While browsing through the B School library the other day, I happened across an article on decision making by Peter Drucker, originally written in 1967. Naturally as this is our business I was curious to see what one of the true masters of management had to say on the topic. Here is the synopsis together with our commentary.
Drucker commences by stating that an effective decision making process must go through some basic steps. These steps will not “make” the decision – it will always be a judgement call – but if the steps are ignored, the decision is not likely to be effective nor right. The 6 steps he recommends are:
The classification of the problem
The definition of the problem
The specifications which the solution to the problem must satisfy (the “boundary conditions”).
The decision as to what is “right”, rather than what is acceptable, in order to meet the boundary conditions
The building into the decision of the action to carry it out.
The feedback which tests the validity of the decision against the actual course of events.
We will show how these steps fit into the overall Genesis Decision Making framework a little later, but first a brief description of the steps and why they are important.
Step 1: Problem classification
Drucker postulates that a decision falls into 2 broad categories: generic (where the situation has happened before and a set of rules or principals may be applied) or unique (must be treated individually and pragmatically). There is a further categorisation of (a) generic although unique to the organisation and (b) generic, although only the first event of a new trend or genus. Both the latter appear to be unique but are not truly so. He states that if the problem is incorrectly classified at this stage, then the decision will inevitably go wrong.
Step 2: Problem definition.
Here the decision maker must work out what the situation is all about and what are the key issues. The danger, he claims, is that of an incomplete definition but one that is plausible. The only safeguard being to check the definition again and again against all the observable facts and throw out the definition the moment it fails to encompass them. That is, doing what we now call, seeking dis-confirmatory evidence as well as confirmatory evidence. Although much has recently been written about this under the title of behavioral economics, he reminds us that these are simply the rules of scientific observation first formulated by Aristotle and then reaffirmed by Galileo.
Step 3: The specifications (“boundary conditions”)
It must be clearly defined what the decision must accomplish, that is what are the minimum goals it has to attain. In science, these are known as boundary conditions. Drucker says that a common problem in decision making is not necessarily the wrong decision, but a circumstance when the boundary conditions change while the decision is being implemented – such as may have happened to organisations who started a decision process pre-recession and are now trying to implement it in the midst of the economic crisis.
He also states that another reason to have boundary conditions clearly defined is in when one is making the most dangerous of all decisions – which is when the conditions are essentially incompatible. That is when the decision might, if nothing goes wrong, work. This is what he calls little more than “gambling”.
Step 4: The decision: what is right
It is critical to decide what is right. That is not to say that a compromise may not eventually have to be made when implementing (inevitably it will), but rather start with the best decision that meets all the boundary conditions and then, if necessary, compromise from that position. Drucker brilliantly demonstrates this by explaining there are two types of compromise. One is expressed in the proverb: “Half a loaf is better than no bread”. The other in the story of the Judgement of Solomon where it is realised that “half a baby is worse than no baby at all”! In a nutshell, he is saying that we should not be thinking about “what will be acceptable” to others (at least initially), rather “what is the right answer?”.
Step 5: Converting the decision into action.
Drucker says that a decision is not a decision until it has been acted upon. He goes further to state that the action should be built into the decision from the outset. He suggests 4 distinct questions:
Who has to know of the decision?
What action has to be taken?
Who is to take it?
What has to be done so that these people can take the action?
He notes that the first and last questions are most frequently overlooked and then reminds the reader that the action must be appropriate to the capacities of the people who have to carry it out.
Step 6: Feedback
Drucker reinforces that men are fallible and decisions can go wrong and may not achieve their desired results. Therefore a feedback mechanism must be put in place to monitor and report back on the success or otherwise of the outcome. He says that effective decision makers realise that often they should not rely on reports but, like military commanders, must go into the field themselves to see how the decision is being carried out. Peter Drucker, with accurate foresight (remember this was written in 1967) warns that with the advent of computers this is even more important as computer-generated reports only can report back on abstractions. A final comment in this section is “Failure to go out and look is the typical reason for persisting in a course of action long after it has ceased to be appropriate or even rational.”
