Why apparently good decisions prove to be bad ones is often blamed on internal and external factors – unexpected economic hiccups or flawed market research, for example. Only rarely are bad decisions seen as the result of bad decision making, the process that governs the way managers make decisions. But as this author explains, examining and improving how decisions are made can often make the difference between a good and a bad decision.
Imagine this: You are the founder and CEO of a regional real estate company called Fairview Associates. It builds, owns, and manages apartment complexes in several cities. For some time, Fairview was exceptionally successful, growing at a rate that put it near the top of the industry. Lately, though, the company has struggled mightily; vacancies have been soaring. You and your staff have been scrambling to cope with the crisis, taking such extraordinary measures as offering new renters 12-month leases for only 10 months of rent. Fairview now even allows renters to live in apartments without signing contracts at all. In public, you have maintained your usual upbeat aura of confidence. Privately, though, you have grave doubts about Fairview’s ability to hold on. If the current trajectory were to continue, your debt service obligations alone would pull you under. Fairview and all your dreams would be history.
What would in fact happen next if this scenario were real? If Fairview is like most companies I have observed, you and Fairview’s other leaders will continue your desperate, helter-skelter search for ways to stave off oblivion. In due course, matters will resolve themselves. Your efforts might fail, in which case Fairview will indeed fold. On the other hand, perhaps enough of your actions will bear fruit to pull you through. Or maybe conditions in the economy (e.g., employment and home mortgage interest rates) will change so that Fairview and other rental property companies are buoyed along despite their missteps. And this is where the story would end. With Fairview’s collapse, the leaders would move on to any new opportunities they are fortunate enough to grasp, where they would function much the way they did at Fairview. In the event of Fairview’s survival, everyone would breathe a deep sigh of relief and perhaps even congratulate themselves for being clever enough to weather the storm. Then back to business as usual.
Decision neglect and why it matters
What’s so bad about this prototypical, “Business as usual” endgame? Business crises occur for many reasons; misfortune typically has many parents. But suppose that Fairview’s vacancy predicament was due at least partly to specific actions-or failures to act-by people within the company itself. Then, since everybody will continue going about their affairs just as they always have, there is every reason to expect that their future actions will precipitate other crises in the future, including ones that Fairview won’t escape unscathed. The present calamity is quite possibly a signal that there is something seriously amiss about an essential element of Fairview’s functioning. Yet, that signal is going unrecognized, exposing the company to risks that might well prove fatal. That “something” is how people in the company make decisions. As I will explain in this article, how people make decisions will have a material impact on a company’s fortunes.
As business leaders, we often neglect to look closely at just how decisions are made in our organizations. We ponder and even agonize over specific decisions all the time. (“Should we make that bid or shouldn’t we, and at what price?” “Do I have to fire Smith?” “Should we give the green light to that project?”) But it seldom even crosses our minds that we might study – and try to improve – how decisions get made on our watch. Instead, by default, we allow decision processes to simply drift, letting the chips fall where they may. Is this a problem? Indeed it is. Good and bad things don’t “just happen” in or to a business. They happen in large measure because of actions that particular people in the company take (such as building hundreds of excess apartment units) or fail to take. And why do people pursue the actions they do? Because of their own decisions or those made by others (“Okay, let’s build”). In other words, the adequacy of our company’s decision making imposes either a high or a low ceiling on how well the company can possibly perform.
Why neglect occurs
Why do we give decision making such short shrift? This is a puzzle that is only now beginning to be taken seriously, even by scholars. Nevertheless, there is evidence that the following are among the major contributing factors:
Preoccupation: When we find ourselves in the grip of a catastrophe, having to deal with that challenge-surviving-commands our immediate and full attention. Nothing is more riveting than the threat of imminent demise. Human nature, specifically the need to explain, makes us curious about why the catastrophe happened. But the lion’s share of our attention is consumed by the desperate search for ways out. Thus, a question like the following is unlikely to worm its way to the surface: “What did we do to bring this on ourselves?” Moreover, even under the best of circumstances, it is uncommon for most people to think “metacognitively,” that is to look inside themselves and think about how they themselves decide. Instead, the natural inclination is to focus solely on the substance of the problem at hand
(for instance, what might be renters’ motives for walking away from our properties). And, ironically, our deliberations proceed according to our customary decision processes, which might well be fraught with limitations.
