book.chapter Cultivating business instincts

To enhance your business intuition, you have two primary choices: 1. Patiently accumulate experience until it starts to guide your decisions. 2. Actively cultivate the skills of intuitive decision making by: - Grasping the concept of intuition. - Mastering the techniques and disciplines of decision making. - Learning to merge intuition with analysis. Reflect on these questions: - What is the origin of your business instincts? - What triggers your mental warning signals when you observe something? - What is the method you've been taught to make sound decisions? The conventional wisdom for making a good business decision is: 1. Thoroughly dissect your problem. 2. Enumerate all your various options. 3. Assess those options based on consistent criteria. 4. Determine which option yields the most benefits. This approach seems appealing in theory because it's systematic and logical, rather than leaving the outcome to luck. However, this method often falls short in real-world applications. More often than not, decisions must be made in difficult situations where: - Confusing and intricate factors must be considered. - There are restrictions on the amount of information available. - You face significant resource limitations. - Small pieces of inconclusive evidence are plentiful. - Making the wrong decision carries severe consequences. In other words, in most situations, people don't adhere to the traditional, scientific model of decision-making. Instead, one method is usually preferred over all others, and the facts that support that preferred method are highlighted while conflicting facts are ignored. Or the evaluation criteria are adjusted until only one decision can be made. Since intuition already has a greater influence on our decisions than we might admit or even realize, it deserves further examination. The five key components of a practical model of business intuition are: 1. A new situation generates a set of cues that are typically grouped together. 2. This group of clues will form a pattern. An experienced manager will examine a set of clues and determine whether it matches any pattern they've seen before. 3. Based on the pattern used in past situations, an experienced individual will have a specific action plan in mind. They will predict what will happen next and the most effective course to follow. Action scripts are the typical responses of an experienced person. The more experience a person has with a specific pattern, the clearer the best course of action will be, and the easier it will be to make a good decision. 4. Mental stimulation involves consciously envisioning the outcome when an action script is executed. An experienced person will anticipate the results of specific actions and will look for signs that this is actually happening. 5. To create an effective mental simulation, mental models of how things work are necessary. Experienced individuals understand how things work from their own hands-on examples. Managers assist their subordinates in developing better mental models to enhance their future effectiveness. In most situations, all of these elements are processed so quickly that it seems as though intuitive decisions are made instantly, but this is not the case. All of the key elements are processed in quick succession. The benefits of intuitive decisions in business are: - Situations can be assessed quickly – instead of requiring a lengthy, painstaking effort to analyze them. - Problems and anomalies can be detected early – before they escalate into more serious issues. - Confidence – the first option that comes to mind is a good one. - Anticipation of what will happen next – so adequate preparations can be made in advance. - Avoidance of data overload – keeping things simple and manageable. - Ability to remain calm and composed – even when required to act under pressure and uncertainty. - Alternatives can be found – when a plan encounters any kind of difficulty or obstacles. - Recognition of similar patterns in the future – allowing you to improve over time at performing those tasks that are central to your career. Clearly, the key to reaping these benefits is to gain enough real-world experience in your specific field to develop expertise. The wider your experience base, the more intuition you will have. However, this is too important a resource to leave to chance. What is needed is a training program through which intuition can be acquired and enhanced through a series of meaningful experiences. In other words, since intuition is critically important, it makes sense to undergo a planned set of exercises that will provide "deliberate experiences" that will build into intuition. This way, you are approaching intuitive decision making in a constructive and deliberate manner rather than hoping that random events will provide us with the necessary experience. To improve your use of intuition, a three-step training program is recommended: 1. Identify: Before you can effectively start using your intuitions, you need to understand the decision requirements of your job. This is not as straightforward as it may seem at first. For most executives, the critical decisions they need to make at work are: - Estimating timelines so budgets and plans can be developed and refined. - Choosing one contractor or outsource supplier over another. - Identifying which business opportunities are the most promising and therefore deserve the most resources. - Hiring new people. - Promoting people within the organization. - Evaluating whether a project is progressing well or whether it should be abandoned. Decision requirements are the judgments that repeatedly arise rather than the one-off situations. To organize your thinking better, you may want to develop a simple decision requirement table in this way: Decision: - What makes this decision difficult? - What errors are often made? - How do experts handle this better? A decision requirement table helps you approach decision making more systematically. It also encourages you to seek out those who have a track record of success to look for ideas and practices you may try and emulate. By documenting your track record in making decisions, you can become more sophisticated in the future while at the same time creating an opportunity for greater intuition. 