Strategic Decision Making Under Uncertainty
For managers, nothing is more frequent and significant than making strategic decision under uncertainty. We make decisions that impact the very core of the organization. These decisions involve hiring or promoting people to lead our organization based on beliefs regarding the risk of uncertain future performance. In business, many people and hiring decisions are based on assumptions concerning the likelihood of unpredictable events, such as the outcome of hiring, firing or promoting a person. Assessing people for complex positions is inherently difficult; but not impossible. The great Jack Welch proffered:
“Edge and execution … can be developed with experience and management training.”
During my research for this article, I found various opinions about the traps of making strategic decision under uncertainty. For example, a senior manager passionately explained from his personal perspective that not everyone recognizes the value in making great people decisions for all members of the organization. He volunteered that only at the very top of the organization leaders perceive value in selecting the right people to lead the organization. This value only seems to apply to the top few rungs of the hierarchical ladder. Additionally, he clarified that leaders are not exposed to adequate training to make the right hiring decisions. Consequently, they fail to look at the business in a new fresh way to improve the human capital or the company strategic position. In his opinion, managers are stuck using obsolete hierarchical organizational structures. In these organizational arrangements, the CEO is the most important player in the team. From that point forward, the vice presidents are more important than directors. And, managers and producers are even less important than directors.
There is a theoretical basis for this type of argument. In his book, Fernández-Aráoz stated that there are four keys reasons why it’s hard to make great people decisions. He explained that the probabilities are not in our favor in finding a top notch candidate to hire. He speculated that there are only a small number of extraordinary performers; hence we are inclined to hire an average performer. He posited that assessing people for complex positions is inherently difficult and hinted that influential psychological biases prejudice our decision-making process. He concluded that misplaced incentives and conflicts of interest easily sabotage our decisions. Albeit, strategic decisions about people are difficult, throughout our careers, we will want to be alert to problems such as misplaced incentives and conflicts of interest in our organizations and ourselves. In order to be successful, our objective is to overcome many of these kinds of biases. If we are free from biases, we will find ourselves putting the right people into the right jobs much more often than other leaders. If we differentiate ourselves in the organization as effective leaders by selecting the right people for the jobs, we will grow in the organization. Recently, I read a quote by Jack Welch that highlights the important of people decisions. He wrote:
“Any strategy, no matter how smart, is dead on arrival unless a company brings it to life with people—the right people.”
This means that if we eliminate biases in our strategic decisions about people, we will pick more of the “right people.”
How To Identify The Biases In The Strategic Decision Making Process ?
Identifying and correcting for biases in the strategic decision making process should be an integral method for dealing with uncertainty. As human beings, we have the design and ability to make decisions while guarding against biases that interferes with our growth as leaders. It is important to become aware of the major biases we are likely to encounter when making strategic decision about people. The list is quite extensive and includes anchoring, bandwagon effect, hindsight, confirmation and first impression procrastination, overrating capability, branding and others.
In his new book, Claudio Fernández-Aráoz (2014) argued, “we have the wrong brain and the wrong education to get people decisions right.” He explained that we distrust people who are not similar to us. Further, he proffered “To succeed in a globally minded environment, we need to surround ourselves with people who have diverse backgrounds and complementary skills.” He is not alone; a senior manager explained it this way. He said that we see examples all around us in our work environment, where we failed to make the best decisions about hiring, firing or promoting people. Recently, after following an intensive interview process, this senior manager hired a strong candidate who had a very good resume and years of experience working for top-notch companies. The candidate was hired based on her background, warm smile and positive energy. Soon after joining the company, the new hired joined the department, and she was pleasant and got along with everyone. However, after six months, the other team members openly complained that the new hired was not meeting expectations. In order to avoid office politics and backstabbing, this senior manager was determined to give the new hired a fair shake. However, at the one year anniversary, it was clear. The new hired was a non-performer, and the senior manager admitted that he had hired a dud.
The reason this hiring mistake happened is simple: Strategic decision making under uncertainty is very difficult for leaders. Our brain is powerful, but it is not perfect. The cognitive biases processed by our brain are some of the reasons why making strategic decision under uncertainty is very difficult for leaders. Many philosophers and practitioners would rightly argue that the brain can be trained. Some will argue that our brain is like an old computer comprised of hardware and software that has not had an upgrade for millennium. As humans, we can biologically reproduce our brain and train it. But, presently, the brain cannot be upgraded generations after generations with new hardware and software devices.
Many anthropologists would argue that our brain helped us navigate the African savannah, the tropical rainforests and other environments. Most would support an argument that people decisions were mostly based on familiarity with family and acquaintances. As we spread out from Africa, people who were similarly dress and followed an established code of conduct were friendly. In this scenario, making strategic decision meant to either fight or flight when meeting new people. In our contemporary civilization, it is no longer useful to fight or flight when making strategic decisions under uncertainty about people. Instead of fighting each others, we now fight to overcome our cognitive biases that affect strategic decision making. How could we overcome some of these biases ?
Dr. Victor Ramos is a Full Professor at the School of Business Jack Welch Management Institute,
Strayer University. He is a business research practitioner, entrepreneur and the founder of American Brokerage Firms (insurance, real estate, home mortgages and income tax service provider), Vice Chairman of Strategic Federal Credit Union, and Matrix Manager at a fortune 500 Corporation.
As Vice Chairman and Matrix Manager of a fortune 500 Corporation, Dr. Ramos was instrumental in streamlining investments, worldwide financial operations and integrated enterprise management systems. Additionally, I successfully negotiated and managed multi-billion dollars business arrangements.
Additionally, he has significant experiences performing marketing in support of international marketing operations. For example, while working at an international fortune 500 company, I was a member of a marketing team that marketed high technology, integrated ground commercial unmanned air vehicle systems and innovative remote maintenance operational systems in the United States and in the international marketplace. Follow him on Twitter @Dr_Ramos_V.