If, by chance, self-scrutiny does come to mind, we dismiss it as having little urgency: “We’ll get back to that later, after this is all over.” Too often, “later” never arrives. Instead, we take on new projects that seem to be more important. Why does the examination of our decision processesor self-scrutiny generally-have such low priority? One reason is that we have little faith that the investment would pay off, that it is genuinely possible to improve our decision practices to the point where the results have a significant, measurable impact on the bottom line. Another, related reason is the belief that self-scrutiny is a luxury that only big, flabby, and wasteful companies can afford, not the lean, efficient ones we admire. This belief in turn leads us to create a budget reality: There is indeed no money available for self-scrutiny and hence improvement. This is the same kind of trap that sometimes compromises companies’ strategic planning. (“We can’t afford to pay people for sitting around pondering stuff that’s never going to happen.”)
Misattribution: Even when we seek to understand our current situations, we are predisposed to attributing circumstances to external factors, including “luck.” Thus, in an article about real estate companies in precisely the kind of vacancy crunch as our Fairview Associates, a recent New York Times article devotes almost exclusive attention to factors such as low home mortgage interest rates, high joblessness, and the flood of available investor cash fleeing the stock market. (David Leonhardt, New York Times, December 23, 2003). There is no mention of how and why companies arrived at their self-defeating decisions to construct more and more buildings, thereby feeding the ruinous apartment glut. And, if previous research is any indication, if executives were asked to account for their companies’ dire straits, they would often and erroneously-plead inherent powerlessness: “Nobody could have anticipated this stuff.”
More generally, leaders seldom explain their troubles in terms of decisions. Instead, they (naturally?) conceptualize those difficulties according to the immediate and painful symptoms that hit them in the face rather than far-fromobvious contributing causes, including prior decisions buried in the long-forgotten past. This fact is strikingly illustrated in the University of Michigan Business School’s annual survey of what executives perceive to be the “pressing problems” confronting their firms. In a representative recent survey, “improving organizational decisionmaking” only ranked 17th on the list of 46 such problems. This is clearly not a reflection of reality, but instead, of how executives perceive that reality. “Attracting, developing, and keeping good people” was the top-ranked pressing problem. But what this characterization fails to acknowledge is that, if a company is having trouble finding and retaining good people, then poor decision making is at the core of its failings. When confronted with this conclusion, many respond with something like the following: “No, our problem is deadwood, not decision making. We’ve got too few top-notch people around here doing the work that needs doing.” Yet, there is no suitable response to this counterpoint: “The last time one of your top performers left the company to go and work for a competitor, why didn’t someone in the company recognize the threat early on and make decisions that would have precluded the defection?”
Bolstering: The misattribution problem is especially severe when the people pondering a company’s situation are the ones who had made the decisions that contributed to that situation. For that is when “bolstering” forces come into play, the forces that enable those who made decisions to be overly generous in appraising their decisions. Many studies have documented our bolstering tendencies as well as the reasons why
they exist and persist. For instance, those studies have shown that bolstering serves to help us maintain a sense of personal competence. (“I really am a good decision maker – seriously.”) But bolstering is about more than trying to make ourselves feel good. There is evidence that, once we have made a particular choice, we genuinely do not remember having even seen evidence that disagrees with the wisdom of our decision, even when we have. (Mara Mather, Eldar Shafir and Marcia K. Johnson , “Misremembrance of options past: Source monitoring and choice,” Psychological Science, 11(2), pp.-132- 138)). So, when our company is in trouble and we are looking around for explanations and thus things to fix, it is little wonder that we almost never say, “We’d better do something about our decision making.” We therefore continue suffering from the debilitating decisions that continue to result, one after the other. Even worse, we remain clueless about why the company is performing so poorly.
Common sense: Each of us has been making decisions virtually since birth. Decision making is thus such a fundamental human activity that it blends into the background, almost like breathing. We assume that each of us knows all there is to know about decision processes; good decision making is a matter of ordinary “common sense.” That being the case, we fail to suspect that decisions with disastrous outcomes are due to deep, systematic, and correctable flaws in the procedures by which our organizations decide. For example, what do we say when we observe people who consistently make bad decisions? Unless we are in atypically narrow and specific “technical” domains amenable to straightforward formal decision rules (e.g., recurrent finance problems) we rarely say things like, “They must not have learned how to make decisions.” Instead, we presume their fundamental (and hence intractable) mental dullness: “They’re just not very smart.”
