why strategic decision making goes wrong
DESCRIPTION
The decision making processes of business and government have changed little over the past 200 years, but technology has advanced, the world got connected, businesses are now networked, and everything is moving faster. Making decisions in a ‘slow environment’ is far easier and far simple than a fast one, and today the ‘starting conditions’ and assumptions are highly unlikely to be fixed or stable for long. It is no longer sufficient to identify the 3 most important parameters to work as a close approximation to the truth. It is also insufficient to rely on past experience and intuition. We have moved into the non-linear domain with 10s or even 100s of variables to consider. Not only do the old way and methods not work, they are downright dangerous, and often with disastrous consequences. No military commander would plan a battle without attention to detail, comprehensive modeling, and gaming the situation to assess risk. But in government and business managers do just that, they still rely upon the knee jerk reaction, intuition, and past experiences!TRANSCRIPT
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Why Strategic Decision Making Goes Wrongin companies & government
Peter Cochrane
COCHRANE a s s o c i a t e s
cochrane.org.uk
ca-global.biz
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* An incomplete understanding* Dynamic data/information* Unappreciated complexity* Unintended consequences* Changing environment* Misplaced motivation* Management hubris* Personal reward* The unexpected* Novel situation* Short termism* Inexperience* Short termism* + + + + + + + + +
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C O M P A N I E S A R E
AWASH WITH DATA
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C O M P A N I E S A R E
AWASH WITH DATA
...thas is stored..
...and may beexamined
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...andspecific features
extractedMonday, 26 August 13
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...to be discussed at length
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...and identifiableparameters
classified
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. . . t o c re a t ereasonable
& sensible options
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...and by far the most popular methodor techniquefor choosing ?
I n t u i t i o n !
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...This often seems to work well in the short term, but then turns
into a long term failure - oftenwith dire consequences!
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And worse, the impact then spreads across
the entirecompany !
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C O M P A N I E S A R E
AWASH WITH DATA
How come
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. . .and ancient m a n a g e m e n t m e t h o d s n o longer work
Everything and everyone is now connected
The world is no longer a simple, linear, well b e h a v e d a n d w e l l understood place
It all got complex, dynamic and non-linear !
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In a non-linear and chaotic world a minor error can result in a very big outcome....
So what is needed and what should we be doing ?
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An effectivemodel of thecompany andmarket is a m i n i m u mrequirement
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F I N D I N G T H E
RIGHT DATA
IS VITAL
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Take into account the stochastic nature of business and the rate of informational change
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Build a computermodel - conductMonte Carlosimulations forall scenariosmany manytimes toreduce thevariance &the overall risk to some level of acceptability
σ
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...thereby reducing risk and chance
even further
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W A R G A M EEvery aspect and area of doubt around the corevalues identified by the computer model.....
.test and check...
..test and check...
...test and check...
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Press GO and then mitigate the risk in real time by feeding actuality back into the model as decisions are enacted...
...the change you invoke will change the environment and the optima of the model.....which will dynamically move in near real time...
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GOStarting
Conditions
Output/ Change
Cont inuousoutput/changef e edba ck to m o d i f y t h e initial/starting conditions of the model
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Complexity dictates that we ‘navigate’ our way through a rapidly changing environment....
. . .continual mid course corrections are the new norm
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As of today this is the best the military and business can do!
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The
future
will be
different
ca-global.biz
cochrane.org.uk
COCHRANE a s s o c i a t e s
Our machinedependencewill grow asour intuitionincreasingly
fails to accountfor complexity...
Monday, 26 August 13