Business

Let’s fix it: Decision-making and evaluation

Fixing decision-making and evaluation

Decision making and evaluation within companies is a major source of failure and employee frustration. We should #FixIt !

Read on to find background information on decision-making and evaluation followed by an explanation of how companies can improve their decisions.

Corporate Context

Choices

Choices

Compared to the decisions we face as individuals, decisions of an employee, manager and entrepreneur necessarily come with responsibility for the greater good. We find cases where it is not your preferences that count, but solely what your job role and responsibility is demanding. All that counts is what’s best for the company, independent on the decision maker.

In a similar way, evaluating decisions is different in a corporate context. In your personal life, you may accept your own evaluation as the only viable source. In a company, evaluation is often the responsibility of somebody else than the decision maker.

Decision making

Phil Rosenzweig in an interview

It helps to look at different categories of decision-making. The first aspect is control: Sometimes your choice is limited to selecting between options. Gambling and consumer decisions are typical examples. Then are decisions where you create and define the options before picking one.

The other deciding aspect is the performance. Regardless whether you can exert control or not, making and evaluating a decision is an entirely different game when a competitive factor is included. Let us say you decide to release the new product first week of December, perfectly timed for the Christmas business. A good decision. However, the competitors choice to release their product three weeks earlier will affect your performance negatively.

Timing in decision evaluation

Evaluation of decisions gets more difficult the more time has passed between decision and evaluation. This is not to advocate faster evaluation of decisions, it is simply a characteristic that we have to acknowledge.

When you decide to teach your employee a technique in a specific way, you have the chance to let the employee immediately show to you whether he or she can apply the technique appropriately. You receive instant feedback.

We also encounter these decisions where the chain of reactions is hard to trace. The results of your decision to favor a long-lasting vendor relationship over a tempting competitor offer is going to show months or years later. You receive the feedback late and distorted.

Decision biases

Decision making depends on intuition to a large extent. Psychological research has shown that supposedly rational decisions are prone to systematic errors and biases, not few of them of them predictably. The hindsight bias is a well-known example. In retrospect, we create a coherent version of the events that lead to a situation, although we thought differently when the events happened. “I saw that coming” is more often a biased statement than you might think. Another example is the planning fallacy. We tend to be too optimistic and look only at the information available. We disregard the possible consequences of what we do not know. Daniel Kahneman introduced the term “What you see is all there is” for this phenomena.

Better decisions

Company culture

With the right company culture, it is possible to get to better decision-making and evaluation results. In its broadest sense, the company culture should nourish a fair and consistent performance evaluation. I believe too many companies suffer from a management issue, which is that of focusing on power issues. Much like in politics, people aim at the effects and not on quality work. Every company will find these dazzling personalities among their employees and managers. The company is responsible for keeping the quality workers from falling into the same pattern. When the company is able to identify the dazzlers, and the evaluation rewards quality work, the most valuable employees are motivated to perform well. If, on the other hand, the company drives its valuable employees to a place where dazzling is more recognized and rewarded than qualitative work results, performance suffers. High performers will typically start to look for a place which recognizes them for the quality work they take pride in delivering.

Methods of decision-making

In general terms, decision-making should involve the right people and it should take place in the right forum. As simple as it sounds, as many times have I seen this advice being disregarded.

The following proposals of decision-making-supporting methods are based on suggestions from Daniel Kahneman:

  1. With the systematic errors (described above) in mind, seek for decision-supporting information available. Have other companies, or other departments in your own company, faced similar decisions? Can statistics help you make the right choices? Identify what you do not know, and carefully scan for its relevance..
  2. Ask members of a meeting to hand in their understanding of the situation (let’s say a project, product development, company restructuring) beforehand, independently.You will harness a larger variety of opinions as in the collective.
  3. Ask members of a meeting to write stories about different paths of how the decision may go down. This can help to identify risks and opportunities.

A more methodical and systematic approach to decision-making is likely to come with more accountability. Let me give a warning here: Accountability tends to “foster risk aversion” (Kahneman), which leads to more bureaucracy in decision-making. Just as described in “Company culture”, this can result in a focus on effects instead of quality. To counter this, judge decisions based on the context they were made in, do not judge the result. It is tempting to say that results are all that matters, but this simply is not a logical argument. Not only can our evaluation be biased, but a myriad of coincidental events can have caused the results and the degree to which they connect to the decision are potentially ridiculously small. I opt to abandon the concept of punishment for bad results. However, identification of bad decisions on the other hand is a valuable source for improvement.

To further foster a culture where we make good decisions for the right reasons, the culture of dealing with mistakes is worth investigating. Much as we say we learn from mistakes, we should apply this to companies as well. Instead of punishment, create problem forums. In meetings, members can present mistakes and how they solved them. We replace the usual punitive character with one that is educational and collaborative. This is much more productive than punishment.

The methods described are not advocating to make decision processes lengthier. Typically, the duration of the decision-making process does not correlate to the degree of satisfaction with the decision. Having spent more time will not help you in justifying a bad decision.

Be productive

The above suggestions will help making more informed decisions with methodical checks and balances. Whether you favor an agile approach practicing try-and-error, as in design thinking, or you prefer to make longer-lasting decisions, you should reflect on how your company is making decisions. Building the right company culture and using the help of the decision-supporting methods will yield better results.

When it comes to evaluation of decisions, chose the productive approach: Make sure you benchmark the decision and not the results. Learn the lessons. If punishment is the way to go, then make sure it is because of bad decisions and not wrong results.

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Note: This article was also posted for the #FixIt series on LinkedIn.

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