bias).

But hearing about a trend from multiple sources can also mean that media are parroting each other. This is the problem with fake news on social media,  with industry rumors, and with any professional who does not check her sources or assumptions.

⦿ Freudian Slips in Reasoning

At a retail conference, I heard a speaker declare that we'd have to follow his advice because many others had done so. That we'd have to change because he'd seen a trend manifest itself so often. That media agreed with him. It's like buying a red car because many people do and the salesperson thinks it good advice since he has seen it advertised so often. I mean, really. (My apologies to red car owners; red's awesome).

I don't want to ridicule the speaker involved, absolutely not. I know that my own heuristics and biases shine through my keynote as well. But because I am aware of this, I never tell you what to do. I do ask you to think critically before you act. Rules of thumb do serve a purpose. But not blindly, that's the point.

Listen for Different Cues

When you listen to the discussion, focus less on developing our opinion. Instead, focus on missing data, biases, and Freudian slips. Address these in the discussion by respectfully asking for clarification, evidence, and implicit assumptions.

Experience the Difference

Do the following experiment to get a feel for the difference between listening as you usually do and listening for missing data, biases, and slips. Listen to the news closely, for instance on your way to work. Put your detective ears on and listen to how people talk, not to what they try to convey. Train those ears with these three observational questions:

  • What words does the reporter use to prove a point? Does he use words like many, often, or always? Or does he present data?
  • Is the reporter clear on the meaning of percentages as evidence? For example: 20% chance of rain. What does that mean? (find out at the bottom of the article)
    • Rain on 20% of the forecast period?
    • Rain during 20% of the day in the whole country?
    • All day, but only in 20% of the country?
    • Rain on 20% of the days with exactly the same atmospheric conditions?
    • Or 80 percent chance there will be no rain anywhere in the forecast area?
  • Does the reporter or interviewee give an opinion as if it were a fact, or can you follow his reasoning? Find out by cutting up the statement in causes and effects. Are cause and effect directly and clearly related or are bits and pieces missing? 
    • Here is an example of a direct and clear relationship: traffic is heavily congested (cause) --- I will be delayed (effect)
    • Compare a cause and effect statement with missing rules: bright sun, low in the sky (cause) --- I will be delayed (effect). What's missing? Glare in drivers' eyes, causing braking, causing heavy traffic. Lot's of hidden assumptions that we can't check

I hope that you do the news listening exercise. When you do, you get an immediate and deep understanding of the ease with which we take a message for granted and subsequently lead ourselves into erroneous decision-making.

2. Shared Logics

Listening for different cues will improve your own decision-making, because you will become aware of the robustness of the argumentation. Decision-making in groups will also benefit from thinking out loud. 

Managers tend to take a certain level of knowledge in teams for granted. Especially when team members have been collaborating for longer periods, managers assume that their co-workers know the same things as they do. However, that is seldom the case! Scientific research from the 1960s proves this already.

Scientists Lawrence and Lorsch asked managers from various management levels about their scanning for new phenomena. Not surprisingly, marketing managers scanned for customer trends, sales managers for competitors, R&D managers for patents and technologies, legal for rules and regulations, and so forth. Only general managers overlooked multiple specialist environments (here is the paper).

Knowledge levels differ across management teams

Reference frames (knowledge, beliefs, and time orientation) differ across management team members

In effect, the average management team discussion is done between the general manager and one or two department managers, depending on the topic. The other department managers are silent because they lack in-depth knowledge about the topic. For example: general, sales, and marketing managers discuss the commercial decisions; general, operations, and R&D the operational decisions.

And it gets worse. Not only do department managers scan different environments, they also differ in time orientation. As you can imagine, R&D for example, looks farther ahead in the future (emerging tech) than, say, sales (present and near future competitor actions). 

Thus, managers who assume that their team shares their logics take a big risk. Most likely, you share dominant logics, but not background, key constructs (see above) and time orientation. 

This means that the general manager is at an advantage in management team discussions in terms of knowledge and vision. Simultaneously, knowledge inequality is a disadvantage if the accuracy of a decision depends on one viewpoint only. Thus, successful managers try to make the deep expertise of each department manager explicit, so that the remaining managers learn and can take part. Furthermore, successful managers also make their own train of thought explicit, so that the others can follow, learn, and critique.

Think Out Loud

Thinking aloud helps others to identify strategies to improve their understanding by activating prior knowledge, relating new information to prior knowledge, inferring new meaning, and reflecting on its value. It is as simple as verbalizing your thoughts after letting your team know that you're going to think out loud

3. Time Orientation

Time orientation matters. Top managers’ subjective perception of time, specifically, their long-term orientation, positively affects the comprehensiveness, speed, and creativity of strategic decision-making processes. Why? Because a long term view enables them to engage in extensive search of the periphery, expedite time for judgment development before taking a decision, and encourage experimentation. 

Managers with a long term view are more open to change and foster entrepreneurial activity. They usually view adaptation as a requirement for continued success of their organization. In comparison, managers with a short term orientation relatively respect traditional practices more, promote fewer new initiatives, and focus on a “here-and-now” mind set.

Strategic decisions have their impact on the longer term. Therefore, long-term feedback is extremely functional during strategic decision-making. For a visual to help you stretch your time-orientations, please visit the post "find new perspectives".

Long-Term Views

To include the long-term in strategic discussions, managers  explore strategy at multiple time horizons. The long, medium, and short term need to be addressed individually. Each demands different goals and stakeholders—and none should be ignored.

Managers also inject long-term views by focusing the decision-making on a changing set of critical strategic paradoxes. A paradox consists of dual capabilities, that  most other organizations would consider distinct or incompatible. Considering opposites as poles of a dimension and fitting strategy to the dimension instead of the pole will help you to develop flexible, dynamic, and mutually reinforcing decisions

Knowing more about how managers decide has changed the way I participate in strategy discussions. I listen for different cues; share my trains of thought so that others can follow; and always include long term feasibility. Others tell me that it helps to clarify their thinking and leads to balanced decisions.

Perhaps your strategic discussions and decisions gain timeliness and accuracy when you practise the same. In a world governed by technological advancements and turbulence, seeing disruption early is key in your organization's survival. Seeing early means that you have created the time required for interpretation testing and that you can hit the market when others are reeling.

The right interpretation of 20% chance of rain were the last two points. These actually have the same meaning. Surprised?

Background Books & Video's

Want to know more about strategic decision-making? Please visit the Tool page for inspiring suggestions

About the author 

Futurist Barbara

Barbara is a no-nonsense Dutch futurist and one of the few scholars specialized in how top-managers perceive the future in the information they read (weak signals).Barbara goes on when other futurists stop: AFTER the exciting-scary videos of technological wonders. She does not leave you in turmoil, but she will help you with practical, actionable insights. You will learn how to become sensitive to disruption, to implement a lightweight foresight process and to infuse major decisions with foresight data.When you're about to make a major executive decision, but are not (yet) sure how then Barbara is the futurist for you. You can shape the future under two conditions. Firstly, you envision at least ​three possible futures. Secondly, you innovate their way out of the present to survive and thrive in each future.

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