I feel the need to defend the title of this article which many readers will find clichéd and/or exaggerated. The reason that I have used this title is that the content that I cover in this article has been a “silver bullet” for me, in my personal and professional life. Now, maybe you will not feel as strongly about it, but nevertheless, I hope that you gain practical value from this content.
In this article:
1. Why care about this “silver bullet”?
2. What distorts our strategic decisions?
3. What imperatives emerge?
4. The “silver bullet”: how do we practically apply these imperatives?
5. What effect does that have?
1. Why care about this “silver bullet”?
What’s this all about and why should I care? Most people, especially those that are having a successful career, believe they are good at making strategic decisions. But, the evidence suggests otherwise. I have covered this in previous articles (see Strategic Decision Making in a nutshell or Five Myths of Strategic Decision Making). And, in a world of increasing pace, complexity and uncertainty, it seems that strategic failure will become more common (see Why care NOW about Strategic Decision Making?). So, rather than hoping that your luck will continue or relying on myths like the power of your intuition, you would benefit from a reliable approach to making strategic decisions.
Why do I call this content a “silver bullet”? Because it provides a proven and pragmatic approach for making high quality strategic decisions. Moreover, the approach is readily tailored to the magnitude of the strategic decisions so that the right amount of effort is expended for big and for small decisions.
2. What distorts our strategic decisions?
In Diagnosing where our decisions go wrong I wrote about the five layers that can distort our strategic decision making.
Layer 1: our societal / organisational context can distort our decision making by leading us to believe that we should judge the quality of strategic decisions by their outcomes. See Judge decision quality on process, not outcome for an explanation of why this is wrong. Other factors like shareholder pressure, organisational politics, and misaligned incentives will also distort our decision making.
Layer 2: our relationships with others can distort our decision making by making us too trustful of expert opinion (see An inability to Forecast) and too susceptible to social pressures like authority pressure, peer pressure and role pressure (see Good people do bad things. Why? and Ethos, Pathos, Logos – yes, they still matter for business executives). We also prefer people like us and hence don’t readily encourage diverse perspectives, but we should (see The Diversity Multiplier).
Layer 3: our beliefs about ourselves can distort our decisions by making us overconfident (see Don’t be so sure …) and leading us to rely on our intuition, despite it being unreliable for strategic decisions (see Reliability of Intuition?). Also, we don’t learn from our past decisions, because we ascribe good luck to our capabilities and bad luck to external factors (see Success = Talent + Luck, but Great Success = …).
Layer 4: how we think can distort our decision making for three main reasons. We prefer to be in a state of “cognitive ease” and hence rely on heuristics, thus falling victim to cognitive biases (see The Mother of all Biases). Even when we do slow our thinking (Kahneman’s system 2) we struggle with probabilistic analysis and hence are not effective when deciding in a context of uncertainty (see Natural frequencies. No, it’s not woo.). Lastly, we don’t always broaden our thinking enough to consider compelling, diverse, and executable alternatives (see The necessity and power of Strategic Insight).
Layer 5: how we feel when making decisions can be distorting. Most of us know from experience that if we are in a state of biological discomfort (e.g. feeling tired, hungry, cold) or emotional discomfort (e.g. angry, upset, fearful), our decision making is affected. So, this layer is common sense, but it still matters and hence it is included for completeness. A fascinating example of the distorting impact can be found at [1].
Note that the distorting factors covered above in the five layers are a subset. For a more comprehensive view please reach out to me.
3. What imperatives emerge?
From each of these five layers emerge a set of imperatives. For instance, from layer 1 we learn that we should invest in defining a good strategic decision making process. The imperatives by layer are listed below.
Layer 1: Invest in defining a good process; Incentivise people to follow that process; Engage decision makers in the execution of the process.
Layer 2: Counteract motivational and cognitive biases; Embrace uncertainty; Embrace diversity; Apply “living strategy” concepts.
Layer 3: Counteract biases; Cautiously rely on intuition; Be deliberate about learning; Segment decisions to apply appropriate effort.
Layer 4: Be value-centric; Ideate as needed; Embrace uncertainty; Counteract biases; Apply “living strategy” concepts.
Layer 5: Don’t make important decisions in a state of biological or emotional discomfort.
These imperatives can be grouped into core process imperatives and supporting imperatives. The overarching core process imperative is to define and follow a good process. This good process includes the imperatives of being value-centric, embracing uncertainty, ideating as needed, counteracting biases, and applying a “living strategy”.
The supporting imperatives relate to how this process is applied. Firstly, there is the imperative to segment decisions to apply appropriate effort, i.e. decisions of life-changing importance justify a thorough analysis, while smaller decisions should attract a lighter touch. During the core process the imperative is to engage decision makers along the way. This is critical to avoid the common problem of decisions that do not get executed. Following the core process is the imperative to be deliberate about learning. And lastly, the reminder to not make important decisions in a state of discomfort.
4. The “silver bullet”: how do we practically apply these imperatives?
The “silver bullet” is the core process plus the supporting imperatives. This content borrows heavily from SDG’s Dialogue Decision Process (DDP) [2], the detail of which can be found in this recent publication [3].
The core process has four main stages.
