To Make Better Decisions
By: Thomas P Seager
Tags: Creativity, Decision Making, Innovation, Entrepreneurship, Small Business

To Make Better Decisions

Assign Rights, Describe Processes, Set Criteria, Experiment

In Does Your Company Know How It Makes Decisions? I pointed out that most people have no idea how decisions get made within their own organizations, and as a consequence the organizations lack decision-making skills. While I claimed that there were better processes available than “consensus,” I didn’t specify what those might be, or how to design them to replace the ineffective, bureaucratic, political waste of energy that constitutes most organizational decision-making processes in American organizations.

Now is a good time to correct this oversight.

What is a decision?

Although people probably make hundreds of decisions a day, few have thought about, or are able to describe, what constitutes a decision. Ask a dozen people in your company, and several of them are going to tell you something like, “A decision is when you make up your mind about something. It’s when you make a choice, from among several different alternatives.”

But choices are prerequisites to a decision. They might provide some satisfaction of relieving uncertainty or anxiety, but they are not decisions.

A decision is an irreversible commitment of resources.

It’s not a decision when my niece makes a declaration at the family holiday picnic, “I’ve decided I’m moving to New York to pursue a new career as an actress!”

Although her relatives might cheer her on and make encouraging noises, until she commits resources (time, energy, money) that create opportunity costs, her declaration is a fantasy, not a decision. To elevate her career aspirations from her imagination to reality, she must make commitments that will be difficult to undo. For example, she might sign a lease on an new apartment and pay a security deposit, strengthening her decision to move. She might audition for roles, committing time, energy, and putting herself at risk of rejection, to strengthen her decision to pursue a new vocation.

Her problem is that making public declarations of intent is much more rewarding, with less effort, than an irreversible commitment of resources.

Too many business managers are like my niece. They fantasize out loud about their aspirations, or make solemn declarations about change, but they never commit resources. They want the temporary satisfaction of a false resolve, so they announce public resolutions that reward their brains with the dope hit of false accomplishment, without incurring the expense, sacrifice, or risks of making commitments.

It’s not a decision until you’ve made an irreversible commitment of resources.

Who in your organization gets to make decisions?

As organizations grow, they become further and further removed from the people who founded them. The problem is that the people who founded the organization have excellent judgment about what constitutes a good idea (or the organization would never have succeeded), and the people who join the organization as it grows do not.

And how did these wise organizational Founders develop their excellent judgment? Typically, by making and learning from many mistakes.

Then, once the organization figures out what’s working and it becomes profitable and growing, the patience for mistakes wears thin, and institutional controls creep in to reduce the possibility of errors. We call these controls “bureaucracy” and it is this system of policies and procedures that constitute and enforce these controls.

Bureaucracies substitute rules for judgment.

The problem with error-minimizing bureaucracies is that so few people in the organization are permitted to make the mistakes necessary to develop their own excellent judgment, as the entire organization becomes preoccupied learning and conforming to the rules.

In bureaucratic organizations, their are few decision makers, because the policies, processes, and rules remove alternatives. For example, in No Rules Rules: Netflix and the Culture of Reinvention (Hastings & Meyer 2020) Netflix CEO Reed Hastings tells a story about an executive at one of Hasting’s earlier companies who was infuriated by a travel policy that refused to reimburse him for a $12 taxi fare.

The travel expense refusal wasn’t a decision made by an individual at the company. It was a rule that absolved any travel account manager from the responsibility of exercising judgment. And there were no compensating rules that empowered anyone in the organizations to override it!

Most bureaucracies do not allow decision making. They operate by approval, in which managers at upper levels review resource allocations to ensure that they comply with policies. Eventually, you get a corporate culture like the one satirized in the 1985 movie Head Office.

To make better decisions, organizations must assign decision-making rights to the people in the organization and foster an environment that encourages them to experiment, make mistakes, receive feedback, and improve their judgment.

Most organizations have no idea how to do this.

For example, the first purchase I made right after I secured my very first National Science Foundation grant was an electric pencil sharpener. I wanted the sharpener so that I could take notes on the manuscripts and books I was reading for my dissertation. Because I wasn’t authorized to make such purchases, I put in a request that was subject to at least four different levels of organizational approval.

These multiple levels of review are intended to avoid fraud and misappropriation of grant funds, which (upon rare occasions) has been a legitimate problem in the past. In fact, almost all purchases at my home University were treated like suspected fraud, no matter who initiated the purchase — because no one in any typical University organization is really authorized to commit $20 to the purchase of a pencil sharpener. We’re only authorized to initiate a series of reviews and approvals of proposed purchase commitments.

By contrast, almost any idiot in a University can call a meeting. And meetings, when you consider the salaries paid to the employees who show up for them, are much more expensive than pencil sharpeners.

