In a few words:
Good decisions aren’t only the right thing to do, they are the most profitable investments you will ever make. The Guide is about solving problems using the state-of-the-art business consulting method. It is about getting success in business by improving the single most important thing under your control – the decisions you make.
Of course as Mark Twain said, ‘a self made man is as likely as a self laid egg’. Please feel free to share this book with a partner, your spouse, a master mind group, or by contacting me so that you can bring the power of more minds to bear on the decisions the shape your future.
Better Results from Better Decisions
The Business Process Guide
copyright © 2015 Jeff Gilman
About the Author – Jeff Gilman is from Cleveland, Ohio. He earned his MBA at Case Western Reserve University. He has consulted in the United States, Pakistan, the West Indies, and Saudi Arabia. His clients and employers have included Peat Marwick/KPMG, The US Agency for International Development, The Social Security Administration, The Saudi Ministry of Post Telephone and Telegraph, Shell Oil, The Barbados Central Bank, and many other business and non-profit organizations.
In the US, he has worked as a consultant for Orion Consulting (now CGI, Inc.), owned two franchises, and consulted for small businesses, hospitals, non-profits and other organizations.
He has engaged in decision making ranging from allocating fertilizer to nutmeg growers in Grenada after the US invasion to restore democracy; to designing Executive Information Systems at Saudi Telecom; to allocating costs in a large Catholic Diocese; to procuring management systems for governmental agencies; to developing new products; to marketing; to buying and selling businesses.
Today he consults on business management.
Steal this document: This document is copyrighted. However you are free to share it subject to two caveats: it is not changed or altered, and; if any portion is used the proper attribution is given.
Dedicated to Vince: for all those times you said, “That’s fuzzy thinking, Jeff.” I learned a lot. Thanks, Buddy.
Table of Contents￼
Part I. Decision Issues
The Regression Issue
Part II. Decision Issues
The 80/20 Rule
Symptoms Aren’t Problems
Cause and Effect
Good Decisions Are Structured
Critical Success Factors
The ‘Unique’ Organization
Apply resources to opportunities, not problems
Part III. The Consulting Method
Step 1. Define The Problem
Step 2. Know the assumptions
Step 3. Understand The Environment
Step 4. Competencies
Step 5. Restate the Goal / Restate the Problem
Step 6. Research
Step 7. Analysis
Step 8. Choose Between Alternatives
Step 9. Implementation
Step 10. Feedback loop
Organizations are defined by the decisions their members make so this is a book about organizational development and behavior. It differs from other behavior books because it is about the actual process of doing a certain type of work – deciding. The essential point is there must be a management structure in place – good choices don’t happen by accident. Like managing any process, people must understand the process, buy into it, be held accountable, and be rewarded for their results at this important work. Another way to say this is small organizations need to be more bureaucratic when it comes to decisions and big organizations need to be more entrepreneurial. Let me explain:
The second to last thing a small organization needs is to lose flexibility and get bound up in nonsense that wipes out its entrepreneurial advantage. The very last thing a small organization needs is to make a bad decision. Small organizations can least afford mistakes so a good methodology can be a life saver. This book provides a methodology to get it right – a set of rules and procedures – a bureaucracy if you will – to make better decisions.
That large organizations need to be more entrepreneurial is almost a cliche’.
One would think bigger organizations would make better decisions. However, the evidence doesn’t bear that out. Blackberry, AIG, the Microsoft Zoon, MySpace, Iraq – there is no shortage of dumb decisions in large organizations. Why should that be when they have all the decision making resources they need? I think I know: large organizations tend to stamp out entrepreneurial and independent behavior by rewarding people who make safe, simple, and agreeable decisions. Being composed of people, organizations tend to reward behavior rather than results.
Next time you see a dumb-me-too-TV-show or thoughtless-copy-cat-product, or experience mindlessly engineered customer service, remember the organization didn’t make a brilliant decision. They wanted a safe-copy-cat-someone-did-it-before-don’t-rock-the-boat-and-don’t-draw-attention choice. No doubt management is telling staff to be creative – to go for a win – to get results. But at the end of the year the system rewards the safe play. The effect of the reward structure is to force the safe course – the low risk, low return, low entrepreneurial course of action.
A decision method such as this helps encourage entrepreneurship because: It requires clear thinking with peer review. It helps prevent corporate amnesia. It demands data gathering and fact based thinking. It insists on developing choices over snap judgements. It demands understanding the consequences of decisions. And it focuses on results.
This is not a call for paralysis by analysis. Rather it is a road map to making effective decisions to get better results and to avoid the waste that comes with reworking bad choices.
In April of 2015, Dan Price raised the minimum wage in his own company to $70,000 because he read an article about happiness. People, the article explained, were not made happy by money, but were often unhappy due to the lack of money. Some amount near $70,000 a year was the point at which basic needs were met, money worries diminished, and financial security attained. Past that, more money did little to make people happy. Dan set off to make his staff happy by raising their pay. ￼
The media heralded Dan as a pace setter for other firms.
6 months later it appears Dan has made one of the worst decisions in the history of small business.
Customers have left fearing price increases or because they think Dan is making some sort of political statement. Key employees have quit. Hard working employees feel victimized by the less hard working. Old hands feel cheated because new comers are making as much as they. Dan, who used to take home a million dollar a year salary is now making so little money he needs to rent his house out. And his brother is suing him for violating his minority stock holder rights.
The religious press sees this as revisiting the parable of the talents. The right wing press sees it as a morality lesson. The business press thinks its good fun for pundits to make comments. The liberal press has little to say.
This book is about using process to make good decisions. We shall explore the psychology, method, and techniques of decision making. We’ll see how Dan, like many others, sometimes wanders off into the weeds and what we can do to make better choices.
Of course, there are no guarantees in life. The best thinking and smartest decisions sometimes don’t work out for reasons unimaginable. Someone opened a business in New Orleans just before Hurricane Katrina. Someone bought a business the day before the Great Depression started. Stuff happens. Nothing will protect you from the unknowable. However, you can give yourself the best chance and this book will help you do that.
[_Festina lente. (Make haste slowly). – Augustus Caesar _]
This book is for executives. It is for the people who make the decisions that commit resources – it is for the people who set the direction. If the buck stops with you, then this is for you.
The problem with making decisions isn’t that people don’t know how to make good ones, it’s that they think they do. Or to quote Mark Twain, ‘It ain’t what you don’t know that gets you into trouble. It’s what you know for sure that just ain’t so.’
In this regard decision making has a lot in common with sex. People are generally for it (in the right circumstances of course). We all think we understand it (though we probably don’t want to explain it). Everyone thinks it is a matter of following instincts (my parents didn’t talk about it). And we are mostly sure that we are good at it (no one has complained!). If something doesn’t go right, the other person is at fault (if they had only taken a little time).
The fact is that decisions have more to do with people than anything else. How people see things, their assumptions, their beliefs, how they translate what they see into reality, and so on are the things decisions hinge on. Therefore this book is about the way make decisions – not the way people make .
My hope is you will get a new and more nuanced view of decision making, see some opportunities to fight fuzzy thinking, and improve performance of individuals and organizations thru clearer thinking. To meet these goals, the book is in three parts:
Part one discuses the psychology, difficulties, issues, and how our own minds work when making decisions. It is about forces that influence decision makers.
Part two contains management tools and advice for working with, managing, and making decisions.
The third part is the consulting decision method – the process for making better decisions. As you study this process bear in mind that when the doctor recommends an aspirin, you don’t need to take the whole bottle. Not every decision needs every step executed in its full extreme. But every decision will benefit from a bigger, broader, deeper and more thoughtful view. Our goal isn’t paralysis by analysis, but rather better results from clearer and more complete thinking. Make haste slowly.
By three methods we may learn wisdom: First, by reflection, which is noblest; Second, by imitation, which is easiest; and third by experience, which is the bitterest. – Confucius
To frame our discussion, let’s look at a short example of how John, a small business owner, makes decisions:
John has 2 vehicles in his fleet – a truck and a car. He wants to upgrade them￼
and has enough money to replace one. The truck gets 11 miles per gallon and he can replace it with a new truck that gets 13 MPG. The car gets 30 MPG and he can replace it with a new car that gets 40 MPG. Which one should he replace to get the greatest savings in gas?