In more recent years, Genesis Management Consulting has constructed their own proprietary strategic decision making framework that incorporates all of Drucker’s steps within a slightly larger and more detailed framework. Although Drucker does not mention all of the steps in the Genesis framework specifically, we have little doubt that he would recognise them all as being valid and a valuable complement to his own original work. The Genesis framework is shown below:
(Note: this decision framework together with detail on each of the steps is available to purchase at
The way in which Drucker’s steps overlap with the Genesis Decision Framework can best be shown in the diagram to the right where the initial three steps fall into the decision structuring; the fourth step under evaluation and the fifth and sixth steps under decision and implementation.
Drucker’s original article is available for purchase from the Harvard Business Review library and is worth reading as it contains a little more detail and some examples of the steps and the pitfalls. Warning, it is written in a somewhat old-fashioned way and does not make for easy-reading – but it is probably worth the effort.
You will also find other articles of interest within this blog and the insightful and popular series: “The 7 habits of Highly effective Decision Makers” is available for free download at our web-site. Finally, I would like to recommend the 48 page document that lays out The Genesis Framework and details of all the steps. It is part of the strategic decision making module offered at IE Business School and a number of other Business Schools around the world and available at The Decision Shop.
To leave you with a quote from Lewis Carroll and referenced in Druckers original article:
“The cause of lightning,” Alice said very decidedly, for she felt quite sure about this,
“is the thunder – no, no!” she hastily corrected herself,
“I meant the other way.”
“It’s too late to correct it,” said the Red Queen:
“When you’ve once said a thing, that fixes it, and you must take the consequences.”
Saras Sarasvathy, a professor at Darden School (University of West Virginia), undertook some research to see if entrepreneurs thought, acted and decided differently. Her conclusion was that this is the case. At its most basic level, she says that rather than set a goal and work out how to get there, entrepreneurs start with the means at their disposal, collaborate with others and go on a journey to see where they end up. Her work has attracted much attention and is taught in many entrepreneurial courses the world over. The process is portrayed below (you may need to click on the picture for a clear view):
I have read her research papers and various other materials, but the best explanation of her process I have come across is displayed in this video from the University of Gallen:
The 10 myths of entrepreneurship
So, through trial and error, together with discussion with stakeholders and customers, and a clear understanding of the means at your disposal, you develop a new product or business even if your original goals need to shift substantially in the process.
At Genesis we have a view on Saras thinking – although it may go a little against the crowd at the moment. Although I am not certain how academically robust was her research, intuitively there are some great ideas embedded in the theory. Base your business on your own means (including competences), spend more time experimenting and market testing (than in-office analysis), share your ideas and get inputs, … these are all good. They also dovetail nicely with other entrepreneurial thinking such as that of Alex Osterwalder (Business Model Generation) and Steve Blank (The Start-Up Owners Manual). These concepts are particularly useful when dealing with “fuzzy” markets where you have really new products or are developing a new market or market niche.
Where do we think this could be dangerous? Taken to its extreme, we believe the process could lead to laziness and sloppy thinking if it is used totally outside causal thinking. We accept that a new start-up is not the same as a microcosm of a large enterprise, but there are some excellent analytical tools and strategic thinking that can play an important role in the entrepreneurial process. From the humble SWOT through Porters competitive strategy and on to Christensen’s disruptive technology – all could guide the process (depending on the venture) and could also help to reduce risks of ending up in the wrong place and/or with the wrong product.
Furthermore, one of the things that we believe is a characteristic of great entrepreneurs is to persevere and continue far beyond the point when other more “sensible” people have thrown in the towel. That attitude does not sit well alongside the idea that goals can be changed whenever things seem to be going against them.
Our conclusion, Saras has begun an interesting “movement” and there are many important principles that should be used in the “0 to 60mph” phase of the start-up. But do not throw the baby out with the bathwater – recognize that causal thinking, modelling and other scientific business principals can enhance the effectuation process.
We are about to launch a new company: Mashauri Limited aimed at helping entrepreneurs through the process from start-up to stable business where we have cobbled together a mixture of the types of thinking discussed above. We have produced a process that we believe will really enhance the entrepreneurial journey and greatly increase the chances of success. If you are an entrepreneur in the early stages of start-up and would be interested in trialling the product, contact me at email@example.com to discuss it.