To empower people in your organization to make decisions, you must communicate to them the resources they have the right to commit. And not all resource commitments will come with a receipt.

What is your organizational decision process?

After your organization learns to recognize what decisions are, and who within the organization has the right to make them, it’s important to give the people in your organization some guidance regarding how to make good decisions. For example, in Only the Paranoid Survive: Lessons from the CEO of Intel (Grove, 1988) Andy Grove describes the process by which production resources were allocated among different product lines at Intel Corporation.

Production managers at individual production facilities were already empowered to commit resources to either memory chips or microprocessors. To guide their decision, they had information about sales prices, production costs, and gross margins. The managers were directed to make decisions that would increase production of the most profitable products, according to the data available for their factory.

While almost everyone at Intel at the time thought of themselves as memory chip manufacturers first, and microprocessors as an accessory to the memory business, the production managers were getting data telling them that the microprocessors were more profitable. So they allocated additional resources to microprocessors, and fewer to memory, because their decision process was to gather data and reallocate production resources to the more profitable products.

When Grove finally made a commitment to exit the memory business altogether, he discovered that his managers had already put Intel on that path, by shifting the company towards microprocessors. This sped Intel’s transition, and according to Grove, probably saved the company additional losses from the crippling competition in the low-cost memory market.

In other words, Intel already understood that a decision is an irreversible commitment of production resources. They already assigned decision rights to the production managers. And they’d provided sufficient guidance to managers about the decision-making process that when the corporation was faced with what felt like an existential crisis, the managers had already been steering production towards a resolution.

Nevertheless, the Intel example is an oversimplification. To create a more general process for a broader range of decisions, we must understand the two critical dimensions of decision-making: 1) speed, and 2) scale.

The hundreds and thousands of decisions made every day in your company can be organized along two dimensions: 1) speed and 2) scale.

Speed refers to pace of the decision. Some decisions happen fast and frequent, while others take longer. The processes that work well for fast, frequent decisions are different from those work for slower decisions.

Scale refers to the number of people engaged in the decision-making process: individual, group, or larger society. Design processes that work well for individuals will differ form those that work well for large groups.

The two scales relate to one another, as shown in the Figure above. The more people engaged in the decision-making process, the longer the decision typically takes. For example, in the Intel example, the production allocation decision resides in the middle of the figure, near the midpoint between fast and slow, because Intel established a data-driven process that was executed at the scale of small groups of plant managers.

To improve organizational decisions, processes must be designed that apply to fast decisions made at the individual scale, as well as for slow decisions made at the collective scale.

In the lower left-hand corner of the figure, where individuals make instantaneous decisions, processes rely on a sense of identity. For example, a vegetarian doesn’t have to think about whether they’re eating meat today. Because they identify as a vegetarian, they’re just not a meat person.

This is why twelve-step addiction recovery programs begin with the identity statement: “I’m an alcoholic… and my life has become unmanageable.”

The first part of Step 1 is a powerful rational for making the decision to stay sober, while the second part reminds the alcoholic that their current decision-making processes were not working for them and they need new processes that will support their new identity.

Eventually, after weeks or months of practice, better decision making will become a habit.

Because identity is so important to rapid decision making, organizational leaders must make a consistent effort to create a strong sense of identity for those in their organization. This is why we have job titles and descriptions, so that people understand who they are in relation to the organization, and what their role within it is. The stronger their sense of identity, the faster their identify-based individual decisions.

Moving towards the middle of the figure, where policies and rules are found, decisions are made at a larger scale. This is the scale at which bureaucracy operates, and most readers have so much experience with bureaucracy that it’s of little further interest to us now. The key point to remember is that bureaucracy is an attempt to simplify the process of group decision making to make it less expensive and more reliable.

That comes with consequences at slower speeds and larger scales, where bureaucracy no longer functions.

What gets really interesting are judgment, analysis and the social process that couples them: deliberation. To the extent that judgment is about knowing when to break the rules, it stands in opposition to bureaucracy. And it provides room for creativity and innovation.

While I can’t say what sort of creative, analytic-deliberative decision-making process will work for your organization, I can describe for you the processes that work at our little startup company called Morozko Forge. We manufacture the world’s first ice bath. (Our competitors are cold baths, because we’re the first and still the only that reaches freezing temperatures).

Three co-Founders of the world’s first ice bath company: me, Adrienne Jezick and Jason Stauffer. (Photo by Patrick Nissen). The logo on my T-shirt is the Hydra monster, from Greek mythology. It symbolizes the antifragility of deliberate cold exposure, because cutting off one head of the Hydra will cause it to grow two more. It also symbolizes how we apply many brains in our decision-making processes.

