Decision-making is a business leader skill. Senior executives are faced with billions of decisions every day, and are in fact paid to make these tough decisions. Whether an executive is successful is often the result of how successful their decisions have been.
Given these high stakes, it’s incredible to note that, according to Ohio State University management professor, Paul C. Nutt, for example, we only get about half of our decisions in the workplace right. There are tried and true practices and processes for making good, informed decisions, but research shows that few people actually use these methods (Nutt and Wilson, Handbook of Decision Making, Wiley, 2010).
Why would this be? Some suggest there is the idea that going through the process for researched, analytical decision-making will be very costly. For example, time and other employee resources spent on gathering information, plotting out scenarios, etcetera. But these processes need not require excessive time and funding, and there are clear long-term advantages to making the right strategic decisions.
There are different models for decision-making, depending on the kind of decision that needs to be made.
Intuitive decision-making is one model. Studies show that intuitive decision-making may be the quickest and most effective type of decision-making in certain circumstances. For example, Michael Pratt, Professor of Management and Organization at Boston College’s Carroll School of Management, asserts that intuitive decision-making is both efficient and effective when a business leader has strong domain experience; that is, when the person making the decision has had many years of work in their particular field. They make what one might call “expert” judgments based on their previous experience. (Boston College. “Trust your gut: Intuitive decision-making based on expertise may deliver better results than analytical approach.” ScienceDaily. ScienceDaily, 20 December 2012. <www.sciencedaily.com/releases/2012/12/121220144155.htm>). Intuition works here because the executive is able to distinguish patterns and themes in the given situation based on former scenarios; they can make an informed, general decision based on what has worked or not worked in the past.
Intuitive decision-making is often used when there is a high level of uncertainty in the situation, when facts and/or time is limited, and when the facts available are not helpful to solving the problem. Intuitive decision-making may also be used when there is little situational precedent to draw from.
(EXAMPLE – KTM Sportmotorcycle — (http://sloanreview.mit.edu/article/intuitive-decision-making/)).
A second model for decision-making is called the Rational Model. The rational model, unlike the intuitive model, is data-driven and focused on analytical reasoning. The Rational Model is often preferred for its objectivity. The rational model is extremely useful for complex projects where facts and precedent are available, and where multiple scenarios need to be assessed.
The Rational Model typically has 7 steps.
The Rational Model is as follows: 1) identifying the problem or opportunity, 2) gathering the relevant information that will help you make the decision about the problem or opportunity, 3) analyzing the situation (which includes strategizing what alternative scenarios might be possible– perhaps contextualizing the situation in different frames), 4) developing multiple options, 5) evaluating those options, and then 6) selecting and 7) acting on the most beneficial of them.
The rational model cannot eliminate risk in your strategic decision-making, but it is an essential process to predict best outcomes. (EXAMPLE + ADDENDUM TO SCENARIO)
This now raises another issue that is often left out in business decision-making models. And this is a question of ethics.
When making a decision, a business leader usually asks: First, does it optimize the bottom line? Second, one must ask: is it legal? Third, does the decision comply with contracts?
But Michael Hackworth, of the Silicon Valley National Association of Corporate Directors, Chairman of Cirrus Logic, and Advisor to the Markkula Center at Santa Clara University, points out that this fourth question: Is it ethical?
Ethics is more about the character of an organization and its reputation in the community; it is also the character of the CEO and the leadership that trickles down the organizational culture. Ethics asks what is the right thing to do? And this is why ethics can be complex, even misunderstood.
As a kind of philosophical term, many people can get confused about what ethics really is. Ethics, for example, is not exactly the same as religion. Ethics is not the law. Ethics is not feelings, culture, or science. But rather ethics is informed by one or all of these. Ethics, for example, may be informed, even dictated by religion; in other cases, ethics may be informed more by science and culture.
There is a famous case I often use called “Snake in the Grass.” It speaks about building a dam to address the water needs of a human community living in a desert region. The problem is, to build this dam, an endangered species of snake will become extinct. There is no way to avoid the extinction of the species in all the research done for building the dam; and there are possible uses the snake might offer, for example, to cure human disease, and still unknown contributions the snake gives to the environment. So the question is: do you build the dam? Or do you not build the dam?
This dilemma highlights how unclear it is to know what decision will serve human needs the most. We know, for example, that certain species have given cures for disease. We know that certain species make contributions to the environment that keep the environment stable. Keeping this species alive might serve humanity in yet unknown ways. This may be the most important long-term decision, taking into account the possibilities of science, the laws of environmental protection, and some people’s religious obligation to care for the earth.
On the other hand, it is also a cultural, societal and common religious obligation to care for fellow humans in need. Building the dam is the more immediate solution to this problem.
Think for a few moments about which action you would take. Do you consider this dilemma between a “good” and a “bad” choice? Or do you consider it a choice between two “bads”? Now try to locate the source of your opinion and the decision you will make. What ultimately informs your decision? Is it a cultural value? A religious imperative? Expediency? Short-term vs. long-term goals? Science? A combination of these? Once you have made your decision, how would you then implement it to care for all those affected by the decision and involved in it?
Ethics becomes especially tricky in business because sometimes the decision that will optimize your bottom line and support your business in the short term may not be the decision that will create trust and reliability in your company in the long term. What if, for example, there was a way to provide the needed water without disrupting the snake’s habitat? Of course this would be the best solution. But what if it came at a very significant financial cost? Then what would your options be?
A famous past example of poor corporate responsibility is from Chevron. Chevron took advantage of the lenient laws in Ecuador, and dumped 18 billion gallons of toxic waste into streams, rivers, and unlined pits. (http://www.businessdictionary.com/article/558/corporate-code-of-ethics-for-international-business/) Certainly this solved the companies need to dispose of waste, and it avoided the environmental laws the United States, and the cost of disposing of such waste in the right way. But what Chevron did created birth defects and death over a span of 20 years in affected Ecuadorian regions (ibid). What Chevron did optimized their bottom line, but at great ethical cost. The cost in the world community, in turn, was trust.
What Chevron did met the three criteria normally applied to business decisions, as we discussed above. It did meet their bottom line. It was legal. And it did comply with contracts. But it importantly left out the fourth dimension: ethics. And human tragedy was left in the company’s wake. Extremely expensive lawsuits also often follow these kinds of tragedies that, in the end, fail to support business trust, growth, and success.
Chevron is a very extreme example here, too. (A FEW OTHER SIMPLE EXAMPLES)
So it is important to incorporate ethics into the decision-making model you use.
The Markkula Center for Applied Ethics at Santa Clara University offers some key questions you can incorporate into your business decision-making that can help you ensure that ethics is part of your business leadership. Here, I incorporate these questions into the standard rational decision-making model.
For example, when you identify a business problem or opportunity (step 1 of the Rational Business Model), also recognize whether there is an ethical dimension to the situation.
When analyzing the situation (step 3 of the Rational Business Model), be sure to consider all those who will be affected including those in the greater community.
When evaluating options (step 5), ask which option will do the most good (equitably) and the least harm. And which option will reflect on the kind of person you want to be? And the kind of company you want to run?
Apply the Sunlight Test, finally, in your choice (step 6): if your decision is broadcasted in public television around the world tomorrow, what will people say?
Leadership is often not just about quantitative data, or predictable results. It is about making something happen. As a business leader who wants to lead ethically, you get to say: We are going to make this happen, because it is the right thing to do.
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