Make Better Decisions: 3 Easy Steps
It's not often that a CEO sends a public note to key constituents taking responsibility for a bad decision.
But Netflix CEO Reed Hastings did exactly that last September in his apology letter to customers. While some bloggers commented that the confession was like suicide, many others found his willingness to share the decision making process refreshing.
Last year, Netflix created Owikster to spin-off the video streaming part of its business from its core DVD-by-Mail operation. To encourage on-line downloading, it unbundled its virtual and snail mail offerings, jacking up the combined price about 60 percent. Hundreds of thousands of enraged customers dropped their subscriptions in response. Netflix's profit was badly hurt as well as its image and trust: its stock price has declined over 65 percent during the past year.
One wonders how a successful entrepreneur seasoned by years of growing his company could make such a bad call. In his note, Hastings revealed the flawed assumptions about what customers’ really valued and he acknowledged that their priorities were not properly evaluated. He bared his thinking process offered a mea culpa, and in the process invited derision as well.
The bigger the job, the loftier the title, the weightier most decisions get.
Employees and others usually help prepare the tough decisions that the chief gets to call. Whether it's executing a big strategic move, evaluating resource tradeoffs, or addressing a minor issue, it’s assumed the more experience and seniority the leader has, the better their decision making will be.
You need to find a middle ground between shooting from the hip and forever analyzing without pulling the trigger. Sometimes experience and personality get in the way, not to mention market changes.
This is a dangerous assumption. You need to find a middle ground between shooting from the hip and forever analyzing without pulling the trigger. Sometimes experience and personality get in the way, not to mention market changes.
In contrast to Netflix's rash decisions, quite a few leaders get wrapped around the axle due to "analysis paralysis." They are loath to make a call without proof to support their decisions. They seem unable to set an appropriate risk threshold that allows decisions to be made in a timely fashion. Their quest for the perfect decision causes them to miss windows of opportunity while frustrating their minions in the process. As Winston Churchill warned, the maxim "Nothing but perfection" often translates into costly paralysis.
In our recent survey with over 15,000 managers, the ability to decide ranked lowest among six distinct skills crucial to strategic thinking. Many leaders scored themselves poorest on the essential act of making a choice. Formal feedback on the decision-making process is usually non-existent in companies. Most people are evaluated on results– not on the quality of their decision process.
Improve your decision process
Effective leaders combine experience and a strong decision process that forces them to evaluate, listen, adjust and learn from each decision. Strategic leaders typically build in these three core steps when evaluating and arriving at Winning Decisions.
1. Carefully frame and then reframe your decisions. Strategic thinkers consider what truly needs to be decided right now. They ask themselves: What is the crux of problem you need to solve or the opportunity you want to capture? Will the decision advance overall goals?
2. Balance speed, rigor, quality and agility. Endless analysis loops do not make for a good decision; it takes courage to decide based on incomplete information and conflicting opinions, or when uncertain consequences lurk, and naysayers abound.
3. Remain flexible. Strategic leaders often break the decision down into smaller options or sub-steps. They reframe a binary yes/no decision as entailing more than two alternatives. They stage the decision over time and run pilot tests on key assumptions if valuable.
If CEO Hastings at Netflix had applied these basic steps, he likely would have changed the timing of the decision, tested it with a pilot customer group, and reframed the decision toward things customers truly cared about. If so, he would have made a very different call. But his remarkable candor by admitting his mistake, and then publicly dissecting his decision process, is a welcome lesson for all of us. We should likewise learn from our mistakes by conducting post mortems and then turn these into pre-mortems so that we – or others we care about - don’t repeat the same mistakes.
This article was co-authored with Samantha Howland and is fourth of in a series examining the key components of strategic aptitude: anticipating, thinking critically, interpreting, deciding, aligning, learning. For an overview of all six skills see 6 Habits of Strategic Thinkers.
PAUL SCHOEMAKER | Research Director, Wharton School
Paul J. H. Schoemaker is the founder and chairman of Decision Strategies International. A speaker, professor, and entrepreneur, Schoemaker is research director at the Mack Institute for Innovation Management at Wharton, where he teaches strategic decision making. His latest book is Winning the Long Game: How Strategic Leaders Shape the Future.