(Answer the question before continuing.)
John, like most people concludes that the car which yields 10 miles more per gallon will save more gas than the truck which only yields an extra 2 miles per gallon. Let’s test his conclusion:
|20,000 miles per year||30,000 miles per year||40,000 miles per year*]|
|Truck getting 11 mpg||uses 1818 gallons||uses 2727 gallons||uses 3636 gallons|
|Truck getting 13 mpg||uses 1538 gallons||uses 2308 gallons||uses 3077 gallons|
|Savings with truck||280 gallons||419 gallons||557 gallons*]|
|Car getting 30 mpg||uses 667 gallons||uses 1000 gallons||uses 1333 gallons|
|Car getting 40 mpg||uses 500 gallons||uses 750 gallons||uses 1000 gallons|
|Savings with car||167 gallons||250 gallons||333 gallons*]|
In every distance driven there are greater savings by replacing the truck. Overwhelmingly however, people believe upgrading the car will produce the better savings. So why do we get it wrong so often?
The answer has a lot to do with the way the brain works. In effect, we are programmed to make the wrong choice. There was almost no way not to make the wrong choice. This is why:
Most people make decisions based on a rule – a heuristic – that works based on the brain’s wiring and reinforced by life experience. In this case the rule is to make a comparison. People start doing this as children: “Did my sister get a bigger helping than I?” “Who is wearing the better dress?” “Which house is better?” When we see this problem we make the comparison that saving 10 miles per gallon is better than saving 2 miles per gallon. The ‘obvious’ choice is to select the option that yields more miles per gallon. Ten beats two.
Of course this thinking can’t take into account many issues; the baseline from which we started, the impact of incremental improvements, or even projected use (such as total miles driven). 10 more MPG is better than 2 more MPG and that’s all we need to render a decision.
Of course decisions have consequences. For the driver that travels 30,000 miles per year the savings is likely over $700 a year. For a country that has millions of trucks on the road, moving the fleet average of trucks rather than cars can result in billions of dollars not sent overseas and millions of tons less emissions. Better decisions make huge differences.
In the same vein consider your next purchase – a computer, a car, a house, an education – they are all subject to the same heuristic. The seller knows you will make a comparison and is going to use that as a ‘hook’. They will promote a feature, often irrelevant, to help you make the comparison. We will, all things being equal, buy the computer with the faster CPU, even if we don’t know what that means. We will opt for the more expensive college because we equate cost with quality – that’s our comparison decision heuristic at work.
Why do we do this? Why don’t we get smarter? A lot has to do with the capacity of the brain itself. We are surrounded by data – literally gigabytes of data come at us every second – but our senses only take in a few kilobytes per second. Even that consumes a lot of energy – as much as 1/4 of all the calories we take in are consumed by the brain. To save energy, the brain simplifies problems by working with heuristics. This works pretty well most of the time. We can drive, walk and chew gum, spot a threat in the crowd, perform our work, and do a lot of other things well because that’s how we evolved. Our ancestors didn’t spend a lot of time thinking about what to do when a tiger jumped out of the weeds – they reacted instantly. That’s why we are still here.
However, the brain didn’t evolve to deal with problems we often face in this day and age. Our ancestors never needed to calculate which ox cart got the most cubits per stack hay. Today we need to know. That’s why a problem solving method is important.￼
The strategy for dealing with this tendency is first to be aware of the problem. Just knowing how we use heuristics and questioning the process of deciding can be very liberating. Introducing some slow, thoughtful analysis will also help avoid mistakes. In a word, the solution is to shift gears and act a little more like Mr. Spock than Homer Simpson when confronted with certain decisions.
“You’re mind is working at its best when you’re being paranoid.
You explore every avenue and possibility of your situation
at high speed with total clarity.” ― Banksy, Banging Your Head Against a Brick Wall
“In the land of Gibberish, the man who makes sense, the man who speaks clearly, clearly speaks nonsense.” ― Jarod Kintz, This Book Has No Title
Before exploring the method of decisions it is important to get some background information on what influences our decisions.
This section includes only a partial list of the things that influence our thinking – our ‘biases’. There are literally hundreds and this section identifies only key and representative biases. You can see a much longer list on Wikipedia by searching for ‘List of cognitive biases’.
The key thing to take away is attitudes, events, and circumstances influence our thinking tremendously. Knowing what these things are and how they work will free you from their influence.
[_That’s been one of my mantras – focus and simplicity. Simple can be harder than complex: You have to work hard to get your thinking clean to make it simple. But it’s worth it in the end because once you get there, you can move mountains. – Steve Jobs _]
If you are like me, the first thing you said to yourself after seeing this picture is, “why is a dog driving that car?”
OK, maybe that isn’t the first thing you said to yourself. But it should be intuitively obvious that people sometimes are distracted. We all have a little Homer Simpson in us and we could all use just a little more Mr. Spock.
We are subject to predictable distractions which are known as biases or cognitive biases. Let’s examine a couple of ways biases influence us:
Anchoring. Anchoring is the tendency to let one piece of information serve as the starting point for our decision process. We anchor, or fixate, on something. Restaurants use this on us. I was in the Luxor in Las Vegas where one restaurant had an exceptional wine collection. Individual bottles cost as much as $30,000 and that’s pretty exceptional wine. They were proud of this and featured it on the wine menu. So conspicuous was the pricing that it dominated our conversation for the time we prepared to order wine. We were firmly anchored to $30,000 – so much so that we didn’t think twice about spending a couple of hundred dollars on our bottle, an amount we never would have spent at home. The Luxor knew that anchoring us to that high number made hundreds of dollars look like small change.
Another anchoring example is black pearls. When black pearls first came to market no one knew what to charge for them. Maybe they weren’t as good as white pearls and should be priced lower. Maybe they were better and should sell at a premium – but if so how much more? The solution was to display them next to white pearls which served as the anchor price. After seeing the white pearls at $2000, it just seemed right that black pearls should be $3000.
Framing . Framing is the bias of seeing thru a particular lens or frame of reference. For example, beef that is said to be 85% lean is more appealing than beef advertised as 15% fat. Lean is good. Fat isn’t. Despite the fact the two statements are identical, the way the issue is framed will result in more or less sales.
In one study, college students were asked two questions: ‘How happy are you? and Do you date a lot?’ There was a measurable difference in how happy they said they were based on the order the questions were asked: ‘Are you happy? Do you date?’ vs ‘Do you date? Are you happy.’ Framing of the conversation by changing the order of the questions changed how they saw their happiness.
Look at the ‘find a mistake’ graphic taken from a Facebook post. Do you see the error? It takes awhile to conclude the problem isn’t in the number sequence. The numbers are a red herring designed to frame your thinking and distract you from the real mistake.
Framing affects everyone. A medical patient told that an operation has a 90% chance of success is more likely to have the surgery than if she is told there is a 10% chance of failure. Doctors are more likely to recommend a procedure if they are told the procedure has a 90% chance of success than if they are told it has a 10% chance of failure. The odds are the same, but we don’t see it as the same because of the frame.
Availability. A third bias is the availability heuristic. Availability refers to what information you have the most of or most recent access to. Consider terrorism: there have been many deaths due to terrorism and it is a serious issue. It does affect where we vacation or even if we go to the movies. But is it as big a problem as some think? Consider that every year about 1.5 million people die of tuberculosis vs the thousands who die from terrorism. In the US about 10,000 people a year contract TB – more than twice as many than were killed in the World Trade Center attack. Yet we don’t worry about TB as much as terror. This is because of the availability heuristic: we see the stories on TV and it becomes bigger in our minds than its real threat.
Another example of the availability bias is in primary elections. Candidate after candidate rotates from the pack to the number 1 spot for a few days or weeks and then falls back into the bunch often never to be heard from again. The difference is information about them is new and sways us. As our familiarity grows, the candidate falls back.
There are literally dozens of cognitive basis and you can learn more about them at . I also suggest reading Thinking, Fast and Slow by Daniel Kahneman.
