Know Greatness When You See It?

Do you really think so?

The  magicianLet’s do a quick psychic demonstration:

Draw a line down the middle of a piece of paper. On the left side of the line name your three best decisions in life and on the right side name a couple of your worst decisions …Go ahead, I’ll wait!

And now be amazed with my uncannily accurate first prediction: The decisions on the left side all turned out great while those on the right side turned out lousy. Underwhelmed? How about my second prediction: You’re probably wrong.

The Measure of Quality
How about all those “best” decisions? Did you apply all the sound decision disciplines to re-frame the question? How much genuine effort went into surfacing all available options? Were safeguards against blind spots and biases applied? If not, then those weren’t good decisions, they just had fortunate outcomes.

If you used sound decision principles, you understood the risks, but those risks just didn’t swing your way, then it wasn’t one of your worst decisions.  It was actually a good one!

We generally assume that, if we skipped disciplines and things turned out well, it’s our great instincts. After all, how can good outcomes flow from a bad decision?

If that was solid logic, then an employee who sneaks away with a million bucks, bets it all on their lucky number at the roulette table, and brings you their thirty five million of winnings should be lauded as a financial genius and be promoted to CFO.

Unfortunately, almost every company has a vivid tale of someone going with their gut, ignoring all controls, and hitting a home run. But honoring that memory is the equivalent of honoring the roulette jockey. Just because someone always wins the lottery doesn’t mean playing the lottery should be your business strategy.

Boosting Your Odds
You don’t need to wait for the results to know whether a decision is great or flawed – I can tell you that well before the results are in.

The key to great decisions is consistently applying all the sound decision principles …even when the solution seems obvious (see The Perfect Crime). That doesn’t guarantee good outcomes every time – the world is too complex for perfect results. But following proven disciplines will improve our percentage of good outcomes, and that I can guarantee!

© 2013 Verax Point

Posted in Uncategorized

Decision Overload

Better big decision by timing big decisions.

Decision-MakerLast year I finished a research project with CFOs. The goal was to identify the best practices for squeezing maximum impact out of capital budgets.

One pronounced finding was a scathing indictment against using capital slates for capital allocation decisions.  Organizations using capital slate committees were more than twice as likely to report high or very high capital stress (i.e. a severe shortage of capital).

The study’s CFOs (including those using capital slates) had several theories for the capital slate’s clear underperformance ranging from rushed analysis to cloakroom vote trading among division heads.

Now there’s an additional suspect: Decision Fatigue

Too Much For One Day
Decision fatigue is a recent discovery that describes how our mental energy is depleted by making several decisions. As our day wears on, our decision quality wears out.

We begin to make decisions based on the path of least resistance.

  • If a decision requires a bold step into unfamiliar territory, we will tend to say no. It’s easier to maintain the status quo.
  • Conversely, if the request is accompanied by a cadre of strong supporters, it’s easier to go with the flow and approve the proposal.

Decision fatigue also causes us to simplify our decisions. Instead of weighing multiple criteria such as risk minimization versus income maximization versus workforce impacts, we focus on a single attribute and choose accordingly.

Blind Spot
It’s important to note here that we are completely unaware of decision fatigue. We don’t feel the exhaustion or weakness that we feel with physical fatigue. It’s also not any annoyance we feel toward having to make a lot of decisions.

Decision fatigue is completely hidden from our perceptions – a very dangerous management hazard.

Plan Ahead
The best counter-measure is the simplest… schedule important decisions for early in the day.  If first thing isn’t possible, a distant second-best time is after a healthy lunch.

Just before lunch is bad, and mid to late afternoon puts executives in greatest jeopardy. We may feel on top of our game, but all the science says we’re not. It’s not a question of intelligence, experience, or fitness – our brains are simply at their peak in the morning.  We need to put critical decisions (capital and otherwise) early in the day.

So, will you? It can be as simple as giving a standing instruction to your Executive Assistant and others who control calendars: Schedule meetings for important decision very early in the day …but again, will you?

© 2013 Verax Point

Posted in Biases & Traps, Leadership & Decision-Making

The ROI of Follow-Up

Making time to review earlier proposals and decisions is hard… very hard.   But it’s still one of the best time investments a leader can make.

When operating budgets are squeezed, we usually cut the training budget first.  It’s an easy target because there is little visible, immediate impact.  When time is squeezed, we usually cut follow-up reviews. Follow-up is an easy target because we tell ourselves we’ll get back to those reviews… when there’s time.  So, when will that be?  And how much might delay cost?

The Hidden Cost Of Delay
I was once asked to follow-up on a prior acquisition that was now several months past its first scheduled review.  The Controller’s response began with some hemming and hawing, then he disclosed that they hadn’t prepared a review because:  “The operation hasn’t stabilized yet.”

Integrating their IT systems had stalled, crippling operating results.  The project leader hoped to get matters under control before sending a report to the CEO.  While their IT troubles were unfortunate, keeping that trouble under wraps was tragic.  They had learned important lessons for beefing-up future IT due diligence yet had not shared them.  As it turned out, a more recent acquisition team would have avoided painfully similar frustrations had the warning gone out.  I recalled the quote:

“If you think education is expensive, try ignorance.” – Derek Bok

Best Practice:  Carve It In Stone
Improvement will be agonizingly slow until we diligently review our experiences: the good, the bad, and the ugly.  Armed with new lessons, we’ll consistently improve investment decisions, increase profits and boost ROI.