Stage 1: frame the situation
Stage 2: develop alternatives
Stage 3: evaluate alternatives
Stage 4: plan for implementation
I’ll save you from a comprehensive explanation of the process steps and associated tools in each stage, suffice to say that [3] offers great coverage. However, I will mention some aspects of the approach that make it compelling.
In stage 1, an exercise is performed to explicitly draw out the decisions, uncertainties, and values related to this strategic problem. Decisions are things we can choose to do, uncertainties are factors that we don’t know (e.g. the oil price in a year’s time) and cannot control, and values are what we want.
Once we have surfaced the decisions, we classify them using a decision hierarchy into “take as given”, “focus on now”, “consider later”.
These two steps within stage 1 are tremendously important as they get us to focus on what matters, no more, no less. In so doing, we are addressing the imperatives of being value-centric and counteracting biases like the framing effect.
In stage 2 we develop strategic alternatives. There are many creative approaches (e.g. design thinking) that you might be familiar with and all are applicable at this stage. In addition, SDG’s DDP introduces another tool – the strategy table. The strategy table is a simple, yet powerful means of considering choices for each decision in focus and then grouping choices into alternatives. This helps to create a set of alternatives from “mild to wild” and hence addresses the imperative of “ideate as needed”.
Stage 3 is about evaluating those alternatives against the values defined in stage 1. Stage 3 can become analytically quite demanding, but has a number of neat steps to help ensure that the analytical effort is sensibly applied.
Firstly, the evaluation stage is broken down into two sub-stages: deterministic and probabilistic evaluation. It might be that a strategic alternative shows itself to be superior to the other alternatives after a deterministic evaluation. In such cases, the user can bypass probabilistic evaluation and go straight to stage 4.
Since the probabilistic stage of evaluation is quite resource intensive, a tool called the “tornado diagram” is a method of performing a sensitivity analysis on the uncertainty variables. Only the uncertainties that “move the needle” on the key value metric(s) are progressed into probabilistic evaluation.
So, how do we deal with the uncertainty variables that require probabilistic modelling? We use data and expert input. But, expert input is not reliable? To be more precise, expert input that has not be de-biased is unreliable, but SDG’s DDP methodology has a smart technique for interviewing experts in a manner that produces de-biased results.
Another important aspect of this stage is understanding what drives value and what drives risk in each of the strategic alternatives. This granular insight can inform the creation of hybrid strategic alternatives that deliver a better value/risk ratio.
In some cases, an experimental approach (test & learn) is preferred to an analytical approach for evaluating alternatives. These need not be mutually exclusive, i.e. a combination of experimentation and analysis.
Finally, the preferred strategic alternative is selected by considering how each contributes to the value metric(s) defined in stage 1. Importantly, the scoring of a strategic alternative is not a point answer, but a probability envelope, typically depicted by an 80% confidence interval.
It is at this stage that the imperative of embracing uncertainty is explicitly addressed. And, the de-biasing imperative and value-centric imperatives are addressed too.
In stage 4 the implementation plan for the selected strategic alternative is developed. An outside perspective [4] is a useful debiasing technique. The “living strategy” imperative (see Applying a “living strategy”) is addressed in this stage (and potentially in stage 3) by applying concepts like postponement, real options, etc. in the development of the implementation plan.
5. What effect does that have?
The “silver bullet” of strategic decision making drives positive effects at each stage of the core process and from the three supporting imperatives.
Segmentation: without it, we put too much effort into some decisions and not enough into others. With it, our efforts are proportional to the scale and complexity of our decision problems.
Engagement: without it, we develop strategies that don’t get implemented. With it, we engage effectively with key decision makers, thereby stopping efforts early that don’t have support, and continuing and refining those that will be supported.
Learning: without it, we don’t learn from our past decisions. With it, we develop institutional memory and drive continuous improvement from the learnings of past decisions.
And in the core process stages …
Stage 1: Without it, we set about solving the wrong problem. With it, we have clarity on what we are deciding.
Stage 2: Without it, we settle for what easily comes to mind and don’t originate better ideas. With it, we create compelling, diverse and executable alternatives.
Stage 3: Without it, we pick the wrong alternative because we don’t evaluate correctly. With it, we evaluate alternatives logically and with appropriate rigor.
Stage 4: Without it, we create plans that are not achievable in budget, time or business case and not adaptable to a changing context. With it, we plan realistically and with agility.
While we might not be facing werewolves, the paths of our professional and personal lives are littered with other kinds of threats, but also with opportunities. Our future is largely a consequence of the strategic decisions we make when facing these threats and opportunities. Making high quality strategic decisions can be tough. Having a proven and pragmatic approach to rely on would be wonderful, but could there be such a thing? Yes, the supporting and core processes described above are it. They are my “silver bullet”!
References:
[1] http://www.economist.com/node/18557594
[2] https://www.sdg.com/wp-content/uploads/2016/01/SDG-DDP-Infographic.pdf
[3] “Decision Quality: Value Creation from Better Business Decisions”, Carl Spetzler et al
[4] https://www.mckinsey.com/business-functions/strategy-and-corporate-finance/our-insights/daniel-kahneman-beware-the-inside-view