DECISION-MAKING

4 Ways to Make Smarter Decisions

Assumptions and biases get in the way of making better business decisions. Learn to root them out with these tips.
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Decision making is critical in a business, and entrepreneurs often pride themselves on decisiveness. But as Chip Heath, a professor at the Stanford Graduate School of Business, and McKinsey consultant Olivier Sibony discussed recently in McKinsey Quarterly, decision making in businesses is often poor because of both personal and systemic problems.

For a smarter and more effective business, consider these four points from the discussion.

1. Bias is everywhere, including in you.

Trying to account for bias is vitally important when you make decisions. Otherwise, you could choose a solution to a problem or pick a strategic decision that won't provide what you need. But getting bias out of the process is not just next to impossible--it's completely impossible. Being aware of your own biases doesn't mean you will be free of them. You need a system that will help prevent your proclivities from taking control.

No one likes to think of being biased because it has such negative connotations. Instead, look at "predictable mistakes" that people make when planning, as Sibony said. "Instead, we observe that people typically make predictable mistakes in their planning process--for instance, getting anchored on last year's numbers." That is bias, but the language provides another way of addressing it. Not only does it have a lower negative connotation, but it is more pointed and practical.

2. You're not as smart as you think.

Perhaps the biggest problem with decision making is the perception businesspeople have that they are and should be the sole decision makers. But, as Heath notes, it wasn't an individual that got people to the moon. It was all of NASA. That insight works at an ordinary operational level of a company, using such tools as continuous improvement and statistical quality control.

Unfortunately, such techniques are rarely extended to the top of an organization because, the higher you go, the tougher a time people have admitting fallibility. People increasingly get rewarded for being confident and decisive, "even if sometimes it's really overconfidence," Sibony says. There should be recognition of how many people really should be involved and the need for mechanisms to deliver smarter decisions.

3. There is safety in numbers.

Making decisions assumes that you have choices from which you pick what you think will be best. But according to Ohio State University professor Paul Nutt, 70 percent of the time that leadership teams consider important strategic decisions, they consider only one option. That is equivalent to the team assuming that it is always right.

According to Heath, one study at a mid-sized high tech company showed that a group of leaders thought decisions were six times more effective when they considered two alternatives instead of one. Instead of asking a group for its decision, request the two top choices.

4. Small changes can be big.

You can improve the decision process with relatively small changes. For example, few decisions are truly unique. Chances are that a decision today will be like one in the past. Look at ones you've made before and identify lessons that could apply today.

Consider alternatives and prepare to be wrong--really wrong, not just slightly. And create an atmosphere in which people can disagree and bring up important points that might otherwise be glossed over. If everyone in a group agrees with a recommendation, they may be simply going along and not bringing up legitimate issues they may see.

You can't guarantee good decisions every time. But address bias, understand your own fallibility, consider multiple options, learn from the past, and prepare to be wrong, and chances are that on the whole your company's decision making will improve.

IMAGE: Forest Woodward/Getty
Last updated: Jun 17, 2013

ERIK SHERMAN | Columnist

Erik Sherman's work has appeared in such publications as The Wall Street Journal, The New York Times Magazine, and Fortune. He also blogs for CBS MoneyWatch.

The opinions expressed here by Inc.com columnists are their own, not those of Inc.com.



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