A strategy for dealing with these biases is first to know that they exist – the humility to accept we may be prone to error is the best defense. The companion step is to seek independent consul – another point of view. A third step is to challenge your assumptions. Merely asking, “so what?” or “does that seem logical?”, or “what could be influencing my thinking?” is liberating.
On second marriages: “The triumph of hope over experience.” Samuel Johnson
Decision makers (business people and newly weds among others) are prone to optimism. Every study shows this. The couple getting married knows the divorce rate is near 50%. They believe this when they are single. When they become engaged their assessments start to change and by their wedding day they are near 100% certain they will stay together for ever. The odds remain 50-50 but their commitment leads to optimism that changes their perception.
Business people know their chances of success are about 50-50. However when they make an investment their mental accounting starts to change. They start thinking they are destined to succeed. They become irrationally optimistic.
The optimism bias is a trait that is both useful and risky. It is useful because it is the foundation for trying – there wouldn’t be much progress if we thought we were destined to fail! On the other hand, optimism sometimes overrides judgement.
I recently worked with a startup that was failing. After 7 years there is no income and bankruptcy is imminent. The founders still KNOW with total certainty that success is just one lucky break away. Optimism is working against them by closing off the willingness to re-evaluate, re-plan, and pivot or make some other change in course.
When people get into this spot they tend to develop rationals to confirm their optimism. In this case the founders believe an angel, who is both rich and certain of the divine mission of the company, and will put up a $1 million to ensure success. Of course, that isn’t going to happen. It didn’t happen with the last savior, or the one before that.
There are many cases of successful people brought down by optimism. Steve Jobs comes to mind. He literally died of optimism. He choose to ignore his doctors’ recommendations and engaged in an herbal treatment for his pancreatic cancer. By the time he was done experimenting it was too late. On the one hand Jobs saw the future of computing, phones, music, tablet computing, and digital entertainment and pushed forward brilliantly into uncharted territory. On the other, he isn’t here to enjoy his legacy. This is a real quandary for decision makers: on the one hand, Job’s famous ‘reality distortion field’ permitted him to see a vision of the future and succeed in bringing it to pass. On the other hand, it killed him.
Henry Ford is another. A famous story is of Ford insisting on manufacturing the V8 engine block in a single casting. The story is he sent his engineers back to try again till they eventually gave him what he wanted. He believed there was a solution to his problem and he stuck to his guns till he got it. On the other hand, as the auto industry changed and new models came out, Ford suck with his Model T design. He famously said, ‘customers can have a Model T in any color they want so long as it is black’. He rode this confidence from a 66% market share to a 25% market share and Ford has never been the dominate company since. Again a quandary: the optimism that lead to achievement was the cause of failure.
All decision makers confront this bias. Recognizing it is an issue is essential to dealing with it. For instance, assembling a like minded – but also independently minded – and reality based team is one key strategy to avoiding excessive optimism. ￼
One way to deal with excessive optimism is is to work in smaller increments – a step by step approach. Jobs, for instance, set up a warehouse to look like an Apple Store and remodeled and reworked it many times before settling on a final design. He also brought in experts from other industries and companies to help find perfection in service and design and logistics. And he submitted his plans to his Board of Directors for further review. Even then Apple only opened a couple of stores to start – enough for a proof of concept and a chance to learn and develop feedback – a chance to develop management talent and key team members – a chance to study the customer and the business BEFORE betting millions on a network of stores. Success is a cinch by the inch but hard by the yard, as my father used to say.
[_“Like a man traveling in foggy weather, those at some distance before him on the road he sees wrapped up in the fog, as well as those behind him, and also the people in the fields on each side, but near him all appears clear, though in truth he is as much in the fog as any of them.” – Ben Franklin _]
People believe they accurately see and understand what they observe. We trust our observations. However the reality is we are often wrong. Consider the two tables – they obviously aren’t the same – one is clearly longer and one wider.
Now grab a ruler and measure them.
They are the same, aren’t they? What happened is the brain is programed to see in a certain way and that way includes seeing vertical lines as longer than horizontal lines.
On some level we all know this to be true. Everyone who has dressed to hide a problem area, used vertical stripes to hide a belly, black to make a fanny look smaller, or accents to make the shoulders broader has experience with this.
(Shepard tables, 1990)
One area people are particularly bad at is statistics – humans are lousy intuitive statisticians. We see and remember what we want – or as you know now – we see from the perspective of our anchor, based on the most recently available information, by the framing of the information, or￼
by another bias.
This picture of a symphony orchestra shows an obvious mix of men and women. Until recently orchestras were composed solely of men. The reason is the people that did the hiring chose the bigger stronger candidate – they believed that bigger lungs and more strength was important to playing better music. It makes sense – a powerful muscled chest with more capacity should produce better results than a little and relatively weak chest.
Women, of course, challenged this. When auditions were done ‘blind’ – the candidate hidden from view of the judges so only the sound was evaluated – they found about half the best players were women. We believe what we see because the accuracy of our observations is colored by the ‘logic’ we apply. This week another powerful example occurred: two women passed Army Ranger School. Fair tests produce startling results.
Fans of Moneyball will understand this. The Moneyball story is Billy Bean of the Oakland A’s came to understand that the then current method of selecting baseball players was ineffective. Scouts and coaches looked for things like grace, power, speed, agility and other ‘athletic’ factors when selecting players. They believed they could spot talent. Billy thought that was wrong – that speed, power, grace, talent, and other athletic factors didn’t matter much in player selection.
Bean proposed a set of statistics that selected players based on actual results. It seems obvious now but it wasn’t then. Of course, the drama of the story is the way the scouts rebelled at using statistics could predict how well players play. Scouts believed only they could spot the real talent. That they rejected statistics in a sport defined by its statistics is almost unbelievable.
Bean succeeded in fielding a team based on the measured ability of players to get on base. And it worked – the A’s won 94 games to the Yankees 95 in 2012, but did it for a lot less money. The Yankees spent a total of $198 million on salaries to the A’s $55 million. That means NY spent an average of $6 million per player to the A’s $2 million per player. Statistics can matter. Mere observations are misleading.
Women and minorities in particular should get this concept. Without getting on my high horse, many people have been passed over because they don’t look like what the judges expect. Perception was reality. However, a good decision maker will take that little bit of extra time to look past the obvious and quantify her problem to bring objective measurements to the decision process.
Clear thinking requires courage rather than intelligence. – Thomas Szasz
There is a tendency to explain what we see by assigning cause even when there isn’t any. Consider these two managers’ reactions to employees:
These statements are both taken from conversations I’ve had with managers. They absolutely believe what they say. But are they correct?
They are probably wrong. What they are really confronting is called the ‘regression fallacy’. Regression is a math term meaning moving towards the average. The term was coined in 1885 by Sir Francis Galton, a relative of Charles Darwin. Galton measured the height of children in relation to their parents. Influenced by Darwin, he envisioned some evolution in which taller parents would produce taller children. That didn’t happen and being disappointed in the lack of ‘progress’ he called the lack of growth regression. Regression as in, ‘we aren’t getting better, we are actually getting worse – we are regressing’.
Of course, time has proved he was wrong. There isn’t a strong hereditary correlation between parents’ height and the children’s height. Any size parents can produce any size child. On average, however, people produce average size children. Children’s heights do regress – to the average.
Regression is probably what happened with the employee issues above. The poorly performing employee probably was not doing terribly – rather she was at the bottom of her normal range of variation between bad days and good. The manager happened to focus one day and took action because it was an extreme. This is not unlike getting sick and going to the doctor. He writes a prescription, you go home, and in a day or two you feel better. There is a likelihood of attributing the improvement in your health to the doctor visit. In reality, however, the extreme in feeling bad caused the visit and shortly there after you would have started to feel better anyway. Like the old saying goes, you will get over the flu in a week if you don’t take the medicine and you’ll get over it in seven days if you do. God cures, the physician gets the fee.
Had the poorly performing employee not been scolded she probably would have turned around herself in a day or two anyway. That’s because she has been operating in that same range of performance for her whole life.
