DECISION TRAPS:

Ten Barriers to Brilliant Decision-Making and How to Overcome Them

 

J. Edward Russo and Paul J. H. Schoemaker

(New York: Doubleday, 1989)

 

To Daniel Kahneman, Herbert Simon, Amos Tversky

whose path-breaking research provided

the intellectual foundation from which

our bridge to practice was built.

 

 

Chapter I: An Excellent Decision-Making Process

 

Nothing is more difficult, and therefore more precious,

than to be able to decide.

                                                                                    NAPOLEON,

Maxims, I804

 

Athletes set new records every year for at least one important reason: Coaches have learned that excellent athletic performance depends on processes they can analyze systematically. Year by year, in almost every sport, the best coaches learn more about the processes involved in great athletic achievement as well as better ways to teach these processes.

 

Becoming a good decision-maker is like becoming a good athlete. You need to examine the process of decision-making systematically. You need to know how each part of the process contributes to an excellent decision, and know the errors associated with each part. And you need to work consistently on eliminating the errors you still commit in each phase. For example, managers whom we've trained are alert to overconfidence in their judgments. They avoid rationalizing mistakes in past decisions. If they have come to liken their business to a football game, they constantly check to see whether that metaphor still fits their business's real problems.

 

The right way to play golf often violates your intuition. (Most beginners for example think they should bend their arms as they swing a golf club.) So also, the right way to make decisions often violates your natural inclinations. Good decision-makers have learned that what they "know," even about a field where they are recognized experts, is often wrong. As Ron van Beaumont, head of senior management training at Royal Dutch/Shell put it,

"Our executives have to learn when to distrust their judgments."

 

In this chapter we describe the key elements of an excellent decision-making process and introduce the metadecision, an important first step that should take place before you've even completely defined the question to be decided. Then in the rest of the book we look closely at each of the major parts of the process in turn, to explain the decision traps you are likely to confront and how to overcome them.

 

The Key Elements

 

The decision-making process can be broken down into four main elements. Every good decision-maker must, consciously or unconsciously, go through each of them. 

They are:

 

1. Framing: Structuring the question. This means defining what must be decided and determining in a preliminary way what criteria would cause you to prefer one option over another. In framing, good decision-makers think about the viewpoint from which they and others will look at the issue and decide which aspects they consider important and which they do not. Thus they inevitably simplify the world.

For example, in deciding whom to promote you may simply define the problem as: "Selecting the person whose leadership is likely to produce the best performance in the work group." Note that this viewpoint pushes other aspects of the issue into the background, such as ability to connect with other parts of the organization, rapport with external clients, or rewarding the employee who has worked hardest or who has most seniority.

 

2. Gathering Intelligence: Seeking both the knowable facts and the reasonable estimates of "unknowables" that you will need to make the decision. Good decision-makers manage intelligence-gathering with deliberate effort to avoid such failings as overconfidence in what they currently believe and the tendency to seek information that confirms their biases. As Will Rogers said, "It's not what we don't know that causes trouble. It's what we know that ain't so."

 

3. Coming to Conclusions: Sound framing and good intelligence don't guarantee a wise decision. People cannot consistently make good decisions using seat-of-the-pants judgment alone, even with excellent data in front of them. A systematic approach forces you to examine many aspects and often leads to better decisions than hours of unorganized thinking would.

For example, numerous studies have shown that novices as well as professionals make more accurate judgments when they follow systematic rules than when they rely on their intuitive judgment alone.

 

4. Learning (or Failing to Learn) from Feedback: Everyone needs to establish a system for learning from the results of past decisions. This usually means keeping track of what you expected would happen, systematically guarding against self-serving explanations, then making sure you review the lessons your feedback has produced the next time a similar decision comes along.

At minimum, managers should sit down for a few hours twice a year with their associates to look back. Have they been collecting enough data to keep track of the lessons of experience? What have they learned in the past six months? How should it change their future work?

 

These four phases provide the backbone of almost any decision process. Unlike the parts of a golf swing or other athletic effort, however, the phases of the decision process need not be carried out one after the other. Indeed, information discovered in the "intelligence-gathering" phase should often inspire you to go back and reframe your decision. Moreover, a complex problem (the relocation of your business, for instance) may demand a series of smaller decisions, each of which will involve several framing decisions, several intelligence-gathering efforts, and several coming-to-conclusions steps.