The latest forecast from The Economist Intelligence Unit
As always The Economist is able to cut through the fog and produce an insightful forecast for the globe and the regions. The report borders on an overall positive note, although there are clearly huge differences between different areas; with the Eurozone still at a high risk level. We are reminded that the collapse of the Eurozone (which still remains a risk) would create turbulence greater than even the Lehman’s collapse.
In Europe, the split between German policy of insisting on austerity and France moving towards favoring a more stimulus-based recovery is an increasing problem. That compounded with public dissatisfaction with austerity (I only have to look out of my window to see the almost-daily protest marches) in peripheral countries means that the risk of a reversal to Eurozone crisis (and/or political stalemates) ensures Europe will remain a challenge to global recovery.
My South African readers will be interested in the notes on SA trailing the rest of Africa because of a number of factors including continual high levels of unemployment, unrest on the mines, uncertainty over government policies, corruption and poor management of certain parastatals.
Before leaving you with the link to the report, I would like to emphasize that just as the overall economic situation is the average of regional economies that have significant differences; so is the economic situation of any country, province or even industry, an average of the component parts. As companies, it is when we consider the granularity of these components, that we are able to find the gems of opportunity that allow some organisations to thrive even in the toughest of situations – without necessarily reverting to drastic cost cutting and the slashing of jobs. Part of our Brave New World programme assists organisations in identifying these opportunities.
The EIU March 2013 economic forecast report can be found at these links:
Contact us to discuss our Brave New World programme at BraveNewWorld@Genesismc.co.uk. We are able to assist you in a number of ways from a simple presentation of the global trends and issues relevant to your organisation through to facilitating a full programme with your senior executive team.
The next post will cover this subject in more detail, but meanwhile here is a hint of what is to come. The idea that entrepreneurs manage risk and uncertainty; and make decisions differently has been researched by Saras Sarasvathy. Successful entrepreneurs were studied to detect these patterns – and the results are insightful, but also feel intuitively correct. It is called “effectuation”. And all you corporate people – note it is also valid and important for large organisations too!
So .. how do entrepreneurs handle risk and uncertainty? What do the successful ones do differently? How do you plan when you are dealing with new and unknown markets?
Attached is a visually attractive depiction of the study and the results.
As the world’s most expensive group skiing trip comes to an end, I offer you a brief wrap-up.
It has been the most positive Davos meeting in a number of years which was refreshing. With a cautionary note from a number of speakers – particularly the eminently sensible Christine Lagarde who warns that some delegates may have become a little too euphoric during the conference.
There were many fascinating forums that I have reviewed (and certainly many I have not had the chance to see). The first two I would like to comment on were the two most critical economic discussion: “The global economic outlook for 2013” and “Eurozone crisis – the way forward”. They were interesting, insightful but long forums so I have done my best to summarise them onto a one page infographic-style summary.
Our conclusion is that Europe (and to a lesser extent other economies) is “out on bail”, which is not meant to be a reference to Lagarde’s predecessor. The immediate crisis may be over but there is no room for complacency.
Click here for our Out On Bail summary.
Among the many other excellent discussions, I think the following are worth your consideration. If you click on the title, it will take you to the WEF official blog on that forum.
An entrepreneurial approach to risk.
An excellent forum that considers risks and then ways of addressing them. One very interesting part of this was considering how entrepreneurs make decisions and face unknowns – termed effectual decision making. Important to big corporations and entrepreneurs alike. Also mentioned is the Global Risks 2013 report – a good interactive document.
Wanted 600 million workers
An important fact is that unemployment is not simply that there are no jobs available; rather it is also about a mismatch between required skills and available skills. No easy answers here, except it is the role of both governments and business to find ways of closing the gap.
Finally, in closing I would like to bring your attention to our Brave New World initiative where we challenge organisations to begin moving forward in a positive manner by considering how the world has changed and is changing – and all the opportunities that this produces. An integral element of this is to take inputs from places such as WEF, The Economist, the Global Economic Symposium and other excellent sources to provide a more appropriate context than a “rear-view mirror” analysis.