The pay raise issue is the same problem. The employee was promoted when the manager happened to see her performing at her best. Then she regressed to the mean – to her average level of performance. And this was a disappointment as the manager expected even better performance after the raise. Better work was never a likely outcome – she was already at the top of her game and there was no where else to go but down to her average.
This kind of thing happens in sports all the time. A team has a hot streak and the fans think they have figured something out. Then they go on a losing streak and the fans demand replacing the manager. The truth is they are the same team. They simply did better for a while and then worse for a while. In the end, they performed at their average level.
This is a constant business theme. One day a salesman is a genius and the next he can’t give away product. One day the production line is fine and the next it is producing junk. One day management is making a great decision and the next they are lost. The reality is it is mostly the same people working in the same way. They just have better and worse days. Assigning cause and effect to these natural fluctuations is a sure way to make a poor decision.
The ultimate measure of a man is not where he stands in moments of comfort and convenience, but where he stands at times of challenge and controversy.
Martin Luther King, Jr.
In this, the second section, and before examining the problem solving method, we need to explore some concepts and tools that make for better decisions. These concepts include analytical tools and insights to make better decisions faster.
There has been an explosion of analytical tools driven by research into math, science, and behavior. There have never been so many decision tools. Yet there is a problem; most tools are better ways to analyze and quantify what is already being done. They do what has always been done, just better and faster. What is missing are ways to see what isn’t being done – the better way – the break thru idea – the game changing solution to a problem.
Someone once asked Henry Ford why he didn’t like market research. His answer was if he’d asked people what they wanted they would have said faster horses. Henry’s answer represents an extreme anti-analysis position. His ego embodied the idea that the leader has all the answers. Of course, if he had the answers he wouldn’t have broken the company by holding on to the Model T as long as he did – or broke it again with the Edsel. The other extreme is the politician that can’t decide without a poll. Somewhere in-between are better solutions.
[_“The 80/20 principle – that 80 percent of results flow from just 20 percent of the causes – is the one true principle of highly effective people.” – unattributed _]
Generally there is a correlation between cause and effect – about 80-20 or maybe 90-10. For convenience, this is known as the 80-20 rule.
Examples include 20% of products will result in 80% of sales. In the smart phone business, Apple has about 20% of unit sales but accounts for about 90% of all industry profits. 10% to 20% of sales people will make 80% to 90% of the sales. 20% of customers will account for 80% of purchases. 20% of inventory will have high turn over - 80% will languish on the self and account for 20% of sales but 80% of carrying costs. 20% of the farm land will account for 80% of the crops. Last year on the professional golf tour the top 29 golfers out of 258 (just over 10%), won 90% of the tournaments.
The power of this rule is to help with focus. For instance:
This analysis is particularly powerful in finding opportunities, setting priorities, and aligning resources to results.
What appear at first sight to be the elements of the problem rarely are the really important or relevant things. They are at best symptoms. And often the most visible symptoms are the least revealing ones…. The first job in decision making is therefore to find the real problem. – Peter Drucker
It is obvious in medicine that a symptom isn’t an illness – no one was ever diagnosed with ‘fever’. Malaria is a disease – the fever a mere symptom. This delineation between symptoms and problems isn’t as distinct in business decision making.
I was recently working on a chain of restaurants whose sales were down. Management was quick to blame the staff but my observation was that they misdiagnosed the problem. Management had evidence for their conclusions to be sure. Site visits found service was imperfect. They had a web site that collected compliments and complaints. They had years of experience to back up their judgement; but they got it wrong.
Interestingly, email had become an issue. Email had become a form of punishment; “I had a terrible experience last night at ____ location and that’s why we are losing customers! So do better!” Email had stopped being a way to communicate and had become a whip. There is some psychology to this: like a neighborhood where some properties are deteriorating other owners lower their standards too. In this case, the various managers saw they could lower their standards to fit in with their peers.
Their second misdiagnosis was in marketing. They had grown addicted to grand reopening events; balloons, discounts, music, hoopla, etc. They had become good at getting crowds in. So good, in fact, they exclusively measured their success by how many people came to the reopening. Because this was the metric, they fell into a cycle of deeper discounts. The theory was to attract visitors who would become customers. However, research showed there was no improvement in business in the weeks following a reopening.
A financial analysis of the events showed they lost money. That is often the case – the advertising doesn’t always make money unless the customer comes back repeatedly. The effect was to drain the stores ad budgets making other advertising unaffordable. Counting noses instead of dollars was wrong headed.
Have I presented the (exhaustive and complete) cause of the sales down turn? I don’t think so. Certainly management didn’t – they were too confident in their diagnosis to reconsider their position. They also had committed to a course of blaming others and that makes self analysis very hard to do. And of course menus, pricing, changing tastes, and other factors no doubt were in play. The key issue, however, is to think as far into the problem as can be done; and then to test the conclusions. Change the tone of the emails and see if there is change in morale and complaints. Change the marketing and measure the money. Don’t fixate on the first explanation available – keep peeling back the onion – the truth is in there somewhere.
“When two things occur successively we call them cause and effect if we believe one event made the other one happen. If we think one event is the response to the other, we call it a reaction. If we feel that the two incidents are not related, we call it a mere coincidence. If we think someone deserved what happened, we call it retribution or reward, depending on whether the event was negative or positive for the recipient. If we cannot find a reason for the two events’ occurring simultaneously or in close proximity, we call it an accident. Therefore, how we explain coincidences depends on how we see the world. Is everything connected, so that events create resonances like ripples across a net? Or do things merely co-occur and we give meaning to these co-occurrences based on our belief system? Lieh-tzu’s answer: It’s all in how you think.”― Liezi, Lieh-tzu: A Taoist Guide to Practical Living
Sometimes we misattribute effects and causes. A famous case was found at the Westinghouse plant in Hawthorn, NJ. An industrial psychologist experimented with making the lights on the factory floor brighter and brighter over a period of many days. He found what he expected – with more and better lighting, productivity went up. Cause and effect.
Luckily he also measured productivity after the lights were turned back to normal – productivity went up again. The eventual conclusion, now known as the Hawthorn effect, is that people respond to change. It wasn’t the lighting per se that improved production – it was the change in lighting that kept people interested in their environment. Had he stuck with his first observation, Westinghouse factories might have spent a lot of money on new lights to no lasting effect.
Cause and effect is an extremely powerful human bias and almost no one can resist playing the game. In the self help business, every time one person is successful someone writes a book to explain the new found ‘success secrets’. The problem is, in real science one must count the hits as well as the misses. That is to say, for everyone person that was successful using a particular method, there are generally hundreds or even tens of thousands that did the same things without the same result.
Advertisers rely on buyers making a cause and effect assumption. Wheaties is the breakfast of champions – you know that because they put a picture of the now current champion on the cover and tell you he/she eats Wheaties. The human brain does the rest of the selling for them – it draws the cause and effect conclusion: eat Wheaties and be a champion. Of course, for every Wheaties eater that becomes a champion, there are millions that don’t.
None of this is to disparage Wheaties or anyone’s success secrets. Not learning from a good example isn’t very smart. And not eating well is dumb. However, to be a good decision maker, you need to develop the skill of not automatically assigning causes to effects. Mostly, there just isn’t any connection.
The general who wins the battle makes many calculations in his temple before the battle is fought. The general who loses makes but few calculations beforehand. – Sun Tzu
In the ancient book The Art of War, Sun Tzu claimed he could win any horse race. He said he would first categorize all the horses on both sides into 3 groups – A horses, B horses, and C horses. Best, good, poor. His plan was to pit his A horses against the opponent’s B horses; his B horses against the opponent’s C horses; and his C horses against the A horses. In this way he would always be dominant in 2 of 3 races. He said this is also the way to win in battle: his A battalions against the opponent’s B battalions; his B team against their C team; and his C team against their A team. Always win two of three.
This is called ‘alignment’ – applying the right resources to the right job. It is an art as much as a skill and is at the core of management. This is management’s key task – aligning time, talent, and money to get results. It is about doing the right things rather than merely doing things right.