 

But you should think about each of these aspects of your decision separately. You can't guard against the characteristic errors of each part unless you learn to recognize which part of the decision you are working on at a given moment. Often avoiding these errors is easy once you have learned to recognize the stages and traps. A good golf swing or swimming stroke is no harder to execute than a poor one. The same holds true for a good decision process.

 

Where Do You Spend Your Time?

 

Looking at the decision-making process this way may forever change your work habits. After introducing the four elements of decision-making in our seminars, we usually ask managers where they spend their time. The bulk of their time is typically devoted to intelligence gathering and coming to conclusions, and the least time is spent on framing. Almost all experience anxiety, frustration, and conflict with others before a decision is reached. To make matters worse, little time is usually devoted to postmortems and other ways of learning from experience.

 

At the end of our seminars, these same people tell us they are going to focus more on framing and on learning from experience. They are going to delegate information-gathering, because they will have a frame with which to tell people what to gather and how. With a good frame, they will also be able to spend less time on the choice itself. Subsequent discussions have shown that this is what actually happens, at least to the managers who we keep in touch with. They experience less aggravation and conflict, and find group meetings more productive and even enjoyable.

 

The Metadecision

 

The four major parts of the decision process consume almost all of a good decision-maker's time. At the very beginning, however, you should make choices about the decision process itself – choices that are likely to determine the character of the whole effort. We call these choices the "metadecision." ("Meta" is a Greek prefix denoting here "beyond" or "transcending. ")

 

A wise and timely metadecision can help you avoid Decision Trap Number 1: Plunging In. When you start work on any major issue, you should spend a few minutes (and occasionally a few hours) thinking about the larger issues you are facing. A metadecision involves asking questions like "What is the crux of this issue? In general, how do I believe decisions like this one should be made? How much time should I spend on each phase – as a first guess."

 

If you're considering buying a house for the first time, for instance, you might reflect that the most important part of the decision process will be a series of separate intelligence- gathering efforts – learning about financing options, evaluating various neighborhoods, and finally looking at specific houses. Finding an excellent new home will depend on managing all this intelligence-gathering well.

 

Often the excellence or sloppiness in decision-making is established in the metadecision that takes place, usually without the decision-maker even knowing it, before framing really begins. The metadecision should be distinct from the actual framing of the decision. You should think about the general nature of the decision to buy (or not buy) a new house even before you try to frame precisely what kind of house you want and how much you want to spend.

 

So before any major decision process is launched, review the Metadecision Questions in the accompanying box. The first two questions are the most crucial. The others serve to illuminate them.

 

 

METADECISION QUESTIONS

 

 

 

  • What's the crux or primary difficulty in this issue? In which of the key elements of the decision process does it lie?

 

  • In general, how should decisions like this one be made? (e.g. alone or in groups; intuitively or analytically, etc.)

 

  • Does this decision greatly affect other decisions?

 

  • Must this decision be made at all? Does it need to be made now? Should it be made by me? What parts can I delegate or do jointly?

 

  • How much time have decisions like this one taken in the past?

 

  • How long should this decision take? When should it be made? Are the deadlines arbitrary or real?

 

  • Can I proceed sequentially from framing to intelligence-gathering to coming to conclusions, or must I move back and forth among the parts of the decision process on this issue?

 

  • Where should I concentrate my time and resources? How much time should I expect to spend on each phase of the decision process? Do I face a difficult job framing this choice? Will intelligence-gathering be the biggest challenge? Will I have difficulty making the decision rationally even after I've completed the framing and intelligence-gathering?

 

  • Can I draw on feedback from related decisions and experiences I've faced in the past to make this decision better?

 

  • What are my own skills, biases, and limitations in dealing with an issue like this? Do I need to bring in other points of view? Which other points of view would be helpful?

 

  • How would a more experienced decision-maker whom I admire handle this issue?

 

 

 

 

Most decision-makers fail to focus on making the right metadecision. They fall into Decision Trap Number 1: They PLUNGE IN to the decision process.

 

 

 

Decision Trap Number 1

 

Plunging In: Beginning to gather information and reach conclusions without first taking a few minutes to think about the crux of the issue you're facing or to think through how you believe decisions like this one should be made.

 

 

 

Negotiators, for example, may fail to ask themselves how they should decide the right response to their adversary's proposal. Money-losing companies may not ask themselves what is the crux of the issue of reviving the business. Companies discussing new products may not think through how new product development decisions should be managed. Nothing else can yield more improvement in less time than making more thoughtful metadecisions. At the end of the metadecision you should have a good sense of which phases are most important, and how much time and resources each deserves.

