Essays on Management: Decision making

Management requires decision making and it is important to make clear how decisions are made so people can trust the processes used.  For example, it is demoralising when decisions such as managerial appointments are made without fair and open selection processes being undertaken.

Decisions differ in their unique or recurring nature.  Is a decision one-off and unique, or is it dealing with recurring problems? If the former, deal with the decision on its merits, if the latter a system needs to be in place to deal with recurring problems.  Is a decision dealing with divisible problems that involve trade-offs, or is it dealing with indivisible problems that cannot be traded off?  If the former there are known risk probabilities and trade-offs that can be quantitatively analysed.  The money values are fungible and benefits and costs can be assigned.  If the latter, decisions cannot be made on cost-benefit grounds and must be determined through value judgements, whether by individuals, families, or through Parliamentary conscience votes.

A decision on spending taxpayer money is quite different to spending your own.  Some decisions may involve constitutional change binding future generations.  There are also epic decisions with international or inter-generational consequences.  Politicians and other leaders may risk the lives of millions in circumstances of radical uncertainty.  An example was the British Commonwealth and French declaration of war against Germany in 1939.

There are also decisions made on matters of inviolable principle even though in isolation they lead to failure.  The British, New Zealand and Australian army intervention in support of Greece in April 1941 was inevitably going to be defeated, but the one country left in Southern Europe holding out against Hitler had to be supported.  This principled intervention indirectly led to Hitler’s defeat by delaying the invasion of the Soviet Union long enough for the 1941 – 1942 winter to halt the German army short of Moscow.

George W Bush’s decision to invade Iraq in 2003 had a wider consequence. Regardless of the long-run outcome for Iraq, it ended a great moral advantage that democracies had, which is they will defend themselves but they will not attack another country first.

Often a symptom masks a subtle underlying problem and resources are wasted dealing only with symptoms.  One sign of dealing with symptoms rather than problems is a proliferation of laws, regulations and company rules designed to solve symptoms.  When a problem comes up, assume it is a symptom, and then search for the underlying problem.  Often it is possible to identify just one or a few variables critical to a complex problem.  Identifying and addressing this central variable or issue might prevent dissipation of more time and energy on the problem’s symptoms.

All decisions require focus and eliminating what does not matter.  Often it is important to make decisions as a package to ensure they reflect relativities and how different decisions impinge on each other.  It means potential synergies can be exploited.  Competing options should be presented together so they can be compared, the assumptions need to be clearly stated and a worse-case scenario should be set out.  History should be respected.  if someone says “this time is different” (particularly in economic and financial fields), it’s time to feel for your wallet and count your change. 

Once you have focused on the problem you are addressing and have understood its context, you can proceed to the early stage analysis fundamental to all good decision making.  This should first start by drawing together in an open and inductive way all the relevant facts, theories and evidence from which inferences can be drawn.  Develop insights from data, don’t test hypotheses against data at this stage.  This contrasts with a deductive, hypothesis-testing approach which restricts evidence to support pre-ordained theory, and which pre-emptively excludes alternative hypotheses.  When evidence and competing theories are drawn together in an open-minded way, inductions can be drawn.

At this early stage intellectual nets have to be cast wide and serious thought has to be undertaken.  Most major disasters occur when this early stage is circumvented, constrained, rushed, with key details being ignored, or where dissent and free debate is suppressed or too few people are consulted.

Like the Japanese, be exhaustive in early stage analysis and decision making. While Japanese decision-making processes take a long time, they improve implementation speed and quality and create competitive advantage for Japanese businesses.Japanese businesses are masterful in getting the early stages of decision making right.  Nemawashi involves everyone’s informal contribution at the discussion level.  Ringi means every decision is first circulated to all relevant people for their input.

Toyota has a five “why?” process where each question builds on antecedent knowledge and previous answers and peels another onion layer until the depths of an issue  are fully understood.  This iterative approach ensures a problem’s logical heart is understood.