In modern day business, Apple demonstrates a good case study. When Steve Jobs returned to Apple the company was near bankruptcy. The firm had taken to modifying existing products rather than designing new products. The MacIntosh, for instance, was being modified with different colors and configurations for ever smaller buyers in an attempt to maintain sales of an aging product. This was a downward spiral that consumed engineering talent, used cash for more inventory, and lowered margins because of smaller and less efficient production runs.
Jobs cut the offerings to basically 4 – the best business laptop and best personal laptop and the best business and personal desk top machines. These sold well and could be manufactured in long and profitable production runs. The strategy also permitted getting rid of unused inventory and freeing cash. And most importantly freed key engineers to design the products of tomorrow.
An example in the non-business world is K-12 education. There is no argument that some schools are poorer than others and that students in poor schools are at a disadvantage. There also isn’t much disagreement about what to do – spend more money. The problem is there isn’t that much money. No amount of money can level the playing field for all schools and all children everywhere.
Using the alignment principle, education might be realigned to go something like this:
I don’t know if this is the solution. But I do know that changing the way resources are aligned changes the way we see problems and opens new opportunities.
Use alignment to find new ways of solving problems by changing the way time, money, and talent are applied to problems.
[_“Whenever you see a successful business, someone once made a courageous decision.” _]
― Peter F. Drucker
There is a myth that decisions are something the boss does. People often envision an ‘organization chart’ and see a position on top labeled, “President” or “Manager” and assume that is where the decisions should be made. She’s on top so it must be the right place for decisions to be made is the thinking. This shouldn’t be so.
Management’s real job is to create the environment and manage the process that manufactures good decisions. That isn’t saying there is no need for an ultimate authority – there is. But making decisions at the top is less effective than it could be. There are lots of reasons for involving more people in decision making which includes the cumulative effects of the number of decisions made. For instance, GE has over 300,000 employees. If each one made one decision that saved them 15 minutes per day they would save about 150 million person hours a year which could be worth a couple of billion dollars per year in productive time. The point being, lots of little good decisions can add up fast.
One of the great stories about decision making comes from General Motors during the time when autos were a growth industry. The President, the legendary Alfred Sloan Jr., faced a decision about entering the parts business. Today it seems obvious there are parts stores and those stores contain Factory Original GM (and Ford, etc.) parts. (By the way, I don’t know what factory original parts are. All parts originate in factories, and I assume most of them are made by subcontractors to GM and Ford. Just like the parts in the cars themselves come from China and Korea. I regress but it reminds me of how the brain works in making comparisons – factory original has to be better than almost any other name you could apply to the parts.)
Sloan understood a new business line was a big commitment so he designed a decision process. He employed what is called the Devil’s Advocate. The Devil’s Advocate is a term that comes from the Catholic Church. When the church considers beautification – the entry of someone into heaven who has the capacity to intercede on behalf of people who pray in that person’s name – Sainthood to us laypeople – they appoint a devil’s advocate. It is easy to find people to argue for sainthood – it is a church after all. But someone needs to take the opposite position – the devil’s position — to argue why the person shouldn’t be recognized. This is the test that arrives at the truth in the same way a lawyer is appointed to defend the accused.
Sloan set two teams of executives to argue the question, “get into the parts business or don’t?” The do not get into the parts business team made the winning argument. At that point the auto business was growing rapidly and the winning argument was that taking resources away from the growth area – the market share area – and applying them to a slower growing area was actually detrimental to the future competitive prospects of the company. Sloan himself was surprised at the decision. He’d thought the parts business was an ‘obvious’ thing to do but he never shared his beliefs so that he didn’t prejudice the discussion. Later, of course, it was the right time to get into the parts business. The decision process revealed the core issue: the investments that drove that growth was the better use of capital, time, and talent.
What a wise man. He brought more minds to bear on the problem. He turned it into an experience that built loyalty from the people whose opinions were solicited. He identified future leaders by evaluating their thinking. He taught his staff to think strategically. And he reinforced the lesson that merit is recognized in the form of clear strategic thinkers.
We see these decisions every day – the software company that can only focus on so many tasks – the restaurant chain that can only focus on so many locations – the web retailer that can only focus on so many markets. They all require thoughtful decision making. But even more importantly, they are an opportunity to build your team and your skills.
To learn more, I suggest reading Thinking Fast and Slow by Daniel Kahneman and My Years with General Motors by Alfred P Sloan.
It is common sense to take a method and try it. If it fails, admit it frankly and try another. But above all, try something. – Franklin D. Roosevelt
Sometimes a discovery is hiding in plain sight – camouflaged by the ‘facts’. Imagine Product A which is approaching the end of its life. Marketing has decided to bundle it with Product B and this has given Product A new life.
The account sees the sales and cost data and makes a decision about recording the transactions for Products A and B. Product A costs and revenues go to product A and Product B costs and revenues go to product B. Product A now appears to be doing very well. Product B margins, however, may not be looking good.
Management looks at this and says, ‘Product A is doing better than ever but what do we do to fix Product B?’ The truth of course is very different. Product A is now on life support carrying both its own costs and sucking the profits out of Product B.
Don’t fall into the trap of accepting the data as reality. Reality is more complex than the reports can capture and more judgement is required to solve problems than merely looking at the bottom line. Everything tells a story and by now we know that the story we see is often the one we have conditioned ourselves to expect. Ask. Ask again. Then think. And then think again.
He who defends everything defends nothing. – Frederick the Great
No one can do everything. There must priorities and rules about how to set those priorities. Jim Clancy once observed that there is such a rule for Navy warfare – a doctrine that lets everyone know just what they need to do. Its called the Doctrine of Naval Surface Warfare according to Clancy and it is just this simple: pick the big target and fire. With this intent, all commanders know just what to do – don’t waste time and effort on the destroyers and cargo ships – kill the aircraft carrier first with overwhelming focus and concentration of fire – then get the next biggest target. And then the next. Nothing is perfect and in this scheme your ships are still subject to attack by destroyers and cruisers. But the priority is clear – it is better to suffer from 6” and 8” guns with a range of several miles than expose your fleet to ship killing aircraft with a range of hundreds of miles. Pick the big target and fire.
Critical success factors (CSFs) is such a doctrine for business. It is a twist on the 80/20 rule that lets everyone know what the priorities are and what to put the resources into. CSFs are the things that must be done well for the organization to succeed. A manufacturer generally needs to control waste, manage inventory, get high factory utilization, control shipping costs, and properly price debt. A consulting or law firm needs relationships, consistency and quality of work product, and get lots of billable hours at a high rate for each employee. A non-profit needs excellent volunteer management, fundraising, and demonstrable results from its efforts. The realtor needs listings and good sales people. Most other factors are relatively insignificant.
This isn’t an argument against managing costs, hiring well, or doing anything else that is beneficial. It is an argument for applying the best brains, the most work, the biggest investments, and most love to doing the things that produce the biggest results.
I was in a restaurant recently in which everyone looked good in nice uniforms, it had beautiful menus, lovely outdoor dining, and a great selection of wines and all the trappings of success. But the food was mediocre. This is an obvious and simple failure to put first things first. The CSFs are taste, ‘safety’ (clean, healthy, etc.), service. The beautiful menu and uniform, as important as they are to building ‘brand’, aren’t going to keep a customer.
All problem solvers must understand the critical success factors that drive their industry and organization and focus on their talents on making decisions that get results in the critical areas first.
People who make many decisions will make one or two big mistakes every year. People who make few decisions will make one or two big mistakes every year.
What gets measured gets managed.
There is a myth that decisions are intangible and can’t be measured. In this book, however, we have been studying cases where decisions were measured: in the car/truck decision we saw measuring the decision by the savings; in the minimum wage decision we saw measuring by business results.
If the decision isn’t measured the firm is missing several great opportunities – the chance to set a high bar; an opportunity to develop staff; the chance to communicate values; and the occasion to demonstrate leadership to the ‘troops’.
The process of measurement allows for rethinking and rediscovering assumptions, mission, and strategy. Measuring is the one true source of accountability.
Of course decisions can be measured. And must be!