If you are interested in Genesis supporting you in this (for instance through simply providing the contextual material; through to running a forward-looking and motivating workshop for your management team) – contact us at BraveNewWorld@Genesismc.co.uk.
Few of you have the luxury to review all (or any) of the debates and reports generated in this year’s WEF in Davos. So the purpose of this post is to give you a quick view on some of those which I think are pertinent.
First, you will probably enjoy (or be amused by, or scared by) some of the top 10 quotes from yesterday. (The hyperlinks link to the broadcast of the speeches – worthwhile if you have the time):
“Europe faces issues, but its destiny shines through the smoke and fog. I’m optimistic about Europe’s future” Christine Lagarde, Managing Director of the IMF, in Resilient Dynamism
“Unless we take action on climate change, future generations will be roasted, toasted, fried and grilled.” Christine Lagarde
“Africa’s story has been written by others; we need to own our problems and solutions and write our story.” Paul Kagame, President of Rwanda
“The state sector needs to shrink. In the last few years, the state sector has been expanding. This is the opposite of the direction we need to go. We know [state-owned-enterprises] are low-efficiency. When resources move from the high-efficiency private sector to the low-efficiency state sector, the economy declines. So if you talk about reform, the state sector needs to continue to be shrunk.” Xu Xiaonian, Professor of Economics and Finance, China Europe International Business School (CEIBS)
“Average IQ goes up by two to three points every decade. If you don’t believe it, compare Beverly Hillbillies to The West Wing” Larry Summers, Harvard University professor, in his An Insight, an Idea session
“At the end of the day, all emerging markets offer growth. But today, really, the last bastion of big growth is the African continent. A billion people, of which 500 million are connected, and 500 million are yet to be connected.” Sunil Bharti Mittal, Chairman and Group Chief Executive Officer, in Derisking Africa
The other report I would like to bring to your attention is a report coordinated by Roland Berger called “Rebuilding Europe’s Competitiveness”. It is well-written with a compelling storyline highlighting the difference between Northern Europe and Southern Europe. There are good graphics, excellent case studies and it is easily read, although requires time.
In a nutshell, it emphasises:
Entrepreneurship and innovation
Making markets work better for Europe
as key elements.
Furthermore, it is encouraging in that is shows how things are beginning to change and what needs to be done. Although many of our readers are not in European politics (or we do not think so at least), the report presents an important backdrop for anyone trying to run a business in Europe. It also offers important clues to other regions which may have similar problems – including South Africa where there are some uncanny similarities to Southern Europe.
And for those of you who think I have completely sold out to the WEF, I am adding a link to a great article by John Gapper of the Financial Times who discusses Davos with a rich combination of journalist cynicism with intellectual envy in an article called:
For those of you who believe it is time for their organisation to start looking at the future with more optimism, but also an acknowledgement that times have changed and “rear-view mirror” perspectives are insufficient to identify the new and exciting opportunities that are presenting themselves – contact me at BraveNewWorld@Genesismc.co.uk to discuss how you could join the Brave New World initiative we have recently launched – where we use inputs from the WEF, The Economist and other highly professional sources to set the context for your business and help your team to plot your road-map to future prosperity and growth.
This week the World Economic Forum kicked off in Davos – and as always, we will be following it with interest and alerting our clients and readers to interesting forums and discussions.
Not coincidentally, this is also the week that we are launching our new “Brave New World” initiative. The tough economic times continue to a greater or lesser extent depending on your perspective (country, industry, region, …) and we believe the green shoots are showing or about to show. The biggest challenge many organisations face is that the business environment has changed fundamentally but many are still looking in the rear-view mirror to plan the road ahead. Coupled with that is that many are also in survival mode – with a strong internal focus on cost containment.
Resources tend to be stretched especially at executive level and although we know we should be considering the broader trends and fundamental changes that have been happened, we seldom give ourselves the opportunity to read and absorb some of the material out there (such as is coming out of the World economic Forum) – to say nothing of sitting down as an executive team to discuss the implications and opportunities for the organisation.
