How Organizations Develop Good Judgment
We think of judgment as something exercised by individuals. But organizations can learn to exercise judgment collectively, argues Thomas Davenport, co-author (with Brook Manville) of Judgment Calls: 12 Stories of Big Decisions and the Teams that Got Them Right. Inc. editor-at-large Leigh Buchanan talked with Davenport, a professor of management at Babson College, about why companies that build processes and cultures around good judgment more consistently make the right moves.
Aren’t great analytics or leaders with great guts sufficient to make great decisions?
Numbers are certainly a good guide to decision-making. But a lot of companies don’t have enough data, and it can be time-consuming to gather and analyze. That’s a problem when you need to make a decision quickly. If your company is making a decision it has never made before, which tends to happen with the really big, swing decisions, you may not have any data at all. As for guts, I’m not sure there’s any such thing as a consistently great gut, even among the most successful leaders.
How do you move from individual judgment to organizational judgment?
Look at the different classes of decisions your company makes. Tactical ones like what do we charge? or how much inventory do we keep around? And strategic ones like will we acquire this company? or how will we choose the next CEO? Think about how often you make this kind of decision and how much is worth investing in it. Then consider what tools and resources you need and set up a decision-making process for each. Data is generally easier to get for tactical decisions. The executive team may need to function very differently on strategic questions.
What questions do you ask as you create these processes?
Did we examine all alternatives? Did we converge too quickly on a single alternative? Did we involve multiple people? Did we involve the right people at the right levels with the right expertise? Did we use data and was it the right data? Also, ask yourself how often you’ve made that decision before. If you’ve done so repeatedly you may already be very good at it.
What does a culture of organizational judgment look like?
It’s a culture of modesty and self-examination. It’s a culture where people admit errors and become students of those errors. It’s a culture that is deliberative--that doesn’t fly off the handle but also isn’t paralyzed by excessive analysis. It’s a culture that figures out how long it has to make a key decision and then makes it in that time period--neither too fast nor too slow. It’s a culture that uses data when there is data available. And it’s a culture that values the intelligence and experience of its people. That’s one reason Google has succeeded and why it uses wisdom-of-the-crowd approaches so much. They realize, we hired some incredibly smart people here. We should ask them every once in a while what their bet is on a particular topic.
You mentioned admitting errors. So it’s not enough to be comfortable with failure. You also have to publicize those failures?
Publicize failures that you clearly learned from. If you make a bad decision in corporate life, it can quite easily disappear without a trace. But look what happens in health care. More and more, we see organizations that made an error and learned from it get sued less for malpractice. Health care in this country is screwed up in many respects. But if you kill somebody at least there’s likely to be a meeting about it.