Never allow the processes leading up to a decision to become “group think all subscribe to”. In the ancient Jewish Sanhedrin court, if all the judges decided someone was guilty he was declared innocent since what everyone agrees is right is almost always wrong.  What “everyone knows” is typically wrong because it is based on a wrong assumption that snowballs into an unassailable fact because it is safest to be wrong in a crowd.  It is therefore important to never make decisions until there is disagreement.

Open debate and democracy gives better outcomes than autocracy because it forces rigorous debate before major decisions are made.  History’s greatest criminal, Adolf Hitler, had to listen to no-one but himself.  By late December 1941 he had managed, without provocation, to declare war on the three most powerful countries in the world, send most of the German army into a Russian winter without warm clothing, all without fully mobilising German industry to support the war effort.  No such lunacy can occur where there is a free and rigorous debate.

Decision making requires the ability to see, and this is over several spectrums.  The context, intuition, whether things feel right and the numbers all matter.  Socrates listened to the Daemon, the inner voice that counsels care.  Looking at the numbers is often a wake-up call, however it is deriving a story from the numbers that translates into good decision making.  Quantitative tools can test the striking insight or conceptual breakthrough but not create them.  This is why the humanities, philosophy and psychology as well as more quantitative tools are needed in decision making.

You must define a problem before you frame research to generate data, and from this, understanding.  Probabilistic reasoning is suited to recurring but not to one off or unusual events, and what is needed is narrative reasoning.  Databases are most useful when they support narrative that has context and story line and allows inferences to be drawn.

You must ask the right questions and never forget the questions while remembering the answers.  Maths and statistical tools are critical aids to decision making and checks on fluffy thinking.  However they cannot determine the right questions.  The use of technically sophisticated but contextually poorly informed research methods consumes resources but seldom leads to tangible results.  Statistical analysis and research in public sector organisations often fails because it lacks a conceptual framework that draws meaning from data and a pathway to implementation.

Decision-making often involves negotiation, and the processes used will determine whether decisions made will be supported and endure.  A negotiation between parties can involve divisible slices of what is at stake.  It can allow gains from trade where all parties benefit.  It can also be more akin to a gain from a merger where benefits arising are synergistic rather than additive.

A negotiation should start not from bottom lines but from shared interests.  Different parties often care about different things, and bottom lines mean money can be left on the table, or different currencies are not exchanged. Two children might fight over an orange when one wants the fruit and the other the peel.

Negotiated decisions should integrate the best elements of competing interests rather than compromise between them.  Interest groups are not static and their behaviour will change as the game changes.  In some cases a decision is made that is better for all parties than original negotiating positions might suggest.  Always go for integrated “best elements” decisions, not for second-best compromises that may satisfy no-one and be worse for all than the original negotiating positions.

Identifying shared interests can lead to “one text processes” not competing and irreconcilable texts.   Negotiation should not try and exhaust people and should rather aim at principled win: wins.  It should involve reflecting on how others see things.  This ability to see the other’s side was fundamental to the resolution of the Cuban missile crisis and to Middle East peace outbreaks.  It is also important to be able to walk away from negotiations, whether in love, work or politics.  Neville Chamberlin learned this too late.

It is important to build into decisions the action to carry them out, and into implementation the feedback and reflexivity needed to test decision validity and effectiveness against the actual course of events, and to ensure adaptability to them.  A failure to recognise this has in the long run doomed organisations.

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About Peter Winsley

I’ve worked in policy and economics-related fields in New Zealand for many years. With qualifications and publications in economics, management and literature, I take a multidisciplinary perspective to how people’s lives can be enhanced. I love nature, literature, music, tramping, boating and my family.
This entry was posted in Essays on Management and tagged , , , , , , . Bookmark the permalink.

2 Responses to Essays on Management: Decision making

  1. Dilip says:

    Brilliant paper Peter. Your blog is loaded with topics of my interest. Thanks.

    • Peter Winsley says:

      Thanks so much Dilip. Very pleased you like my blog, will be loading more essays and papers on to it in the coming weeks and months.

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