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2020 | OriginalPaper | Chapter

2. Critical Decisions

Author : Richard M. Adler

Published in: Bending the Law of Unintended Consequences

Publisher: Springer International Publishing

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Abstract

Bending the Law of Unintended Consequences explores the problem of improving critical decisions and their outcomes. This chapter sets the stage for this inquiry by defining criticality and explaining why it is so difficult to make critical decisions effectively. Section 2.1 explains criticality by proposing four defining criteria and then providing illustrative examples. Section 2.2 explains how these four defining criteria complicate the lives of critical decision-makers. Section 2.3 argues that decision-making should be viewed as a process rather than an event, and it presents a reference model for that core business process. Section 2.4 argues that existing approaches for making critical decisions are ineffective at protecting businesses from the Law of Unintended Consequences.

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previous chapter Introduction
next chapter The Law of Unintended Consequences
Footnotes
1
Hogarth [16] terms them “future-choice” decisions.
 
2
Porter [27].
 
3
Critical decisions are largely irreversible: you can’t simply unwind them and try again. They expend both resources (e.g., time and capital) and intangible assets like trust and good will (e.g., with partners, customers, or employees) that can’t be reconstituted if they don’t turn out well. Rosenzweig [28].
 
4
Although this book focuses on businesses, most of this discussion applies with minor adjustments to critical decisions made by governments and other non-commercial organizations as well.
 
5
eSteel and ChemMatch were two pioneering net markets, supporting B2B trading for steel and steel products and bulk chemicals, respectively. Chapter 11 discusses the details of decisions facing net market entrepreneurs and their would-be customers (buyers and sellers of materials and products)
 
6
These tectonic disruptions largely failed to materialize. Virtually all net markets failed during the dot-com bust (see Chap. 11).
 
7
Other methods are generally simpler (and effective) for personal life and bounded operational business decisions. That said, the test drive method can be applied to everyday decisions in an informal way, without dragging out the “heavy artillery” of computer-based simulations (see Chaps. 8 and 9).
 
8
Large “serial” acquirers are common in technology, health care, and finance (e.g., Microsoft, Oracle, Anthem, Thermo Fisher Scientific, Sanofi Genzyme). General Electric was previously well-known for its acquisition acumen. Ashkenas et al. [1].
 
9
Similarly, medical “centers of excellence” that perform large numbers of transplants or other complex operations produce superior patient outcomes. https://​www.​ncbi.​nlm.​nih.​gov/​pmc/​articles/​PMC5516836/​.
 
10
Portfolio theory aims to maximize the expected return on investment (ROI) of a set of financial assets for a given amount of risk. https://​faculty.​washington.​edu/​ezivot/​econ424/​introductionPort​folioTheory.​pdf. But most critical decisions involve more than two factors (e.g., ROI, risk) and often factors that are difficult to quantify precisely, making them harder to model mathematically and determine optimal solutions.
 
11
It must also be noted that Eisenhower placed great store on the planning process itself as a vital preparation for action, observing that while “plans are useless, but planning is indispensable.”
 
12
Chapter 8 describes game theory, a branch of decision sciences that developed expressly to model the dynamic interactions of decision-making parties with competing or overlapping interests.
 
13
Chapter 4 discusses “stability” biases that encourage inertia and the preservation of status quo despite emerging opportunities and impending threats from competitors or changing market tastes.
 
14
See http://​news.​bbc.​co.​uk/​2/​hi/​business/​7239220.​stm and https://​qz.​com/​741056/​the-stunning-collapse-of-yahoos-valuation/​. The bulk of Yahoo’s residual value lay in Yahoo’s 40% stake in Alibaba, a Chinese e-commerce company.
 
15
Garvin and Roberto [10].
 
16
See, for example, Russo and Schoemaker [29], Davenport [6], and Choo [3].
 
17
Das and Teng [5].
 
18
Day and Schoemaker [7].
 
19
Christensen [4] describes the dynamics of innovative companies to maintain their leadership. See also Collins [41].
 
20
See, for example, Gilad [11] and Fuld [9].
 
21
See, for example, Snowden [34], Snowden and Boone [35], Weick [38], and Choo [3].
 
22
Reconstructing a reliable history is deceptively challenging. Experience is a cryptic oracle at best, given our predispositions towards vivid narratives and positing clear causality retroactively. Watts [42].
 
23
Russo and Schoemaker [29] p. 6, and Nutt [24].
 
24
Keeney [18].
 
25
Strong framing ensures that the team properly identifies and agrees to both the questions to be asked and the decisions to be made as a (business) strategy is developed. Bradley et al. [40].
 
27
Nuseibeh and Easterbrook [22].
 
28
Keeney’s book responds to this problem by recommending a decision theory technique called utility theory (cf. Sect. 7.​3).
 
29
The US-led invasion of Iraq in 2003 offers a tragic example. Framed as a military operation to topple the regime of Saddam Hussein, the invasion was a stunning success. But framed as an action to produce a stable and friendly democratic government that would help stabilize the Middle East, the intervention was an unmitigated failure that spawned a host of costly and tragic unintended consequences.
 
30
Lovallo and Sibony [20]. Dye et al. [8], a prior McKinsey study, produced similar findings.
 
31
Nutt [25]. See also Nutt [23, 24] for studies of specific decision-making problems.
 
32
The decisions in Nutt’s study included many operational as well as critical decisions. That said, the undisciplined decision-making practices of senior managers uncovered by Nutt would certainly drive bad outcomes for the critical decisions in which they would have participated as well.
 
33
Prominent examples include the turnover in industries such as transportation (e.g., railroads, automobiles, airplanes), energy, and computers (e.g., in the transitions from mainframes to minicomputers to workstations to personal computers).
 
34
Stock indexes are only rough proxy indicators, since mergers and acquisitions (M&A) can signal market attractiveness as well as outright failure. That said, many companies stumble out the top tier because they make poor critical decisions or otherwise fall behind in performance in their markets.
 
35
Pascale et al. [26].
 
36
Hagel and Brown [13].
 
37
Handscomb et al. [14].
 
38
See, for example, Silver [32]. He writes “But as was the case in other fields, like earthquake forecasting during the period (1970s and 1980s), improved technology did not cover for the lack of theoretical understanding about the economy; it only gave economists faster and more elaborate ways to mistake noise for a signal”.
 
39
Hillier et al. [15].
 
40
Simon [33]. OR enthusiasts will no doubt object, but such protests evoke Maslow’s famous observation: “If the only tool you have is a hammer, you tend to see every problem as a nail.” True, OR models can be constructed for a great many problems, but this often requires numerous simplifying assumptions. The salient question is whether they idealize or abstract the problem to such a degree that solutions become implausible or unrealistic.
 
41
Klein [19], Betsch [2], Zsambok and Klein [39], and Gladwell [12].
 
42
Kahneman [17], Schrage [30], Stewart and Lusk [36] and Sibony and Lovallo [31]. Critical decisions are too extended, multi-faceted, and often ambiguous to allow abundant, unequivocal performance feedback, a key prerequisite for forming reliable expert intuitions
 
43
Surowiecki [37], Mannix, et al. [21].
 
44
Sibony and Lovallo [31], Kahneman [17].
 
45
Accessed all URLs 05 Jul 2019.
 
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Metadata
Title
Critical Decisions
Author
Richard M. Adler
Copyright Year
2020
Publisher
Springer International Publishing
Book
Bending the Law of Unintended Consequences

Print ISBN: 978-3-030-32713-2

Electronic ISBN: 978-3-030-32714-9

Copyright Year: 2020

DOI
https://doi.org/10.1007/978-3-030-32714-9_2