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Posted: June 26, 2013
Ted Kinni

Theodore Kinni is senior editor for books at strategy+business. He also blogs at Reading, Writing re: Management

 


 
 

Smarter Executive Decision Making Is Within Reach

Chip and Dan Heath are back with another book that applies cognitive science to management. In 2007, the brothers—Chip is a business professor at Stanford and Dan  is a senior fellow at Duke’s Center for the Advancement of Social Entrepreneurship—had a hit with Made to Stick: Why Some Ideas Survive and Others Die  (Random House), which David Hurst reviewed  in s+b’s Summer issue that year. And in 2010, they published Switch: How to Change Things When Change Is Hard  (Broadway), which Judith Glaser called out as one of the year’s best business books in s+b . Their new book, Decisive: How to Make Better Choices in Life and Work  (Crown Business), looks just as promising.

So when the publisher offered me a bit of Dan’s time, I used it to ask him a question: “In writing the new book, what did you guys discover about improving a company’s executive decision making?” 

“Here’s a hint,” says Dan. “Pursue good decisions at the top of the organization as relentlessly as you do on the front line. In manufacturing plants, decisions are made carefully and scientifically: TQM black belts use well-defined processes to reach Six Sigma quality. But at the top of organizations, decisions—even those in which millions or billions of dollars are at stake—are often made based on politics or personality or a good PowerPoint presentation.

“Think about that. When a manufacturing plant achieves Six Sigma quality, its defect rate is less than 1 in 250,000. Meanwhile, the ‘defect’ rate in high-stakes decisions is more like 1 in 2. Talk about a giant opportunity for improvement.

“What would a smarter executive decision making process look like? Well, it would be built to overcome the decision traps identified in psychology and behavioral economics. For example, research has shown that people typically consider an overly narrow set of options. Paul Nutt [professor emeritus, Fisher College of Business at Ohio State University] found that only 29 percent of organizations considered more than one alternative when making important strategic decisions. Just adding a second option can pay great dividends—one study found that a second option made it six times more likely that the decision would later be rated as ‘very successful.’

“What if your organization made no important decision without considering at least two solid options? In hiring, you’d hold out until you had two worthy candidates. For capital allocation, you’d stretch your thinking with questions like these: What would you do if the amount you could invest was doubled? What if it were cut in half?

“Research has also shown that people seek out information that flatters their existing beliefs and avoid information that might contradict them. This bias can be particularly pernicious at the top of organizations, where leaders are often surrounded by a bubble of colleagues who hesitate to challenge them. What if your organization embraced a process that required disagreement, like a courtroom? Research shows that 80 percent of mergers and acquisitions fail to create shareholder value. How many of those mistakes could have been avoided if each organization had simply assigned a team to argue the case against the acquisition?

“What better competitive advantage could your business have than the ability to consistently make better decisions than your peers? There is currently not a black belt certification in ‘good decisions’ but perhaps there should be.”

If you want to read Chapter 1, you can register on the Heath brothers’ website  and download it for free.
 

 
 
 
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