Always remember that you are absolutely unique. Just like everyone else. – Margaret Mead
Another decision myth is the ‘rules’ don’t apply to a particular organization. Don’t believe it. No organization is so unique that it isn’t subject to the rules. The key rule, of course, is management is defined by its ability to allocate scarce resources to get results. That is: applying a methodology to allocate time, talent, and capital to a limited number of activities to effect the right results. Management is about being effective and the definition of effective is how much results are achieved for the amount of input.
The media loves stories about entrepreneurs who ‘trusted their instincts’ and hit it big. The guys that violated all the rules and went to the-big-up-there with pluck, persistence, and pure confidence. We love these stories and mostly they are true. But, and this is a big but, mostly they are like hitting the lottery – the good luck fairy whacked them over the head with her magic wand and they won the jack pot. They were lucky, not smart. The proof is that most of them come back to earth with their next bright idea – they regress to their mean.
Management is a science, not an opinion. Technically it is considered a social science or a liberal art. As a science, management must conform to certain scientific principles including a methodology of making assumptions, gathering data, analyzing the data, and so on – a method such as the one presented here.
As a liberal art, the science of management is more difficult than some other fields. Consider metallurgy as a science vs management: metals are made by formulas and tested with protocols that clearly define the results. In metallurgy, almost every facet of the science is under the control of the scientist. They can change formula, the heat, the duration, the cooling – they can change any part of the mix they wish to test a hypothesis. They can determine what will happen the next time they make metal because they control the process start to finish.
The scientists that deal with the physical world have it easy by comparison with managers as control isn’t realistic in the social sciences. Businesses function in an ever changing environment of politics (the minimum wage and EPA for instance); economics (boom or bust); social (fads and mores); technology (new inventions); legal (regulatory and others); and other influences. Business also functions in a competitive environment which demands competitive responses as other firms interpret and respond to the environment. And, every business functions within an industry that is ever in flux as companion industries undergo their own dynamic changes.
The reality is business must work based on empirical data. It has to look at yesterdays results to make decisions today that affect the future. Combine that with the fact that little is under the business’s control makes business decision making difficult. And all the more important to redouble the efforts to apply a thoughtful methodology to decisions.
No organization is above these realities. No organization is so unique that it doesn’t have to manage its decision process. Every organization needs to apply the most thoughtful decision methodology it can develop. If it doesn’t, sooner or later, the good luck fairy will tap someone else and the luck will move elsewhere.
Results are gained by exploiting opportunities, not by solving problems. – Peter Drucker
It may seem odd to say in a book on decision making and problem solving, but there is often little upside to solving problems. Results are obtained by exploiting opportunities.
One of the great Apple computer stories comes from when Apple was near bankrupt. In an attempt to please everyone, Apple had permitted an extraordinary proliferation of product. Macs came in too many colors, too many configurations, too many everything. All the talent, manufacturing capacity, sales efforts, inventory management, and so on were devoted to customizing the product to ever smaller market segments. This was very expensive. Small production runs have high setup costs and poor margins. It is inefficient to use expensive engineering talent to customize product for small sales. It costs as much to sell 10,000 units as it does 200,000 units so the small sales rob the deals of profits. Stocking and carrying slow moving product is more expensive than stocking fast moving product. And the worst part is the strategy was self defeating because it didn’t produce anything NEW. Of course, in Apple’s space NEW is a critical success factor.
Apple’s behavior was the very definition of robbing Peter to pay Paul. They took from the future to pay for stuff that shouldn’t have happened in the present because they were living in the past.
This is the point at which the Board of Directors brought Steve Jobs back. Jobs immediately slashed the product options. He settled on 4 configurations – a business laptop and a personal laptop and a business and personal desk top computer. The next thing was to take the freed up talent and money and apply it to designing the better computer. The rest, as they say, is history.
Before Jobs returned, management kept trying to solve the every day problems – they tried to manage the inventory, engineer the product to the new customer demand, lower production costs on smaller production runs, and so on. These problems could be attacked all day long – and they were – but in the end solving them made no difference. It was all work that never should have been done in the first place. The right thing to do was what Jobs did – apply the talent to designing better product, assign the salesmen to bigger deals, make production more profitable with longer runs and outsourcing, and the realign the inventory to higher turnover and cheaper to stock product.
Management is, according to an old professor of mine, the allocation of scarce resources. That is, applying talent, time, money, and so on to get results. In the Apple story, everyone thought they were getting results. Certainly the guy reengineering the inventory system could point to how much money his efforts saved. The saleswoman no doubt knew her sales figures. The engineers undoubtably had a record of the changes they had effected. But these were running-in-place activities at best and destructive to the firm at worst. They were activities that never should have been done – and there is nothing more wasteful than doing something well that never should have been done at all.
Real results move the organization forward. Real results are the essence of good decisions. Real results are not achieved by solving problems – they are achieved by doing the right things.
Don’t waste your time reinventing the wheel. Stand on the shoulders of those who have gone before you when you can so you’ll have the chance to invent something new!
This book is about tackling business decisions. In the first two sections we identified issues with making decisions and saw tools and insights that can be used to make better decisions. We now know the brain often works in its own patterns rather than in lock step with our ambitions and that decisions can be made better or worse depending on how one tackles them. We should also know that decision making is a skill that can be learned.
In this section we will review the method used by consultants and successful business people to make decisions. Note that there must be common sense used in applying the method. Small issues need not be subject to exhaustive methods as a rule. However, as we saw with the car buying / gas milage problem, even seemingly small decisions can benefit from rigorous thought.
I just read an authorized biography of Elon Musk, the ‘Paypal’ guy and founder of Tesla and Spacex and Solar City. Musk admitted that many decisions of his were orders of magnitude off. His original estimate and business plan for Tesla called for about $25 million. The final number was in excess of $140 million. Of course, Musk is a smart guy and this demonstrates that it is easy to get it wrong. However, his real achievement was that by studying his decisions and working on his approach, later decisions were off by much smaller amounts. Of course, one of the key advantages of a method is it gives you something to improve rather than dealing with each decision ad hoc.
The method consists of:
Of necessity the method is presented as an overview. There is simply too much information to explore for this document or even a whole library to cover properly. Consider just the analysis step – there are hundreds of texts written on each of hundreds of analytical techniques ranging from financial analysis, to process analysis, to economic value analysis, to transactional analysis, to statistical analysis, to failure analysis and on and on. Of course, even an overview applied with good judgement is better than no method at all.
This should not be the end of your decision making education. Rather it should be the beginning.
[_If I had one hour to save the world I would spend 55 minutes thinking about the problem and 5 minutes solving it. – Albert Einstein _]
How a problem is defined is the first and key step to reaching a solution. Key because the wrong definition will generally yield the wrong solution. An example is two departments that are in a perpetual state of disagreement. If diagnosed as a ‘people problem’ the solution will involve something to do with managing or disciplining people. However, it is perfectly possible that the problem has nothing to do with people – if one department is incentivized by sales and the other by profitability, there will always be a conflict between the two – one wanting the lowest price to make selling easier and the other wanting the highest price to drive profitability. Finding the underlying issue – the real problem – is the job. Symptoms are not problems.
A couple of strategies for defining a problem include:
The prescription, while it comes in many forms, is always the same. Be curious. Ask questions.
“I suppose it is tempting, if the only tool you have is a hammer, to treat everything as if it were a nail.” ― Abraham Maslow
This is also a good point to revisit the Mark Twain quote: ‘It ain’t what you don’t know that gets you into trouble. It’s what you know for sure that just ain’t so.’ Today, for instance, we struggle with aftermath of the war in Iraq – an extreme example of acting on assumptions that weren’t so.
The reality is decisions are made based on what is thought to be true, not what is true. Of course that includes the effect of biases on our perception. A couple of examples include:
In addition to cognitive biases influencing our perception, there are assumptions of the business environment to be taken into account. As stated in a previous section, there are political, economic, social, technical, and legal assumptions underlying our decisions.
The fact is many assumptions are wrong or at best were right for a previous time. That means there is always a powerful need to identify and test the assumptions before acting. Fortunately there are lots of things you can do to test your assumptions:
Maybe the best advice came from your mother who no doubt asked, ‘if your friends jumped off a cliff would you follow?’ Listen to your mother. Test the assumptions on which you base your decisions.