Escaping neglect: Proactive, intelligent decision management
So, what can we do about the decision neglect that undoubtedly prevents our organizations from more fully realizing their potential? One approach is to apply proactive and intelligent decision management. I use the term “decision management” to describe the actions that managers take – wittingly and unwittingly – that affect how and how well the people in their organizations decide. Every manager is necessarily a decision manager, too. That is because nearly everything in an organization, including its decisions, is shaped by the actions of its leaders more than the actions of anyone else, for better or worse. Unfortunately, more often than not, decision management is incidental and haphazard. That is, leaders frequently guide their organizations’ decision processes by accident and by intuition. Proactive and intelligent decision management requires the opposite.
To appreciate what decision management entails, it is first necessary to appreciate what is being managed, that is, the organization’s decision processes. There are many ways to conceptualize the notion of “decision processes” as well as how managers affect those processes. But I have found that one particular way of thinking about them is especially compelling. It is what I call the “cardinal issue perspective.” Consider the analogy of hitting a baseball, something that practically every adult in North America has done at some time or another. Every swing of a baseball bat entails a necessary collection of operations, such as looking at the ball and rotating the hips. How well the ball is hit depends on how each of those operations is actually executed. A good hitting coach is one who can somehow get us to the point of performing these operations with great skill. Similarly, making a decision entails resolving 10 “cardinal decision issues,” each of which inevitably will be performed in some fashion or another in every decision situation. That is, decision processes are the means by which people resolve the various cardinal issues in reaching their decisions. The success or failure of a decision in our organization depends on the adequacy of how decision makers resolve those issues as they arise in the decision problem at hand. And, as with hitting coaches, precisely how these decision makers deal with those issues is heavily shaped by the decision management practices of their leaders. Figure 1 provides a useful, easy-to-remember way of thinking about how everything fits together, including the ultimate “point” of an organization’s decisions-performance.
What, exactly, are the 10 cardinal decision issues? They run the gamut and are discussed in detail elsewhere. (J. Frank Yates, Decision Management: How to Assure Better Decisions in Your Company, Table 1.1,
p.13). But their spirit is suggested by one of them, the “mode issue,” which, in a given situation asks, “Who (or what) will make this decision, and how will they approach that task?” Resolving the mode issue is among the most consequential responsibilities of any leader. Consider Philip Condit’s recent resignation under duress from his position as CEO of Boeing. As noted in the Wall Street Journal, there was never a hint that Condit personally had anything to do with the ethically questionable decisions made by subordinates that helped put Boeing’s future in serious jeopardy. (J. Lynn Lumsford and Anne Marie Squeo, Wall Street Journal, December 2, 2003). Regardless, Condit himself had to bear enormous personal costs for his mishandling of the mode issue at Boeing, specifically, maintaining delegation practices that put critical decision making authority in the hands of the wrong people.
Figure 2: A cardinal decision issue checklist, with generic framing of the issues as well as illustrative instantiations in rental property decision situations.
All decision management-even the incidental and haphazard variety-amounts to a leader doing things that affect how those around him or her work through the various cardinal issues in the decision problems that confront them. In proactive decision management, the leader aggressively searches for ways to make those effects good ones. In intelligent decision management, the leader succeeds in applying techniques that have a good chance of actually achieving such effects. An essential starting point-like a hitting coach realizing what are the key elements of a batting swing-is simply recognizing that the mission is to assure that, somehow, the decision makers in his or her sphere of influence (whether they are subordinates, peers, or superiors) resolve the various cardinal issues better than they would have otherwise. In fact, I often advise managers that, when they are concerned about an especially significant problem in the organization, they would do well to deliberately review a checklist of the 10 cardinal decision issues. At minimum, they should then explicitly articulate for themselves the form that each issue takes for the dilemma at hand. Often, sensible ways to proceed become immediately apparent solely as a result of this simple exercise. Figure 2 sketches a generic statement for each issue as well as how a manager might articulate that issue for problems similar to those one might see at Fairview Associates.
Decision research and practical business experience have pointed to a host of techniques and tools a leader can apply to facilitate the successful negotiation of various cardinal decision issues. And accomplished decision managers, like many I have observed over the years, are constantly on the lookout for more. Many even invent their own. As an illustration, one of my favorite tools is the “O-P-O cycles” technique. In a given situation, the “possibilities” cardinal decision issue asks, “What are the various things that could potentially happen if we took that action – things we care about?” This issue speaks to what can be an especially devastating variety of blindsiding. Specifically, it refers to instances in which we choose a course of action that yields disastrous consequences that never even came to mind as possibilities when we were weighing that course. An example might be a case in which we are considering extensive apartment construction, yet the possibility of sharply plunging home mortgage interest rates never enters the discussion.
