Rolling the Dice: Exploring uncertainty in decision-making

Posted by on Feb 1, 2013 in Leader's Digest | No Comments
Rolling the Dice: Exploring uncertainty in decision-making

ISSUE 1 – FEBRUARY 2013

Roger Maitland & Brett Anderson-Terry

Is strategic planning keeping up with the complexity and pace of business? The average business makes a mere 4.1 important strategic decisions per year, that is, decisions that had at least a 10% impact on profits. What is interesting is that important decisions seem to happen, for many businesses, outside of formal strategic planning processes (Mankins & Steele, 2005.)

In an increasingly uncertain and complex business environment, is our approach to decision making keeping abreast the ambiguous terrain that business leaders continuously grapple with? Are 4.1 important strategic decisions per year enough to keep ahead of the pack?

Most leaders have developed analytic skills effective for dealing with complicated problem, and with a bit of elbow grease, have been able to apply themselves to reach positive outputs. Whilst updating your financial control systems might require complicated and detailed analysis, planning for the impact of climate change on your business is complex and requires a wide range of perspectives and expertise to inform decision making.

Increasing complexity means that there are many more cause-and-effect relationships interacting with each other and acting on situations in business. This makes it more difficult to detect patterns and predict which course of action will lead to the most productive output. Whilst traditional analytic methods are part of the picture, they are not enough. Leaders need to learn to, like a coach, probe into multiple perspectives held by a variety of stakeholders and piece together the context. Snowden & Boone (2007) highlight the following characteristics and ways in which a leader can address complicated and complex problems:

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The trouble with complex situations, is that solutions are not normally discovered in one person’s head, but gleaned by assembling diverse perspectives. For organisation’s to proactively address complex problems, leaders need to learn to distinguish between complicated and complex problems and then know which decision making methods to apply.

Professor Birkenshaw (2012), from the London Business School, similarly, suggests that managers increasingly are having to step away from bureaucracy and hierarchy in favour of an more inclusive approach which enables a quality thinking to emerge, drawing from the collective wisdom from the team. This approach is somewhat different from traditional management as it requires people, to some extent, to be motivated from within with respect to their work.

In a turbulent environment, the quality of a decision cannot always be judged by the quality of the outcome. “A good decision cannot guarantee a good outcome. All real decisions are made under uncertainty. A decision is therefore a bet, and evaluating it must depend on the stakes and odds, not just the outcome” (Edwards, 1984.) Leaders and managers who have the discipline to learn, apply and master coaching skills are able to probe thinking in a complex situation, and improve the quality of individual and team decision making.

It might not be what we signed up for as leaders, but complexity is here to stay. The question remains whether our approach to decision making is smart enough to keep us ahead of the pack?

References:

  1. Mankins, M. & Steele, R. 2005. Turning great strategy into great performance. Harvard Business Review, July/August. Boston: Harvard Business Press.
  2. Snowden, D. & Boone, M. 2007. A Leader ’ s Framework for Decision Making A Leader’s Framework for Decision Making. Harvard Business Review, November. Boston: Harvard Business Press.
  3. Birkinshaw, J. 2012. Reinventing management: Smarter choices for getting work done. San Francisco: John Wiley.
  4. Edwards, W. 1984. How to make good decisions. In ‘What constitutes a good decision? A panel discussion among Ward Edwards, Istv n Kiss, Giandomenico Majone, and Masanao Toda,` in K. Borcherding, B. Brehmer, C. Vleck, & W.A. Wagenaar (Eds.), ‘Research perspectives on decision making under uncertainty: basic theory, methodology, risk and applications. Selected proceedings of the ninth research conference on subjective probability, utility and decision making, Groningen, Aug. 29-Sept. 2, 1983. Acta Psychologica, 56, 5-27.

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