2. Practice: The second step in making better intuitive decisions is to find opportunities to practice. The greater the experience base you amass, the more likely it is you will become skilled at recognizing the patterns and building the mental models that underpin intuition. A good approach in this area is to develop "decision games" – simulations or training exercises that capture the essence of the most difficult decisions you need to make. A good decision game recreates the challenges you face. Some organizations go to great expense to develop and run sophisticated computer-based decision games, but a thought exercise using paper-and-pencil can be just as effective. A good decision game: - Will have a compelling and engaging storyline. - Builds to a climax where a key decision is required. - Doesn't have a single correct answer but allows for a reasonable range of answers, each with its own consequences. - Has a built-in set of conflicting goals and resource constraints to reflect the realities of life. - Incorporates the sense of uncertainty that is present in most real-life situations. - Will be open to discussion so everyone in the organization has the opportunity to learn from it. - Where possible, includes some sort of diagram, map or table to incorporate a visual element. - Should be named so it can be referred to a later time. 3. Review: To learn from your experiences and become better at making good decisions, feedback is required. This can be time-consuming and at times painful, but unless you take the time to reflect on each experience, you may miss a learning opportunity. To critique your decisions and learn from your experiences, be specific and thorough. Answer the following key questions: - What was the timeline for this decision? - At what points on that timeline did we make decisions about what was required? - What were the hardest decisions to make in this project, and why were these decisions so difficult? - How did we interpret the information we had available? - In hindsight, what were the cues and patterns that we should have picked up on earlier? - Why did we end up selecting the course of action we adopted? - If we knew earlier what we now know, would we have chosen a different course of action. The military has always been big on debrief sessions where past experiences are examined in greater detail. A review like this, however, is more than a debate. It is also more than an attempt to find someone to blame. Nor is it an attempt by a facilitator to maneuver participants into accepting the "right" answer. Instead, a business decision review is a genuine attempt to learn about patterns and cues. The review is also intended to highlight where more practice and training is required so the quality of future decisions will be improved. It's not enough just to have experiences. Intuition requires those experiences to be transformed into expertise. To build expertise, you need feedback on our previous decisions. Passive feedback which states whether you passed or failed is of little use. Rather, you need to be actively involved in analyzing the feedback to learn why your decisions were good or poor. You then need repetitions – so you can get progressively better over a period of time. As you go through the three steps of this cycle again and again, you gradually fine-tune and hone your ability to make use of your intuition. As part of building your own business intuition, it is important to understand the connection between analysis and intuition. In practice, both are needed. Your intuition should help you recognize a situation and suggest how to act but this should be followed by analysis to verify those intuitions are not misleading. Intuition is more like peripheral vision or the big picture whereas analysis is tightly focused on just one option. There are times when it makes more sense to rely on intuition and other times when analysis should come to the fore. For example, intuition will sometimes prove to be unreliable: - When a complex decision is needed – where you need to sit down and calculate out the exact costs of one option against another. - Where there are high levels of uncertainty – like trying to forecast which way the stock market will move on any particular day rather than over a long time period. - Where decision makers have had insufficient experience to be able to acquire expertise. - When someone distorts their experience base – by making connections between accidental or random events where none actually exist. - Where we have a mindset that we've seen it all before – causing us to miss important or novel new clues and pieces of information. Similarly, analysis can sometimes prove to be unreliable as well. This may arise: - In situations which are highly fluid and changeable. - Under severe time constraints. - When the goals are fuzzy or loosely defined. - In transactions involving highly experienced people – who are unlikely to need extensive analysis to make decisions. Both analysis and intuition are needed. The challenge is to find the best ways to use both effectively. Some practical suggestions on how to hit the right balance between analysis and intuition are: 1. Always start with intuition – because if you begin by analyzing a situation, you'll naturally suppress your intuition. When you start a new project, identify your intuition right at the outset before it gets clouded. Then start analyzing whether or not those initial impressions are sound. 2. Accept that there will be a zone of indifference – and settle for making a good decision quickly rather than agonizing for a long time until you come up with a perfect option. Make your choice and move on rather than getting bogged down. 3. Map strengths and weaknesses without attaching numbers – that way you can make a decision quickly rather than getting bogged down in calculating the precise strength of each pro or con. Aim to identify the best option rather than its margin over all others. 4. Use mental simulations – to look at how each potential approach might pan out in the future. That way, if your worst case scenario plays out, you'll stand a better chance of picking up on the clues earlier rather than later. 5. Simplify your comparisons – by running a series of "face-offs" where you compare just one option with another. Gauge which is the best, discard the losing option and run your next face-off with a new challenger. Keep going until you have just one option remaining, which will be your most robust choice. 6. Bring in an outsider – and ask them whether what you're suggesting makes sense. This will provide a reality check that you're not losing your objectivity. 7. Don't try and replace your intuitions with procedures – but take advantage of your intuitions. Use them to supplement and enhance the procedures that you follow. The best people not only know their routines inside out but also have enough expertise to know when is the appropriate time to depart from those routines.