“If you know the enemy and know yourself, you need not fear the result of a hundred battles. If you know yourself but not the enemy, for every victory gained you will also suffer a defeat. If you know neither the enemy nor yourself, you will succumb in every battle.” ― Sun Tzu, The Art of War
I recommend two tools to help understand the terrain (the environment) and the enemy (competitors in your industry). They are the PESTL analysis and Porter’s 5 Forces analysis. I propose you read about these in detail at Wikipedia but I’ll make just a few comments here.
PESTL – political, economic, social, technical, and legal analysis – frames the universe in which one operates. Consider just the first point – political: I was recently approached by a graduate student at my alma mater who wanted to pursue a career in consulting as a chemical engineer. My suggestion was to do the PESTL￼
analysis of his industry. Of course, it would be a good interviewing document – any recruiter would be impressed by a young man that had a giant world view. But even better is how the analysis would help shape his future: the person who understands the political and regulatory environment, where it has been, where it is, and how it is evolving, is empowered to anticipate and respond to market trends. And of course, advise clients. This view from 30,000 feet is priceless for decision making.
Experience shows most people don’t like to do this kind of work or they feel it is too complex for their particular needs. I’ll end with a quick story. I recently did some work for a fellow that wanted to buy a pack and ship store. This was a smaller purchase – just over $300 thousand. Data gathering and analysis revealed:
Individually these discoveries may not mean much. However, this information suggests the post office is a different and more competitive organization than it was a few years ago. Taken together with changes in shipping volumes in the target store and anecdotal evidence from other stores, it suggests a trend at work. A trend that is ignored at the buyer’s peril.
The point is that regardless of how big or small the organization there is an advantage to understanding the environment. If the leader doesn’t understand her environment she will always be at the mercy of the seemingly capricious winds of change.
An expert is someone who has succeeded in making decisions and judgements simpler through knowing what to pay attention to and what to ignore. – Edward de Bono
The decision maker needs two master sets of competencies: the ability to make the right decision, and; the ability to understand what implementing the decision entails. It’s a shame to make the wrong decision. However, making the right decision and not being able to implement it or blotching the implementation might be worse.
In this complex world the ability to call on both competencies is essential. Understanding the ‘technology’ of the decision and the implementation issues of the decision are both critical to the final result. This situation is made more complex because the skills that make someone a good technician or analyst are not the same as the skills that make someone a decider or a leader. Certainly experience shows these are different skills and often not melded into one person.
The lesson from the religious organization is that an understanding of both buying and owning technology are needed. Proper governance, fairly allocating costs, appropriately ratifying budgets, measuring and reporting results, setting priorities, strong project management, knowing where the grants and other assistance are, etc. never go out of fashion. Failure to understand this bought some great technology but created an organizational mess.
Understanding both the technical challenges and the management challenges were the two key competencies needed to make a decision succeed.
It’s better to be at the bottom of the ladder you want to climb than at the top of the one you don’t. ~ Stephen Kellogg
We started the problem solving journey by defining the problem. Truth be told, one doesn’t really identify the problem in the initial problem definition phase, there isn’t enough evidence for true understanding. One actually forms an initial hypothesis about the problem which serves as the starting point. In Step 5 we revisit the hypothesis and refocus our understanding based on the new information. We adjust course as conditions, and knowledge of the destination demand.
A second reason to restate the problem is because focusing is important to the next step – research. Without a good idea of what one is looking for, the research will not be focused – it will not gather useful data or waste time and money gathering the wrong data.
The change from the initial problem definition to the actual goal of a study maybe the difference between day and night. This is because the understanding of the problem has matured. To wit:
Of course Dan only asked, ‘what should the minimum wage be?’ and answered it by saying ‘$70k is enough to be happy.’ That was dumb.
I recently read a book on Elon Musk of Tesla. At one point Elon got the idea to make a new door for his Model X – a gull wing door. He felt this would be a competitive advantage as it made the car more convenient to get into. He and a co-worker did about 40 complete drawings of the door before they got serious about making the change. 40 complete drawings. That was enough to learn about opening doors next to other cars, fitting gull wings into low parking garages, and so much more. I think this is key – the constant revisiting and redefining to be sure the solution fits the needs. Form follows function – but only if the study of the function is through. In the end, it is always about the questions we ask ourselves. Like the French say, be careful of what you wish for because you will surely get it.
No one undertakes research in physics with the intention of winning a prize. It is the joy of discovering something no one knew before. – Stephen Hawking
Every research project is different and a call to creativity. Certainly there is no shortage of information on how to do research – Amazon lists over 185 thousand results for ‘research methods’.
I am a proponent of practical research which includes fundamental data, third party data, and original research. The fundamentals include sources such as the census bureau and other generally accepted and inexpensive reservoirs of data. Third party data includes information you have to pay for and information that has been aggregated into newspaper or magazine articles.
Aggregated data can be risky – the magazine article may sound helpful, but the author likely didn’t see the same problem being researched and therefore may have not included appropriate information. For instance, a real estate magazine may include an article about the trends in shopping malls but overlook how retail locations have been affected by internet shopping. Just last year three well known food franchises including Sbarros pizza went into receivership despite the rosy articles about mall development. The reason: internet shopping has been lowering customer counts which in turn left them with more leases than money. A lifetime friend of mine edits trade magazines for a living and I can tell you no one wants to read about problems. All his magazines and articles are positive. Everything in this vein needs to be taken with a box of salt!
Original research is a lot more fun than it might sound and with practice one develops skills. One example: I am often asked what a small business is worth. Experience has taught me to go to a business web site such as and get dozens of listings for similar businesses for sale. These listings include sales, cash flow, and asking price. Put these in a spreadsheet and graph them and there you go – the market of business for sale and one important data point in pricing the business.￼
Businesses for sale – asking price to gross sales. The trend line is the ‘efficient frontier’ or the value based on the market. If you look at the horizontal axis and go to the 400 point ($400,000 in sales) the market price for these businesses is at or below $300,000 and with enough variation to provide lots of room for a negotiation. Of course, bizbuysell also records sale prices and for a modest fee can sell you reports of actual sale prices by business type by location and time. Good stuff.
In general I can offer the following ideas on researching business problems:
One more thought on research – the key issue needs to be the focus of the research. That sounds obvious but often no one knows what the key issue really is. Paypal, for instance, was successful when other payment systems failed. Why? Costs. All processors pay basically the same rate to the banks. Paypal, however, worked the business so that about half of its transactions occurred between Paypal customers. These internal transfers cost nothing, had no fraud, and were instant. Credit card transactions cost a few percent and are slow. So by getting Paypal customers to do transactions among themselves, the total processing costs were lower and the savings could be passed to the customers who found that to be of great value. The research has to be focused on the key issue – which was the cost structure in this case – or it may be of little use. You have to research the problem that matters.
One of the fun parts of business is there is no single method to get where you want to go – there is however, unlimited opportunity for creativity. Enjoy it.
[_We cannot solve our problems with the same thinking we used when we created them. – Albert Einstein￼
Analysis is highly dependent on the situation. Tools used for analysis include, but are not limited to:
A couple of tips:
A cautionary note: analysis isn’t rationalization. If the analyst has a preconception the exercise often turns into a process of justifying the analyst’s opinions. Being human poses certain risks to the process of analyzing.
And a story. There was an intelligence officer in Viet Nam who went so far as to document the stitching used in the clothing of the Viet Cong that were killed or captured by his unit. He used this information to track the source of supplies and troops because that would help interdict them and hint as to the capacities they brought from their home bases. Good analysts are creative.
[_“It is our choices, Harry, that show what we truly are, far more than our abilities.” _]
― J.K. Rowling, Harry Potter and the Chamber of Secrets
Analysis should produce more than one viable alternative. The issue therefore, becomes selecting the most appropriate one(s). Far from being a problem, this is the position you wanted to be in. It is a great opportunity to think about your choices and values – the path that diverged in the woods and the one you take.