The BraveNewWorld challenge is to change this mindset in your organisations (if it exists) and proactively look at the new “world” you will be facing, with a perspective of seeking opportunities and growth. Taking the time out to assess the future NOT through the perspective of the rear-view mirror, but from the perspective of what the future might look like. Contact me at BraveNewWorld@GenesisMC.co.uk to discuss how we might be able to offer assistance in this process.
Back to Davos, the theme of this years conference can best be described using Professor Klaus Schwab’s words: “Today, we live in the most complex, interdependent and interconnected era in human history. We are increasingly confronted by major adaptive challenges as well as profound transformational opportunities. This new leadership context requires successful organizations to master strategic agility and to build risk resilience.”
Later posts will discuss specific debates at Davos, but for this first post I should like to bring to your attention the WEF TV channel at http://www.weforum.org/events/world-economic-forum-annual-meeting-2013 . As I write this, I am watching a discussion called “De-risking Africa” with discussions from Clayton Christensen (disruptive technologies) and Global Risks due in the next few hours. Incredible stuff and whether or not you agree with the opinions expressed, it should certainly stimulate your thinking.
And finally, congratulations Charlize on your Crystal Award. Beauty, brains and empathy ….. an exceptional and rare combination.
Here is a GBN interview with Gong Szeto. Hard to describe what he really is … architect? artist? problem solver? data miner? …
Best said he seems to be brilliant at understanding complexity with blackboard and chalk. Drawing pictures and interconnections to get to grips with the complexity of the situation. In one of the 7 habits of highly effective decision makers, we said: “combat complexity with visualisation”. Well, it seems that Gong is living proof that this works.
There does not seem to be any underlying methodology, except working on the principle of “insight-decision-action” – which means understanding why is anyone looking at the situation in the first place? What do they want to do with it? Because that is what frames the image.
So have a look at the interview and then browse around his web-site a little. I cannot promise you will fully understand, but I think I can promise you will be at least fascinated .. and maybe a little inspired?
Although we at Genesis would not claim to be able to do identical work as Gong, we are able to help you think through the complexity of a situation and with some advanced tools and technology. We will assist your team in making sense of the situation and identifying the key drivers and risks.
Contact us for a discussion at firstname.lastname@example.org
The Global Agenda Survey asks members of the Global Agenda Councils to identify and predict the most important global trends that will likely impact the world economy, society and environment in the next 12-18 months. The findings are used to draw out important and revealing inter-linkages between the perceptions and actions of business, political and academic leaders.
Extract from report
This is a survey well worth reading when considering the trends that will face both private and public sector in the near future. There are some superb interactive graphics that allow for quick drilling down into those things that are relevant to you.
You may like to consider using this as input to your strategy review or strategic planning session – we would be delighted to facilitate such a session using this material as input together with state of the art technology that could transform that session into a memorable and important event. Contact me at email@example.com to discuss this.
Here is a useful article from a great blog called Rethinking Complexity, out of Saybrook University. It challenges you to put aside preconceptions and really listen – even when what you are hearing goes against your fundamental beliefs. It does this via a simple exercise (simple to understand, not so simple to do!).
It discusses Edmund Husserl’s concept of “bracketing” which means setting aside your preconceptions. Which will allow you to really listen and hear what the other party is saying. If you are trying to understand each other; or perhaps attempting to reach an agreement over something, this becomes really important. If you are simply trying to win an argument rather than gain mutual understanding – then this is not for you. I suspect we often find ourselves in this latter area (wishing to win an argument) when we really should be looking to gain a mutual understanding. It is obviously best if both parties are putting their pre-conceived notions aside.
The technique requires a high level of emotional maturity as well as an ability to meta-think (to think about what we are thinking about).
Are you up to trying the exercise? It really could benefit your decision making if you can allow yourself to hear contradictory perspectives and evaluate them objectively – not in the frame of your own pre-conception.
At the end of the month, I am giving part of a series of lectures to a group of female managers in a major steel company. I am planning to use this technique to see if it will help bring some clarity to the myths, mis-perceptions and facts around women in business. I will keep you posted.
My alma mater, Deloitte seem to have cottoned on to the importance of strategic decision making and issued a useful article on the topic. Their premise is that the CIO and CFO in collaboration are in a good position to improve decision making within an organisation.