Lessons from “Good Minds”: How CEOs Use Intuition, Analysis and Guiding Principles to Make Strategic Decisions
Introduction
What enables some decision makers to achieve superior performance? Why are they able to proceed quickly and effectively while others waver and make inferior decisions? As the world grows increasingly turbulent because of the globalisation of markets and rapid changes in technology, the ability to make high-quality decisions quickly in the face of complexity has become a central managerial issue and a fundamental dynamic capability.1 For example, should one adopt the new technology a vendor has just introduced? An opportunity to acquire a competitor has arisen — should one take it? And what about expanding into new, potentially lucrative but unfamiliar markets?
For some managers, making complex decisions under time pressure seems to come more easily than to others who struggle. To understand the ability to make such decisions, much research and the popular business press have focused on the role of intuition, defined as “insight that bypasses reasoning” and commonly understood as an inexplicable “hunch” or “gut feeling” that tells a person what to do. Cognitive psychology has pointed toward heuristics, such as scripts and expert schemas, as manifestations of intuition that facilitates quick and complex decision making.2 However, not much is known about where intuitions come from and how they relate to rational analysis, the conventional hallmark of strategic decision making.
This article examines the role of intuition and cognitive tools in effective strategic decision making and proposes a model that integrates intuition and rational analysis. It bases its argument on a study of 19 CEOs of oil companies, 16 of whom were known as “good minds” and three as “not-so-effective thinkers”. First, I review the research on the role of intuition and cognitive heuristics in decision making as well as the literature supporting the model induced from the study. I then briefly explain the research methodology used in the study. The findings section presents the model and supporting evidence about how successful executives manage complex decisions through the processes of integration by essentials, use of principles and spiralling. The characteristics shared by the effective decision makers are also described. The paper concludes by discussing implications for practitioners and researchers.
Section snippets
Making complex decisions under time pressure
Studies have found systematic, rational analysis insufficient to deal effectively with complexity. The overall conclusion of the research so far is that experienced decision makers in various fields — e.g., firefighters, chess masters, pilots, business executives — rely on intuition to supplement, or at times even to substitute for, rational analysis. Well-documented stories (reported by Hayashi, and Miller and Ireland) such as Honda Motorcycle's entry into the US market, the creation of Dodge
Data and methods
In contrast to research that focuses on cognitive biases of decision makers, the purpose of the study was to investigate what makes decision making effective (beyond guarding against bias). Sixteen chief executives who were named as effective thinkers — “good minds” — by their peers and experts and had a track record of running successful oil companies were asked to read a realistic decision scenario (see Appendix A). The scenario was also read by three CEOs rated by their peers as “not so
How the “good minds” integrated by essentials
The oil and gas CEOs with “good minds” demonstrated integration by essentials (whereas their less effective counterparts did not).19 When dealing with the scenario, the effective executives focused on what was essential: those factors that most fundamentally affected profitable production of oil and gas by the company. (From here on, the label “effective CEOs” is used to refer to the CEOs who were nominated as effective thinkers. “Not-so-effective CEOs” refer to the chief executives who were
Summary and implications for effective thinking
This research offers a glimpse into the way effective chief executives think while making decisions and a basis for the proposed decision making model. Focusing on the little studied relationship between intuition and rational analysis, the study revealed that in the effective CEOs' decision making, the two interact constantly in a process labelled integration by essentials — as opposed to intuition being used only some times, as suggested by much of the previous research. These CEOs had
Jaana Woiceshyn is associate professor in the strategy and global management are at the Haskayne School of Business, University of Calgary, Canada. Her research interests include managerial cognition and decision making and how organizations deal with technological change. [email protected]
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Cited by (0)
Jaana Woiceshyn is associate professor in the strategy and global management are at the Haskayne School of Business, University of Calgary, Canada. Her research interests include managerial cognition and decision making and how organizations deal with technological change. [email protected]