decision making competitive advantage of our times

DECISIO

N-MAKIN

G

T H E C O M P E T I T I V E A D V A N T A G E O F O U R T I M E S

C A F É D I S C U S S I O N W I T H

F R E D E R I C K C . M I L I T E L L O , J R .

C E O / S E N I O R T H O U G H T L E A D E R

H T T P : / / F U T U R E C H A N G E M A N A G E M E N T . CO M.

http://futurechangemanagement.com/

http://futurechangemanagement.com/

BY F R E D E R I C K C . M I L I T E L L O / F U T U R E C H A N G E M A N AG E M E N T C O P Y R I G H T 2 0 1 1

QUESTIONS TO EXPLORE…

What constitutes making a decision?

What constitutes making a good versus “poor” decision?

How do we actually make decisions?

How can decision-making impact the competitive position of an organization?

How can we improve our decision-making capabilities?

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AND LET’S PONDER…

Why my Sicilian grandmother was a better decision-maker than most business people

Why the founder of Facebook is perhaps one of the most socially disconnected decision-makers of our times

Why some of our most revealed decision-makers (e.g., Rocky Balboa) appear to emphasize emotions over intellect

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AND FURTHERMORE…Why the financial crisis of 2007/2008 was a

failure in decision-making above all else

Why greater knowledge of decision-making has become a source of manipulation and exploitation

Why our beliefs (and values) about the external world have a profound impact on decision-making approaches and business models

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REALITIES…

We make an extraordinary number of decisions each day – the range of agreement, as to how many, is extreme

Many of these are made in our subconscious; many are deliberative

Just regarding food/eating, we make more than 200 decisions per-day (Cornell University Study, Journal of Environment and Behavior, 2007)

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THE ASSAULT OF DECISIONS…

BY F R E D E R I C K C . M I L I T E L L O / F U T U R E C H A N G E M A N A G E M E N T C O P Y R I G H T 2 0 1 1 6

IMPACTS…

This assault of decisions has resulted in what is called “decision-making fatigue”

The effect/term was coined/recognized by social psychologist Roy F. Baumeister

Increasingly, this “fatigue” is leading to forms of manipulation and exploitation

For example, recent studies done by Jonathan Levav of Stanford University and Shai Danziger of Ben-Gurion University



IMPACTS…

“…decision fatigue can make quarterbacks prone to dubious choices late in the game

and CFOs prone to disastrous dalliances late in the evening. It routinely warps the

judgment of everyone, executive and non-executive, rich and poor…. Yet few people are aware of it, and researchers are only beginning to understand why it happens

and how to counteract it.”(As reported in the New York Times, August 17, 2011)

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WHY IS THIS IMPORTANT…

Leads to questioning of the rational choice model of decision-making

Goes beyond decision-making biases and decision-making models based on pattern recognition

There is a certain emotional intelligence (or lack of ) in decision-making—perhaps explained by biological causes as well

Key here: Socrates’ guiding rule — “know thyself” (or others will know you better than thyself)

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SO I PUT IT TO THE TEST…

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WHAT DID I FIND?

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The Front of the Store…produce and Front of store view…focus

on healthful items….


AND WHAT ELSE DID I FIND?

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Back of store view and checkout….decision fatigue at its best!


SO HOW DO WE DECIDE?

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SO HOW DO WE DECIDE?

“The story I have to tell is marked all the way through by a persistent tension between

those who assert that the best decisions are based on quantification and numbers,

determined by the patterns of the past, and those who base their decisions on more subjective degrees of belief about the

uncertain future. This is a controversy that has never been resolved.”

Peter L. Berstein, Against the Gods: The Remarkable Story of Risk



THE DIVERSITY OF CHOICE

Automated Reflective Model

The Recognition-Primed ModelMisused Analogies Outdated Mental Models

The Rational Choice ModelCognitive Biases Heuristics

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Tacit and Explicit Knowledge


The StepsIdentifies the set of

options

Identifies the ways of evaluating these options

Weighs each evaluation dimension

Does the rating

Picks the option with the highest score

The BiasesOverconfidence

Sunk-costs

Availability

Others

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THE RATIONAL CHOICE MODEL


Can look at cost versus risk mitigation preferences

Such as making a choice between incurring increased costs for reducing risk

Risk reduction can be looked at as increased flexibility

The more flexibility you prefer the higher the cost you incur—are willing to pay

Can extend model to making matching product preferences

Looking for the optimum mix of cost versus flexibility (relative to existing capital structure)

Trade-off Model

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EXAMPLE

Cost

Flexibility


RECOGNITION-PRIMED DECISION-MAKINGSEE THE WORK OF GARY KLEIN, SOURCES OF POWER: HOW PEOPLE MAKE DECISIONS

Does not compare choices

The focus is situational

Looks for the first workable solution—not the best/optimum (more of a “gut reaction”)

Generates and evaluates choices one at a time—avoids comparisons

Focus is on the choice being carried-out—thus improvement focused

The emphasis is on action…not analysis

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RPD MODEL

Intuitive Decision-making

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Situation

Cues

Patterns

Action Scripts

Mental Stimulatio

n

Mental Models

TWO SYSTEM AUTOMATED/REFLECTIVE “MODEL”

Blends intuition with analysis—thus, avoiding communicative/credibility issues as well as experience/inexperience conflicts

The automatic system (intuitive) is fast, effortless, emotional and uses tacit knowledge

The reflective system (cognitive) is slower, conscious, effortful, deliberate, and uses explicit knowledge



EXAMPLE: FRAMING MATTERS

The fall and rise of General Motors

The past – viewed the world very cognitively…more as a threat…more analytical…more focused on cost reduction

The present – view the world very experientially…more as an opportunity…more emotional…more focused on being car people than numbers people

The ten reasons why methodology…need both (the whys and the why not's) but which drives the business model?

See Bob Lutz (former vice chairman GM), Car Guys versus Bean Counters: The Battle for the Soul of American Business (2011)

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1. Experience versus inexperience

2. Tacit versus explicit knowledge

3. Intended versus unintended outcomes

4. Ambiguity and complexity

5. Pattern recognition and mental simulation

6. Values, beliefs and culture

7. Individual and collective conscience

7. Stories—experiential transference

9. Bias awareness and adaptability

10. Knowing thyself—the EQ of decision-making

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MAKING “BETTER” DECISIONS: CONSIDERATIONS


DECISION BLISS

Decisions, Decisions, Decisions…I Made Mine!

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How About You?Thanks….