Bad business decisions are not as bad as you might think, if viewed in a broader context. In fact, failure drives economic activity: a careful analysis of competitors’ bad moves helps improve one’s business performance. On the other hand, too much precaution can actually hinder the decision-making process, often resulting in no decision at all. It is even believed that “a bad decision is better than no decision” as the more time it takes to make up your mind, the more you risk losing some options. These 5 steps can help you strike a balance between precaution and action in decision-making, and prevent becoming a failure case study for others:
1. Prioritize and routinize your tasks. The average CEO deals with about 139 tasks per week. They make 50% of task-related decisions in 9 minutes or less. Only about 12% of their decisions take an hour or more. These findings highlight the importance of task prioritizing. As work time passes, it becomes more challenging to keep sharp focus and, consequently, show good judgement. To avoid that, try turning small decisions into routines so that you can better address complex issues. This idea is behind the popularity of repeat-outfit style among successful people. Once former US President Barack Obama explained his decision to wear only gray or blue suits to work: “You need to focus your decision-making energy. You need to routinize yourself. You can’t be going through the day distracted by trivia.”
2. Rely on data. Research shows that it is difficult to improve business performance if executives react to problems instead of considering all the facts before making a decision on the best course of action. A lack of data impairs their judgement: they cannot properly identify a problem and risk making a bad move, thus complicating the situation.
Data-driven decision-making also gives a competitive advantage. Incorporating data analysis and modelling into the decision-making process boosts the odds of success. Still, strategic decisions cannot be made without relying on intuition. More specifically, fact-based and gut-based decision-making complement each other: data help make well-informed bets, thus optimizing strategic risk management and yielding better results.
3. Imagine your failure. Ventures are often driven by overconfidence in one’s success. There is too much focus on evidence that supports a preferred hypothesis. To get a more realistic projection, it is enough to simply “think of the opposite”: to list the reasons why a project might fail. A modified version of this approach is prospective hindsight. It recommends imagining a potential failure. For example, a home buyer should imagine a situation where their investment value sharply decreases, and think of the reasons which have led to that. Contemplating an imaginary failure should prevent groundless optimism and help prepare for different outcomes (Soll et al., 2014).
4. Recognize your limitations. Many business people believe that they should be the sole decision makers. Too much self-reliance, however, can result in poor decisions. It has been observed that the higher position held, the more effort it takes to admit one’s fallibility. Corporate incentives motivate executives to be decisive, (over)confident and ready to take risks. To overcome ego-driven decisions, as is often the case, discussions should become a standard decision-making practice within organizations so that executives’ ideas would be challenged and examined collectively.
5. Don’t over-rely on your experience. Without doubt solid work experience is an asset for any business. However, strategic decision-making under rapidly shifting market conditions is challenging even for a well-experienced professional. Too much reliance on one’s experience narrows down the perspective, often leading to misinterpretation of the current situation. Each case is unique, and thus should be interpreted in its own context. The approaches that have worked well before cannot be applied again without careful consideration. In many cases, developing a new approach is needed. If so, past approaches could still be used as a point of reference.
References: Harvard Business Review | Sheena Iyengar, ted.com | Travis Bradberry, Forbes | Michael Lewis, Vanity Fair | Leslie Stevens-Huffman, Smart Business | Soll, J. B. et al. (2014) “A User’s Guide to Debiasing”. G. Keren and G. Wu (eds). (2015) Wiley-Blackwell Handbook of Judgment and Decision Making | Erik Sherman, Inc. | mckinsey.com