Values and ethics are different things. Ethics is about proper behavior and apply in all circumstances. You know if you are ethical when you look in the mirror.
Values are flexible in the sense they have only the meaning you give to them. Let me explain.
Think of two churches. Both wish to grow. One believes ‘you can’t save souls in an empty church’ and engages in mass marketing to get the largest number of people involved. Whether they grow by bigger facilities, TV, radio, the internet or something else, they believe that by spreading the word to the greatest number of people they will do the greatest good.
The other church thinks that a deep experience is vital. They reject mass marketing looking for individuals that will make a fundamental change in their views and life. They seek a quality experience over the quantity of experiences.
Neither view is better than the other. Solomon couldn’t say that one approach is right or the other wrong. Of course, it may be possible to analyze their results over time and see which method produced the larger congregation or other results based on other metrics of success. However, in terms of mission, it isn’t possible to say one approach is right or wrong. These different approaches represent their values.
The important thing is for them to remain consistent with their values. Any decision made, be it about services, advertising, new facilities, hiring staff, fund raising or anything else should remain consistent with their values.
We see this in technology. Apple’s values are to integrate hardware and the operating system for the ‘Apple experience’. Google sells Android to all phone makers and thus the experience is different on different phones. The tool set and functions remains the same, but the ‘bloatware’ and different configurations prevent a consistent experience. Were Apple to license its operating system to other manufacturers it would destroy the ‘Apple experience’. And when Google bought Motorola they couldn’t differentiate the product because all the competition had the same operating system. That caused Google to sell Motorola for a $6 billion loss.
Both iOS and Android are extraordinary products. The issue is that each has a ‘position’ based on ‘values’ and those values are fundamental to the success of the organization. A better decision maker will see competing alternative solutions in light of the organization’s values in addition to other factors such as return on investment, implementation risks, and so on.
There are many ways to select between alternatives and while it might seem like a lame refrain, there are more tools than can reasonably be covered here. A few common means to select between alternatives include:
A web site called has several useful tools and explanations and directions for the above list.
[_“Plans are only good intentions unless they immediately degenerate into hard work.” – Peter Drucker _]
After a decision is reached, what remains is just implementation. ‘Just’, of course, is said tongue in cheek. Implementation is often the most difficult part and possibly the riskiest. If money will be lost, it will probably be shoveled down the drain during the implementation.
Implementation difficulties come from two general sources: a lousy decision or organizational problems. A bad decision is a leadership issue – leadership is doing the right things – so a bad decision has to be rectified at the highest levels. Implementation difficulties come from doing things wrong – these are management problems and identify weaknesses in the organization.
Organizational issues include not being able to deal with the complexity of the project, from vendors or contractors that aren’t properly managed, or something else. Most likely, difficulties will be due to people and their willingness to change.
As previously stated, involving key people thru out the process and maintaining appropriate communications is the key to building consensus and commitment. Ben Franklin had a technique that made him one of the great community organizers of all time. Remember he started the first subscription library, build public meeting houses, got people to pay for road surfacing, started a fire department that is still in operation, and many other projects. His secret was to never say. ‘follow me’ or ‘let’s do this.’ Rather, he’d prepare the ground before the planting – that is, he’d prepare peoples minds for the idea to come. He would write about a problem – ‘why is there grit in my bread? where does all this dust come from? doesn’t this hurt our health? is it safe? don’t good housewives spend too much time cleaning because of this dirt? aren’t shop keepers taken from their jobs to sweep? etc. etc.’ And when people were really desperate for a solution to a problem they had come to believe was their own, there he was with a proposal to pave the roads.
From the mechanics of implementation point of view, who does what, when, for how much, etc. there are scads of ideas and tools. There are numerous theories about implementation, many software systems, and no shortage of books on the subject. So many choices in fact, that once again they can’t all be dealt with here. What is certain is there must be a plan that identifies:
Of course, the status of the plan needs to be monitored and reported on properly. The good will of the people affected by the decision must be maintained and nothing does that better than keeping them informed.
I suggest a book like [_Project Management for Dummies _]if you haven’t any experience with this.
To my mind, the secret of a successful implementation is that implementation planning begins with the first round of defining the problem. That is, if the team goes down the decision trail together, if they commit one step at a time together, it is more likely they will go thru the implementation together willingly. Part of this is because they have ‘bought in’ because their ideas are recognized. And part of it is human nature – after agreeing to something people are prone to stay with their position because they like to be thought of as being ‘consistent’.
I think it’s very important to have a feedback loop, where you’re constantly thinking about what you’ve done and how you could be doing it better. I think that’s the single best piece of advice: constantly think about how you could be doing things better and questioning yourself. – Elon Musk
There are good good reasons to review decisions. The first is because things change and even a good decision well implemented will need fine tuning after the fact. A second reason is to learn about the decider. And another is to review the implementation to determine if things can be improved.
Consider a simple decision such as the car vs. truck investment example from the first chapter. This decision needs to be reevaluated because things change. In a world of rapidly changing technology and business needs it is possible there is a new 18 mile to the gallon truck that will save even more. Or maybe business has evolved the there is no longer a need for the truck. The environment in which the decision was made probably didn’t last long so reviews are important.
The other reason is to learn about the person or group making the decision – to learn what that entity is good at or needs improvement on. By reviewing decisions after a period, say 6 to 12 months, within a couple of years and after a few decisions, a trend will emerge showing where one’s strengths and weaknesses lie. This analysis might point to an unexpected talent in making technical choices, or to a surprising weakness in making people choices, or to something else. In any event, confidence will go up, safeguards can be taken, new avenues for growth found and self awareness gained.
And of course there is the traditional post implementation audit to determine if things are working as they should. We all wish government would do this kind of assessment more: come back to review the expensive program and measure its efficacy and then improve or ax it. We should take that same advice for ourselves.
Thus it is that in war the victorious strategist only seeks battle after the victory has been won, whereas he who is destined to defeat first fights and afterwards looks for victory. – Sun Tzu
What have we learned?
We now know that decisions are not always simple and that we, as mere humans, are amazingly unqualified to make many decisions. At least we know we can’t make many decisions intuitively. The heuristics we rely on and that get us thru most of life’s challenges don’t work when the problems are outside of our regular experience. We have learned there is a time for slow, thoughtful, deep, peel back the onion layers thinking.
We also know that our decisions must be framed appropriately and otherwise protected from normal biases such as the availability of one particular piece of information or by being anchored to some arbitrary point.
We now understand that good decisions are made better by involving the right people and that exploring the decision in a proper way strengthens the organization’s ability to grow and adapt.
Also we know that asking if the decision has a deeper meaning and what we can learn from the process of making the decision can be liberating. Values can be found. Competencies rediscovered. Opportunities exposed. Sometimes the decision isn’t just about making a choice but about a journey of self discovery.
Yet a word of caution is in order.
Lots of smart people make decisions in the most scientific ways and still stumble. Consider Google was once for sale for $1 million and no one would buy it – the founders didn’t see the upside and the buyers thought it over priced. Facebook was once for sale to Yahoo – Facebook wanted $1 billion and Yahoo was willing to pay $900 million. Facebook is now worth many billions. Microsoft has many whopper bad calls – the Zoon and the Windows phone to name just two. These are all multi-billion dollar mistakes made by the best and the brightest.
Of necessity decisions are about things we can’t understand because they are about things that will happen in the future. If we knew what the future held, decisions would be easy and we’d be right more often than not. However, the fact that we can’t predict the future doesn’t mean we shouldn’t bring all the science to bear that we can. In fact it is the reverse. That we don’t know what is going to happen is all the more reason to look harder, longer, and deeper.
Royal Palm Beach, Fl
Good decisions aren’t only the right thing to do, they are the most profitable investments you will ever make. The Guide is about solving problems using the state-of-the-art business consulting method. It is about getting success in business by improving the single most important thing under your control - the decisions you make. Of course as Mark Twain said, ‘a self made man is as likely as a self laid egg’. Please feel free to share this book with a partner, your spouse, a master mind group, or by contacting me so that you can bring the power of more minds to bear on the decisions the shape your future.