The Morozko decision-making process has two important stages. The first is to identify and formulate the problem you are trying to solve. The second is to share lots of ideas and speculate about the consequences in a process we call “What if?”

What problem are you trying to solve (and why is it important)?

When Steve Jobs launched the iphone over 10 years ago, he was explicit about the problem that the iphone solved for mobile phone users. Most people didn’t even know they had a problem… until Jobs showed them the Apple solution.

And that’s the value with asking ‘What problem are you trying to solve?’ Most people are so pre-occupied with their own solutions that they forget what problem they’re trying to solve. They lose their focus. They dilute their efforts, and as a result they wind up with lots of great solutions for problems that don’t exist.

I had an exchange with one subordinate who was two hours into an inventory solution without an understanding of the problem. Instead of asking, “What problem am I trying to solve?” this subordinate (and others) kept researching solutions to problems we didn’t have.

As a start up company, our survival depends upon our ability to identify, formulate, and solve important problems. When we lose track of the problem we’re trying to solve at any particular moment, we’ve lost our path to profitability.

In another exchange, a particularly clever and creative subordinate wanted to show me a new heat exchanger design he had just finished prototyping. He was beaming with his preliminary results, and he wanted to share them and improve the idea further.

But I interrupted him and asked, “What problem are you trying to solve?”

He said, “Oh, I don’t have a problem!”

And I lost my temper, at least a little bit… because all of his creative energy could take us in the wrong direction if he wasn’t able to improve his capacity to identify, formulate, and articulate problems.

I scolded him:

Well, that sucks for me that YOU don’t have a problem, because our future as a startup depends on our ability to identify, formulate, and solve problems that make life better for our customers, and I have about 99 problems I’ve got to attend to, and here you are — one of our brightest and most clever companions — and you can’t find one single damn problem inside our company to be working on?

He laughed.

He understood right away that his enthusiasm for his new solution had caused him to lose sight of the problem he was working on, and that his response was a reflex instead of an explanation.

When we use the prompt, “What problem are you trying to solve?” we sometimes activate an emotional, defensive response. As children, we learn that teachers, parents, bullies, and other authority figures will threaten us with the challenge:

What’s your problem?

Many of us learned to avoid conflict and confrontation by saying, “I don’t have a problem,” and that’s exactly what my subordinate found himself doing when he was trying to present his new prototype. In fact, this type of conflict-avoidant behavior is exactly why most organizations suffer from a failure to identify and formulate important problems.

In this case, my clever engineer regained his composure, restarted his presentation with “The problem is that our units take too long to cool down in hot Phoenix summers, wearing out our compressors and disappointing our customers.”

Now that’s a problem for which I have a lot of patience and creative energy!

What if?

After we understand the problem we’re trying to solve, it’s time to generate solutions. It’s OK if we start with crappy solutions, because each idea could lead to a better one.

One of the things that is a comfort to me when brainstorming for new solutions is reminding myself:

My first idea is rarely good enough.

By asking, “What if… ?” we think through the consequences of of different alternatives. We’re simply speculating at this point. We’re creating thought experiments about what would change in the world if we implemented whatever idea it is that we’re asking about.

For example, we had a leaky tub that defied our usual troubleshooting and repair protocols. So we ran a series of “What if … ?” thought experiments. It sounds like this:

What if we threw the tub away and started with a new one?

If we threw this tub away and started with a new one, we would save ourselves hours of head-scratching, we would finish producing the unit faster, we would increase our materials costs by about $110, and we would never learn about what was causing the problem and how to prevent it.

What if we used Liquid Nails Fuze-it to seal all of the seams from the inside?

If we used Liquid Nails Fuze-it to seal all the seams from the inside, it would take us an hour to apply the seal and retest the tub, and we might discover a reliable way of repairing leaky tubs and save ourselves from having to purchase a new $110 tub.

(This experiment sounded good enough to try, but our brainstorming process doesn’t stop there. We often keep going, just to see if we could improve upon the idea).

What if we used aluminum impregnated nitrile rubber to seal all the seams from the inside?

If we used aluminum impregnated nitrile rubber sealant to seal all the seams from the inside, it might take several hours for the sealant to cure before we could retest the tub, and we might discovery a reliable way of repairing leaky tubs and save ourselves the expense of having to purchase a new $110 tub.

(We decided to use both the Fuze-it and the nitrile rubber in separate experiments. The Fuze-it was faster, cheaper, and worked great!)

The whole point to asking “What if… ?” is to generate enough solutions to ensure we might find one that is good enough. Only by describing the consequences of the solution, rather than judging it, can we come to understand what a world with that solution in it might look like to us.

After a few years of implementing the “What if… ?” protocol, I’ve discovered that the most common mistake is short cutting the process by misinterpreting the question as a command.