Suppose that O-P-O cycles are made a part of the deliberation process and a particular proposal or “option” (the “O” in “O-P-O”) comes to the table. Then there is a recommendation that the deciders apply procedures that aggressively seek to bring to the surface serious potential consequences or “possibilities” associated with that option (the “P” in “O-P-O”), ones that normally would be unlikely to come to mind. Common surfacing procedures are variants of brainstorming and devil’s advocacy techniques. The possibilities that are brought to the deciders’ attention often cause them to recognize serious shortcomings in initial proposals. The second “O” in “O-P-O” calls for the deciders to try to refine the original option such that it retains its essential merits but precludes the adverse possibilities that are now recognized. Then another O-P-O cycle begins. That is, the “new and improved” prospective action is subjected to its own round of attempts to identify its non-obvious, problematic possibilities. The process is repeated until little emerges in successive cycles that was not seen before.
Another escape from neglect: History analysis
Proactive and intelligent decision management, as I have described it so far, attacks the decision neglect problem on a decision-by-decision basis. That is, if one of the leaders in an organization assumes personal responsibility for seeing that decisions are proactively and intelligently managed, then obviously many of the decisions that ordinarily would have been neglected escape that fate. But there are limits to the reach of this strategy. After all, one leader is just that – only one leader. Another decision management tool that I recommend for periodic application to entire organizations or units, history analysis, is thus a valuable complement.
When a major industrial accident or transportation catastrophe occurs, there is an intense investigation. Fundamentally, investigators seek to answer this question: “What can we learn from this tragedy that can help us improve the system, thereby reducing the odds of similar disasters in the future?” History analysis, as applied by decision managers in an organization setting, adapts the aims, spirit, and many of the specific techniques used by catastrophe investigators. In the aftermath of an airliner crash, the objective is new regulations, technologies, training methods, and the like, that make the air transport system significantly better than it was before. Here, the goal is refinements in any and all of the practices in an organization that have measurable impact on the organization’s performance.
Industrial and transportation accident investigators rely heavily on methods often labeled with terms such as “root cause analysis,” and so does history analysis. (Root Cause Analysis Handbook: A Guide to Effective Incident Investigation, EQE International, Knoxville, Tennessee, 1999). History analyses do not have to start with disasters like airplane crashes or the vacancy crisis at Fairview Associates, although disasters should indeed initiate analyses. More generally, any organization is wise to commit people and resources to a history analysis whenever there is a major change – positive or negative – in the organization’s fortunes over a period of time. As in standard root cause analytic techniques, a key element of history analyses is the construction of the chains of causes or contributors that ultimately resulted in the organization’s change in fortune. The analysis starts with the most immediate contributors. For instance, in the case of Fairview Associates, the immediate contributing factor to their revenue plunge was an increase in vacancies. For every factor uncovered in an analysis, the investigators must then ask, ad nauseum, “And why did happen?” The eventual result will be a causal factor chart that, at a glance, provides a literal picture of the origins of the change in fortune.
To make the whole enterprise worthwhile, those conducting the history analysis must isolate contributing factors that have two characteristics. First, they must represent things that the organization can actually do something about, including anticipating and avoiding if not actively changing. Second, the costs of doing something about those factors must be more than offset by the benefits to the organization of doing so. For the reasons discussed earlier, such as misattribution and bolstering, ordinary history analyses are likely to suffer from decision neglect. That is, those analyses will tend to omit the true contributions of decisions to an organization’s trials and triumphs. In the variety of history analysis that I advocate, the analysis team must include a decision monitor whose role, like that of a proactive decision manager generally, is to constantly prod the rest of the team, assuring that they do not, in fact, fall prey to neglect. A word of caution (and advice): History analyses are doomed to failure if people perceive them to be witch hunts, attempts to assign blame and punish individuals for their personal contributions to the organization’s troubles. So it is essential that history analyses be genuinely broad, collaborative exercises in which all the participants settle in advance on ways to guarantee that the outcomes will be process improvements, not recrimination.
Personal leadership matters. It is hard to bring to mind even a single significant innovation in which one or more individuals failed to take the initiative and personally make sure that things happened. The same underlying principle holds here. No organization will free itself of the ravages of decision neglect unless somebody with “weight” in the organization assumes the mantle of champion for efforts like those I have sketched, proactive and intelligent decision management and history analysis. But if that happens, the sky is the limit.