The best time to set a review date is when the project receives its approval with clear expectations of what the review should include — carve it in stone and delegate someone to make it happen.  Finally, (and a gentle word to the executives here) don’t sabotage your decree by rescheduling those meetings as other matters claw for your attention.  We all have smart folks who quickly realize of that follow-up isn’t a priority and odds are it won’t happen, especially if the news is not good — but isn’t that the most valuable news?

© 2013 Verax Point Consulting

Posted in Follow-Up, Leadership & Decision-Making

Can Do!

Save the stretch goals for AFTER the decision is made

Reaching“We shall fight on the beaches,
we shall fight on the landing grounds,
we shall fight in the fields and in the streets,
we shall fight in the hills;
we shall never surrender.”

Winston Churchill’s “We shall fight on the beaches” speech came at a low moment in Britain’s confidence. In the early hours of that very morning, Britain completed its retreat from continental Europe. They were now alone, facing Hitler’s seemingly unstoppable advance.

A hallmark of great leaders is the ability to inspire their people to endure hardship and defy the odds. Churchill rallied the nation to look past abject failure on the continent and stand resolved to do the impossible.

We value business leaders who can similarly stir the emotions of their people to attempt great challenges. But inspiration is a two-edged sword.

The Right Time…
Like most good things, there is a right time and place for challenging the troops to reach beyond what they believe possible. The right time is after the decision is made. Once the course is charted, charging up the troops to give it their all is crucial.

Churchill’s speech occurred after his decision to continue resisting the fascist onslaught. He wasn’t asking the people whether they could face the challenge ahead – he already knew they must. He was preparing them for that challenge.

…And The Wrong Time
The wrong time to motivate the troops to take on stretch goals is before the decision is made.

I’ve often witnessed project leaders prod teams to aggressively raise the benefits and/or lower the costs, to replace “most-likely” estimates with stretch goals. Teams then change their numbers, either succumbing to false optimism or shamed into it. Once returns hit an acceptable threshold, they request funding.

But what is the decision-maker receiving? They get an over-optimistic scenario – a projection that has less than a fifty-fifty chance of being realized. In other words, the odds are already stacked against success.

Balance First
Leading project teams during the evaluation is a delicate balancing act. It’s easy to forget that the goal is to deliver high quality information, not simply get the project approved. Project leaders need to receive this message from senior executives early and often.

Inspiring the team to set stretch goals sabotages good decisions. Hold onto the motivational speech until the numbers are firm. Then, if the project deserves funding, pull out that speech and rally the troops!

© 2013 Verax Point

Posted in Biases & Traps, Leadership & Decision-Making, Valuations

Two Moves Ahead

Anticipating Your Competitors’ Response

StrategyIn any extended conversation with airline executives I inevitably hear complaints about frequent flier programs.  They lament:

            • Lost revenue
            • High operating costs
            • Customer dissatisfaction over error and restrictions (particularly dangerous with today’s social media)

And just what do airlines get in return from their loyalty programs?

Woefully little loyalty. Schedule and price still drive most purchase decisions as most passengers enroll in several programs.

Despite these frustrations, no airline will dump their program. While there’s little advantage to operating a program, not offering a program would be disastrous.

Thanks A Lot, Frank!
Credit for this mess goes to Frank Lorenzo, the CEO of Texas International Airlines in the ‘70’s and early 80’s. Frank thought he was creating a brilliant competitive advantage for TIA in 1979, but it was short-lived. Seeing TIA’s success, American Airlines launched their program in 1981 as did virtually every airline since then.

Similar debacles occur across all industries: price cuts are immediately matched (or exceeded), expansion into a competitor’s home territory triggers an identical attack on your own, and more.

These bloody battles where everyone loses could be avoided by asking the simple question, “What would I do in their shoes?” Unfortunately, it’s not easy to answer that question… our brains just don’t give 100% effort toward proving our own ideas are wrong (see “Sheep In Wolf’s Clothing”).

Doing It Right
During the cold war, the pentagon needed answers to how the Soviets might react to American military tactics, so they created “Red Teams.” These teams immersed themselves in Soviet military history and how they current leaders behaved. Then in battle simulations, they doggedly attempted to defeat the strategies and tactics the Americans were considering.

This Red Team approach can provide critical tests of initiatives you are considering to anticipate and avoid highly unpleasant competitor responses.

But to work, your Red Team must be as fiercely motivated as your competitors will be – fighting as if for their next bonus or perhaps for their very survival.  

Membership qualifications are:

  • Strong business acumen – these should be some of your best people.  After all, your competitors will have their best people on it!
  • Highly competitive – this is no mere academic exercise.
  • Completely free of bias – they cannot be from the project team, nor benefit in any way if the project goes forward.

It’s a brutal acid-test, but one of the most powerful tools for avoiding painful the surprises of competitor responses.

© 2013 Verax Point

Posted in Risk Assessment, Team Effectiveness, Valuations