When your subordinates respond to your “What if… ?” by saying, “OK, I’ll do that,” they have removed themselves from the decision process. And that’s going to result in a lot of inferior decisions.

By what criteria will you assess the quality of different solutions?

Once you’ve described the consequences of different “solutions”, it’s important to understand which to experiment with first. To prioritize each, we must understand the criteria by which we assess our resources commitments.

Thus, we ask ourselves a series of questions, in the following order:

Will this experiment result in new knowledge? (I.e., what might we learn?)

At this stage of our start up, knowledge is the single most important resource we have. It could be knowledge of technique, such as how to repair a tub. It could be knowledge of the market, such as customer preferences and values. It could even be knowledge of one another, and specific strengths each brings to our company.

If the experiment will create new knowledge, it becomes a high resource priority.

Will this experiment take care of our customers?

The entire point of our health and wellness company is to help people take better care of themselves. Experimenting with solutions that come at the expense of our customers is antithetical to our mission, so that doens’twon’t work for us. No one is going value a health and wellness company that does not provide knowledge and equipment for taking care of health and wellness. That doesn’t mean we do everything for our customers, because caring for our customers means empowering them and we sometimes struggle to make the distinction between caring for and doing for. Nevertheless, this question prompts us to consider how our proposed solutions might impact our customers, because:

“The purpose of business is to create customers. — Peter Drucker.

Will this experiment take care of our companions?

To enable our customers to better care for themselves, we must exemplify taking care of ourselves. Put another way, without caring for ourselves, we cannot expect to be able to care for our customers. Solutions that come at the health and wellness expense of our companions will undermine our capacity to provide the necessary knowledge and equipment to our customers, and undermine our credibility in the marketplace.

Will this experiment conform to our vision of the future world in which we want to live?

Responses to this question require clarity about the future vision of the company and the change we seek to make in the world. For us, that vision includes a world that is free from Type 2 diabetes, free from Alzheimer’s, free from obesity, and free from all the maladies of modern living.

The mission of Morozko Forge is to provide the knowledge and equipment necessary to live a natural life in an unnatural world.

Not every decision we make will be on direct path towards that vision, and that’s OK. We’re not asking for the shortest path, or the best path, or even the quickest path.

When we ask whether an experiment conforms to our vision, we’re seeking to clarify our vision and the space within it for the experiment we’re contemplating. Sometimes, we won’t know the answer to this question until we run the experiment.

And other times, asking this question makes it clear that the experiment will not take us closer to the future world we seek, in which case we discard the experiment.

Might this experiment generate more resources than it consumes?

In this final question, we’re finally getting to what MBA programs might call “return on investment” — but don’t think that means we’re reducing the answer to a financial spreadsheet.

Although money is important to the health of our company, at this stage of our venture, our creative energy is even more important.

So what we’re prompting in this question is a multi-dimensional examination of the resources we’re committing to a decisions in terms of energy, time, and money, relative to the return we will realize in all three of those resource categories. When we make resource commitments that generate more energy, more time, and more money, we accumulate the resources we need to grow our venture.

Every decision is an experiment

Although I’ve described a decision as an “irreversible commitment of resources,” that doesn’t mean we can’t make a different decision later. It only means that the resources we’ve committed to the previous decision can’t be recouped.

A new decision might commit additional resources to undo the previous decision, and that’s OK — even if it gets expensive sometimes.

Thinking of everything decision as an experiment gives us the freedom of being wrong without the anticipatory anxiety of regret.

In Designing Your Life (2016) Stanford Professors Bill Burnett and Dave Evans encourage readers to think of commitments as experiments that allow trying new things, learning, and trying again. They argue for the application of what’s typically called “design thinking” to personal and career choices.

The difficulty with this type of thinking is that you’re always going to be wrong. When you’re trying new things, you can hardly ever get it right the first time. For many, the imagined humiliation of being wrong is so painful that they’ll never do the experimenting that continue their learning. As a result, people get stuck in old patterns, old habits, and failed “solutions” that stopped working long ago — while their energy is midirected into defending themselves against the nagging suspicion that they might bear some responsibility for their own failures.

The antidote is to stop worrying about being right, and to focus instead on what you have to do to be successful.

At Morozko Forge, talking about every decision as an experiment releases us from the ego investment in being right. It helps dissolve the anticipatory anxiety of being proved wrong, and managing that anxiety is essential for the growth of our venture.

When we think in terms of experiments, rather than in terms of answers, it refocuses our energy on our most important decision question, “Will this experiment result in new knowledge?”

That’s how our organization makes decisions, by:

Assigning decision rights,

Describing decision processes,

Setting criteria for evaluating alternatives, and

Running experiments.

I wonder if your organization might benefit from adopting some of the same practices?