Is Your Decision-Making Out Of Control?

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Decisions are the life-blood of business. The right decisions can lead to tremendous successes, while the worst decisions can bring entire companies down.

In business, we make decisions, big and small, all the time. The question is: Are these decisions as good as they could be? In most cases the answer would be no!

Major decisions in business are often made on no more than hearsay, rumors and gut feel. In many ways it might feel like decision-makers are making the right choices, steering the company into a successful future, when in reality they are making decisions whizzing through the air in free-fall while wearing snorkeling goggles that distort their view.

There is nothing inherently wrong with gut feel or basing decisions on many years of experience, but decisions could be so much better if they are based on experience and combined with solid facts and data. Data will help us see past the many biases and ingrained assumptions we have accumulated over the years.

I believe that what is needed, especially for major decisions in business, are more controlled experiments that are used to collect un-biased data before we make a decision. Controlled experiments are what medical research has used for years, and I believe it is time to bring this thinking into our businesses.

In a medical trial, the effectiveness of a new medicine is tested scientifically in controlled experiments where the new medicine is administered to one group of patients suffering from the condition. Another group of sufferers (the control group) receives a placebo. None of the participants in either group know whether they have received the real drug or just the placebo. The results from both groups provide therefore an unbiased view of the medicine’s benefits.

A really nice example of a controlled experiment comes from Yahoo. The organization receives many millions of hits to its home page each hour. To test new assumptions (in this case that making a certain alteration to the home page will change behaviors of visitors) they randomly assign one or two hundred thousand users to an experimental group and have several million other visitors as a control group. By doing so, they can quickly see whether or not the alterations to the home page leads to the assumed change in the behavior of the customer.

This in turn allows them to optimize their offerings to enhance revenues and profits. The results of these experiments can often be seen within minutes, and Yahoo typically runs about 20 experiments at any given time. This way, the results of the analysis drive behaviors, cutting out lengthy discussions about website design best practices - which of course can be extremely subjective and biased.

I believe that in order to improve major decision-making, managers need to collect more data prior to making a decision, not for every little day-to-day decision, but for the big ones that matter. Many are not bad at collecting data to justify the decisions they have already made, but most are dreadful at collecting data to help them make decisions.

Experiments with a control group are the ultimate decision support tools, but even if creating a control group is not possible, you can run pilots and test ideas by collecting some hard facts and evidence.

While we need more data prior to any decision-making, we also have to remember that data will never make the decisions for us. We should never blindly follow the data without applying common sense, gut feel and experience. I tell all my clients that the best decisions are those that are based on experimental data which is interpreted using real business experience.

Let me leave you with this quote, which I think captures the essence of the point I am trying to make:

Do not believe in anything simply because you have heard it. Do not believe in anything simply because it is spoken and rumored by many. Do not believe in anything simply because it is found written in your religious books. Do not believe in anything merely on the authority of your teachers and elders. Do not believe in traditions because they have been handed down for many generations. But after observation and analysis, when you find that anything agrees with reason and is conducive to the good and benefit of one and all, then accept it and live up to it.

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