One of the most important business lessons is also the simplest:
success is often the result of making more good decisions than bad ones
over time. The question is how to do that. This should be easier to do today. Technology and business
intelligence (BI) provide a wealth of data to guide even the most
nuanced decision-making. For many scenarios, there is data that can show
you the outcome of past decisions that were similar and reveal the
projected outcomes over time. Despite this, many leaders aren’t taking full advantage of the tools
at their disposal and rely heavily on gut-instinct in situations where
data provides a more complete picture. In situations without data or
precedent, instinctive decision-making is likely the most viable option.
But this strategy is unnecessarily risky in cases where the data shows
the outcome of similar situations that have occurred in the past.
In these cases, many leaders use past exceptions as justification to
ignore the cost of failure. Reasons for this may vary — from a distrust
of analytics to a desire to succeed with a bold, unconventional move —
but it can prove costly in the long-run. An illustration of this is professional gambling. Casinos thrive
because many bettors believe they are smarter than the odds, and that
they can beat the house with bold betting. These are the gamblers who
drive the majority of casinos’ profits. The bettors who win in the long-run clinically assess the odds of
each bet and make careful, data-backed decisions, making their biggest
wagers when the odds are in their favor. Statistics tend to normalize over time, eliminating the short-term
aberrations that give the false appearance of good or bad luck. The
longer you play the same game, the more the odds win out.
The Flashbulb Memory Problem
When relying on prior experience, consider that memory is
inconsistent and fallible. We are more likely to recall extremely
unexpected events, rather than more mundane occurrences, thanks to
“flashbulb memory.” According to the American Psychological Association,
flashbulb memory describes distinct recollections of emotionally
significant occurrences. APA notes, “Though flashbulb memories are more
likely to be retained than the memory of an everyday event, they are not
always accurate.” In a business context, flashbulb memory causes people to remember
exceptional results, rather than expected outcomes. For example, an
executive may vividly remember taking a chance on an unconventional hire
and watching that employee grow into a star performer. They are less
likely to remember when they made a safer bet on an obviously qualified
candidate who turned out to be exactly as competent as expected, or the
risky hires that did not work out. The exception becomes the legend.
Taking Advantage of Data
There’s a huge difference between understanding the importance of
data and making it a priority in your organization. Every business needs
experts responsible for analyzing pertinent data and helping inform
employee decision-making. For example, at Acceleration Partners
(AP), a member of our team is responsible for using BI to tell us which
brands, based upon their attributes, past behavior, and failure rates,
would be risky to take on as clients. If left to their own devices, a
salesperson would naturally not be very inclined to turn away a
prospect. BI-informed rules can overrule our sales team if the prospect
seems to have a high potential to fail based on past data. This does not mean it is always a bad idea to take risks. Leaders
should still rely upon their instinct if they strongly believe they are
right. But comparing that gut-feeling with the data consensus is a good
way to test the certainty of the decision. Likewise, if a leader decides to go against the data, they must take
ownership of that choice if things go badly, and bear responsibility for
the outcome. Exceptions need to have accountability because, as the
saying goes, “Success has many fathers, while failure is an orphan.”
Setting Rules and Policies
Of course, decision-making is executed at all levels of the
organizational chart. While the executive team will handle decisions
that make or break the business, successful companies ensure that
employees are empowered to make decisions at every tier of the company.
Where the data is overwhelming, leaders may choose to set guidelines
based on evidence. Another pertinent example at Acceleration Partners is our approach to
counteroffers. In our experience, counteroffers have a poor short-term
outcome because they adversely affect the relationship with the employee
and only temporarily fix the underlying issues. For example, a study
from Heidrick & Struggles found that 80% of senior executives think trust with an employee is diminished after the employee accepts a counteroffer.
Knowing this, we made a blanket policy for our talent team to not
extend counteroffers. We think it’s a mistake to do something with such a
high failure rate, and by setting a policy, we release less-experienced
employees from making those hard choices without the benefit of the
data or experience. We are playing the odds. Educating employees on the historical odds of decisions prevents them
from making unnecessarily risky decisions and gives leadership a chance
to carefully consult the data and weigh the consequences and costs of
failure. Instinct still has a place in business, but it should not be the only
driver of decision-making. By making data and BI a focal point of your
team’s strategic thinking, and using it to craft smart organizational
policies, leaders can safeguard their businesses against unnecessary
failure, and ensure that the company makes more good decisions than bad.
About the Author
Robert Glazer is the founder and CEO of Acceleration Partners,
a global performance marketing agency and recipient of numerous company
culture awards. Bob was also named to Glassdoor’s Top CEO of Small and
Medium Companies in the U.S. list, ranking #2 out of 50. He is the
author of the international bestselling book, Performance Partnerships and the upcoming book Elevate: Push Beyond Your Limits and Unlock Success in Yourself and Others. 100,000 leaders around the world read his weekly Friday Forward.
Source: Harvard Business Review
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