All of us struggle with decision-making from time to time. Perhaps you ponder which job offer to accept, which MBA programme to pursue, or whether to sell your company. But what method do you utilise to make your decisions?
Many of us know the common phrase “go with your gut”. However, research shows that following your intuitions, or gut, results in awful choices.
Your emotional feeling about which action to take in a crucial decision does not weigh all the pros and cons effectively.
First, Kenyans fell in love with technology giant Apple over the years, particularly when the company launched the iPhone in 2007.
However, many of us do not realise that three founders formed Apple. People widely know Steve Jobs and Steve Wozniak, but Ronald Wayne also served as a founder.
Mr Wayne received 10 percent of Apple stock in exchange for helping Mr Jobs and Mr Wozniak found the company. Unfortunately for Mr Wayne, he made an emotional decision that working with the notoriously tough Steve Jobs was not worthwhile.
So, he quit Apple in 1976 after only 12 days after co-founding it. He sold his 10 percent in Apple for only the equivalent of Sh90,000.
Now we all know that Apple stock later moved on to become the most valuable market capitalisation on the planet and, unfortunately for Mr Wayne, his 10 percent would have equalled $226 billion. So, his emotionally based decision 47 years ago cost him trillions of shillings.
Imagine explaining such a decision to your children and grandchildren.
Next, the beleaguered web entity, Yahoo, refused to buy Facebook for Sh85 billion back in 2006 by over-negotiating and offering a slightly lower buyout price.
Unhappily, Yahoo lost out as Facebook’s value now exceeds Sh38 trillion. Locally here in Kenya, we all remember when two giant telecoms fought for market share with dramatically different promotional strategies.
One utilised cheaper standard advertisements brought in from foreign countries while the other integrated a more expensive yet truly Kenyan marketing campaign.
Such short-term thinking for the first telecom saved some shillings in the short term but lost billions in the long term.
Why do humans make such poor decisions a high proportion of the time? Research by Dan Gilbert and many others delineates a multitude of reasons.
The bottom line: the human brain developed to handle life as an ancient hunter-gatherer whereby decisions were short-term.
Now in a long-term oriented and complicated society, we must utilise intense logic to develop our decisions instead of our inward emotions that only evolved so far as to run from a lion or hunt an impala.
Inasmuch, executives need to understand that effective decision-making should follow a six-step model. A strong leader pursues each step intentionally without skipping.
First, identify the problem.
Often a problem jumps out as obvious, such as how to react when you encounter thieves.
On the other hand, many problems exist in life in subtle ways whereby slight modification to your behaviour or decisions may yield massively different outcomes in the future. You must actively hunt to identify the problems that you face.
Just because you do not yet see any smoke, it does not mean that some fires are not already burning.
Second, choose your decision style. Actively decide how you will make your decision and remove emotions from the process.
Realise that as a human being, you maintain perceptual biases in your psychology. You contain mental models from your past experiences that cloud how you should rationally view a present situation.
You also hold perceptual defences and receive political influence from others.
Also, know that you innately possess poor diagnostic skills. While such a statement sounds harsh, you must realise the boundaries of human psychology.
You may have a lack of time to develop appropriate solutions, you may define actual solutions as problems themselves, and you may obsess with the need for the whole process to make sense.
Avoid the above issues and utilise pure logic.
Third, develop alternatives for the problem you identified. Do not develop one solution. Come up with multiple solutions. Want to expand your business?
Solutions may entail growing your sales force, a strategic alliance, a buyout of a competitor, or taking a loan to build infrastructure.
Think outside the box and come up with multiple solutions, then weigh each option. Be aware of your own perceptual limitations.
Discuss the situation with friends, family, colleagues, and mentors. Get multiple points of view.
Do not surround yourself with like-minded people who only tell you what you already know or what you want to hear like former US President Donald Trump was rumoured to have done decision processes.
Do not fear to utilise information technology to research and develop your options.
Fourth, go ahead and choose the best option and remember, keep your emotions and past biases out of the decision. Ensure that your goals are clearly defined.
Biased personal goals and ambiguous or conflicting goals hinder your decision-making ability. Do not inappropriately compare a desired solution to unrelated options that look less desirable just so you have a better reason to choose the solution you emotionally favour.
Fifth, once you decide, then go ahead and implement the solution.
Then, many people regrettably skip the sixth step: evaluate the decision you made. Was it correct? Is the implementation working? Should you change course?
Develop early warning signals to let you know if you decided incorrectly.
In summary, remember the steps for logical decision-making to avoid monumental disasters in your business.
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