 

How a Metadecision Transformed Pepsi-Cola

 

Since few executives have been trained in decision-making, few think deliberately about the decision process and how to handle each step. But many executives have discovered for themselves some excellent decision-making techniques, and some know how to make an excellent metadecision – especially when they can sense their organizations are suffering from the ill-effects of HAVING PLUNGED IN.

 

John Sculley, now the chairman of Apple Computer, demonstrated the power of a good metadecision when he served as vice president of marketing for Pepsi-Cola in the 1970s when Pepsi was running a distant second to Coca-Cola. In Pepsi's case, Sculley's good metadecision transformed the organization's competitive position.

 

Sculley recalls in his autobiography, Odyssey, that PepsiCola executives believed for many years – rightly – that CocaCola's distinctive, hourglass-shaped bottle was "Coke's most important competitive advantage."

 

"The bottle design nearly became the product itself," Sculley recalls. "It made Coke easier to stack, more comfortable to grip, and more sturdy to withstand a vending machine's drop. As much a part of this country as Mom and apple pie, it was the only company logo a person could pick up in his hand."

 

Pepsi-Cola executives had plunged into a series of efforts to compete with Coke's bottle. They approached packaging, Sculley says, "within the competitor's framework. " They "spent millions of dollars and many years" studying new bottle designs. But although the Pepsi-Cola "swirl" bottle, introduced in 1958, served as the company's standard packaging for nearly two decades, it could never achieve the recognition of the Coke bottle. Pepsi wasn't learning from its own or from Coca-Cola's experience. It was weakly imitating Coke.

 

Then Sculley realized that the issue was being handled incorrectly. He didn't immediately prescribe a new direction, or even order his staff to think about redefining the problem. Instead, he made a metadecision. In other words, he asked and answered the crucial question, "How should problems like this be approached?"

 

Perhaps Sculley didn't ask all the metadecision questions listed in the metadecision box above. But it's clear that he asked several of them in one way or another, and you can easily see how the entire list would have helped point Pepsi's decision-making process in the right direction:

 

Coke's bottle. We need to "nullify that particular strength." (Odyssey, p. 20)

 

By seeking to "shift the ground rules" to alter the whole playing field if possible, by "pulling back and asking what the customer really wanted." (Odyssey, p. 21)

 

This decision is central to Pepsi's entire market position. We can take years if necessary to make it correctly.

 

The feedback only shows that we're not handling this issue right.

 

Sculley realized that the company simply didn't know enough about consumers to determine what they really wanted, and therefore it couldn't conduct its marketing decision process in the right way. So before he even tried to assign the bottle question to a new task force, he created an opportunity to learn from a kind of feedback the company had never used before: He launched a careful test to study how families actually consumed Pepsi and other soft drinks in their homes.

 

The company allowed 350 families to order soft drinks weekly in whatever quantity they wanted at discount prices. "To our astonishment," Sculley recalls, "we discovered that no matter how much Pepsi they ordered, they would always consume it." Sculley had discovered what all marketers now recognize as a key fact about snack foods – however much you can persuade people to buy, that's how much they'll eat.

 

"It dawned on me," he says, "that what we needed to do was design packages that made it easier for people to get more soft drinks into the home."

 

Now Sculley could properly frame the issue of competing with the Coca-Cola bottle: "It became obvious," he continues, "that we should change the rules of the competition entirely. We should launch new, larger, and more varied packages."

 

Pepsi began a new intelligence-gathering phase, decided to launch a new group of larger packages, and established new systems to learn from feedback in the stores to refine the packaging strategy still further.

 

The Fruits of Stepping Back

 

The results were dramatic. Coca-Cola couldn't convert its famed hourglass silhouette bottle into a larger container. Pepsi's market share expanded dramatically. Indeed, Pepsi drove the long unassailable "Coke bottle" into extinction in the U.S. market. Today Pepsi-Cola is fiercely competitive in U.S. supermarkets with Coke.

 

And it happened largely because Sculley avoided a decision trap into which all other Pepsi executives had fallen: He didn't PLUNGE IN to the decision of developing a competitor to the Coke bottle, but took time to contemplate how strategic decisions like that should ideally be made.

 

Good metadecision thinking at the start of a decision-making process led John Sculley to a brilliant solution. It can do the same for you.