DECISION-MAKING: AUSSIE EXECS NEED TO PUT ANALYSIS BEFORE INTUITION
October 29, 2014
Economist Intelligence Unit research confirms that Australian executives may be some of the worst offenders in preferring gut instinct and intuition over data and analytics when it comes to big decisions. But why is it that Australian business leaders are driven by intuition? In the era of scientific management and the publication of such seminal books as Daniel Kahneman’s “Thinking fast and slow”, where he debunks intuition as a snake pit of biases, why do executives still believe that they can trust their gut? As early movers in the knowledge economy, it's time for Australian business executives to use their brains and not just their instinct.
Until recently we have lived in a world where there has been a reasonable degree of certainty. In this historical world, traditional ways of managing, properly implemented, have been adequate. Executives have been able to rely on managing performance through conventional hierarchical structures, provide direction and then coordinate and monitor. And they have been able to rely on gut instinct and intuition alone.
But increasingly the world has tipped into an environment far from equilibrium where there is a high degree of uncertainty and contrasting views on an appropriate course of action. In this world of complexity, executives simply can’t manage performance. They must enable it. They need to foster diversity, challenge habits and assumptions, reduce power differentials and motivate people. To remain effective in complex environments, leaders need to move from solving known problems with established methods to the creation of new solutions in real time.
In this world, gut instinct and intuition must give way to an alternative when making important decisions. This way is by using a structured decision making process that uses judgement and prioritisation as a means of resolving issues. There is fundamental structure to the process because all decisions look the same, at least in terms of their general shape and character. Decisions have the same basic components; an objective, a context, multiple options, selection criteria and sub-criteria, preferences and values. This list should serve as comfort to decision makers as, no matter how new and challenging the latest decision might appear, it always follows the contours of this structure which are familiar and ever-present.
The fundamental action of a decision-maker is always to exercise judgement. This is the act of forming an opinion or expressing a preference relating to a given issue and might be done objectively in the face of evidence or if necessary, subjectively based upon experience, intuition and discretion. If we choose between two providers who we know are of equal quality, then we might choose the less expensive. However, when we express a preference between two subjective attributes, we can be far less rigorous and in the end depend on sentiment. Both of these judgements are managed equally well using a structured decision approach.
Lack of skill and experience within Australian companies should not be an excuse for using intuition. There are approaches that make greater use of data while allowing decision-makers to exercise and express judgement. And as John Studley, the head of PwCs data team says, “it doesn’t mean building an enormous warehouse and populating it full of data” but it does mean using structured decision-making processes that incorporate judgement and prioritisation as a means of resolving issues.