Decision-Making Theory

As you know I’ve been writing from time to time on how to improve our decision-making processes within Tahzoo. We are good qualitative decision makers and I’d like to see us add some quantitative competency to our process. One technique is using probabilistic modeling to improve prediction. In a business setting we need to make the best decision based on an expected outcome, however; more often than not there are several possible outcomes that need to be considered.

One of the challenges of qualitative thinking, thinking from the gut, is that we are often told to trust our gut and the weighting is done at an emotional level. We evaluate the outcome we feel strongest about and often the one that we’re most hopeful will happen and then decide on a course of action. This is a great strategy for matters of the heart or in situations where the information is extremely limited.

At Tahzoo, we are often faced with multiple possible outcomes, for example, how long will it take us to fill a critical role in the business, and how does that impact projects and revenue? Is the multiple-year lease for the new office we are about to sign going to be large enough to support the number of people we expect to hire based on our growth projections?

With each of these questions, you need to make an estimate of the likelihood or probability of something so you can plan for the next steps. What do you do when there are multiple possibilities, how do you chose a path? Over the years I’ve developed a technique in which I try to consider all of the possible outcomes. I spend my idle thinking time thinking about people’s motivations, or alignment of interests, I gather data when possible, I ask people what they think will happen and why. Then lastly and probably most importantly I try to remember situations that are similar and my prediction was wrong and why.

After I’ve had time to think the issue through, (sometimes I wish I had more time but that is the way it goes at Tahzoo) I pick what I think are the three most likely outcomes. So for the sake of example, let’s take the lease situation… after much consideration, I believe our compound growth will require us to hire 100, 150 or 300 people over the next 7 years. When I weigh these possibilities to do my best to give them a percentage likelihood of happening base on all the available information.

Now there are a number of other techniques that I use, but I thought this one would be good to start with. So next time you have a decision that includes predicting the future or several possible outcomes try this method and let me know what you think.

For those of you who in enjoy math, send me a note and let’s get into probabilistic modeling, it is the future of our programming strategies for personalization. I am also a big fan of Monte Carlo simulations and Bayesian decision-making theory and computation.

Measurement

How should I measure you? I have been working on how we make decisions at Tahzoo. I have spent the last couple of months observing the criteria around decision making at all levels in the company. It’s been and insightful and profound experience. I would like to share some of my insight with you and then ask that you share in the voice of the culture survey your thoughts on how I should measure your performance.

One of my favorite books is The Fifth Discipline by Peter Senge, it is a great read on human systems and how our bias and behavior effect the outcome of organizations. Senge, who teaches at MIT, defined a field of work called systems thinking. If you aspire to run a large organization, it would be the first book that I would suggest you read. One of the points he makes is that the greater the distance between a decision and a result, the higher the likelihood that the outcome will be understood in a present day context rather than as a result of the decision.

As humans we all have a belief system that is the underpinning of our perception of an organization. “We are high growth company” or “our business development is weak”. These narratives guide our interpretation of events. So when we lose that big deal do you say… “They wouldn’t have been a good client for us” or “see I told you so, our marketing is terrible”?

When it comes to decision making and understanding the impact of our decisions, these inherit biases influence our ability to correctly evaluate if the result is a byproduct of our decision or circumstance. We tend to interpret events based on our belief system and then look for facts that support our perspective.

An easy example is when a CEO cuts sales and marketing expenses to meet financial targets and then two quarters later when the number of leads drops precipitously, his conclusion is that the global market is slowing rather than understand his decision to cut expenses is behind the decrease in demand.

When I make decisions I have a process that I use around the idea of unintended consequences. I have never made a decision in which I wasn’t certain about the outcome I wanted to achieve. So even if the plan is risky the outcome is clear… however as it turns out for all the effort spent on the understand of the goal, the unintended consequences are the most problematic to deal with. I have written a number of compensation plans many of which, if they never encounter human beings or the real world they would have been brilliant. Salespeople will do what is in their economic best interest even if that doesn’t align with the organizational goals. KPIs always need to include a metric toward the collective success or individual achievement will trump all. I’ve learned the hard way that deciding for any outcome is easy, thinking through and planning for the unintended outcome is hard.

This brings me to my next subject (although related) Qualitative and Quantitative decision making. Qualitative decision making is the subjective view of the circumstance and Quantitative decision is the objective view of the circumstance. Think literature and math… With a qualitative bias, one examines the current circumstance and makes a decision based on the immediate evidence and facts that are available. With a quantitative bias, one reviews the available and historical data and make the decision accordingly. The short hand for this is that a qualitative bias gives you agility and quantitative bias gives you certainty.

Tahzoo US operates on qualitative model and Tahzoo EU operates on a quantitative model, that’s not to say there are not elements of both but there are numerous examples of how these biases govern expectations and decision making. Every organization has a set of explicit and implicit rules, that guide behavior and provide a framework for how to work together. At the heart of our integration challenges are these differences in decision making and expectation. Consider the fact that in Tahzoo US, cultural fit is more important than an org chart or that in Tahzoo EU KPIs have been rolled out while in the US they have not.

It’s interesting, right? One part of the organization says view the world and achievement in the context of today’s immediate need and the other in terms of the assigned KPIs. If you think through the range of complaints regarding our integration efforts, would this conceptual difference explain the many of the problems?

One of the reasons that I was excited about the mergers of our companies was the possibility of bring both models together. I grew up (Nordstrom and Microsoft) in a very quantitatively led process. However, in the world of Customer Experience management, the numbers don’t always rule… sometimes the zeitgeist and agility are the imperative. So when I started building Tahzoo I eschewed numbers and reports, in favor of innovation and flexibility. We have two ambitions – figuring out how to help Fortune 500 companies improve their customer experience and to build a global CX agency. This means that we need to be good at both kinds of decision making and probably most importantly to know when to use which method for decision making… or at least be consciously aware of our biases.

Over the next quarter, I am going to focus on strengthening our quantitative decision making. I am working with my team to determine a baseline set of reports that are created and distributed throughout the company. One of the most important measurements is the individual metric; how do we measure and how to you understand your contribution to the success of the organization? If you could only have one measurement what would it be?

So the exercise for you; examine and as best as possible be aware of your biases. Next begin to conceive of metrics that you could use to measure your contribution to the company. Make sure you consider qualitative and quantitative assessments. Then think about the timeframe of the measurement and the expected outcome. After that, if we structure a compensation model around that metric, what could be some of the unintended consequences?

This is both an exercise in critical thinking and I am also hoping to catch a few brilliant ideas about how to define and measure success at an individual level within Tahzoo. I’ll look forward to reading your commentary in the voice of the culture.