MONDAY*

Issue #15 | January–February 2017

THE FINE ART OF MAKING THE RIGHT DECISION

EXECUTIVE
BRIEFING

“There is no inherent reason why medicines should taste horrible—but effective ones usually do,” Peter Drucker wrote in his 1967 classic The Effective Executive. “Similarly, there is no inherent reason why decisions should be distasteful—but most effective ones are.” Drucker had his own seven-stop process for making an effective decision, which begins with the wise admonition: Determine whether a decision is even necessary. In addition, we offer eight other tricks of the trade from leaders in business, the social sector and government: Decide what side of wrong you want to be on. Decide today, repair tomorrow. Sleep on it. Sell the toughest decisions by reframing them. Broaden the scope of choices. Go big. Let your values drive your decisions. And after you make a decision, shoot holes in it.

THE FINE ART OF MAKING THE RIGHT DECISION

A decision, wrote Peter Drucker, “is at best a choice between ‘almost right’ and ‘probably wrong’—but much more often a choice between two courses of action neither of which is provably more nearly right than the other.”

issue-15-header-image-01

Countless articles and books have been written about decision-making, and many have valuable insights to share. But anyone hoping to eliminate the agony of it all—perhaps by learning methods of data gathering and analysis that will cause the answer to magically reveal itself and bring all parties into alignment—is out of luck.

“There is no inherent reason why medicines should taste horrible—but effective ones usually do,” Drucker warned. “Similarly, there is no inherent reason why decisions should be distasteful—but most effective ones are.”

These sentences appear in Drucker’s book The Effective Executive, which marks its 50th anniversary with the publication in January of a special edition (featuring a foreword from Jim Collins and an afterword from the Drucker Institute’s Zach First).

At fewer than 200 pages, The Effective Executive manages to be both definitive and concise. It also remains as relevant as ever: When Jeff Bezos of Amazon hosted a series of all-day book clubs with his top executives a few years ago, The Effective Executive was one of the three books that he picked, while McKinsey has noted that the time-management suggestions Drucker makes in his 1967 work “sound remarkably like the ones offered up by today’s . . . experts.”

But of all the topics covered in The Effective Executive—including not just managing your time but building on your strengths and setting priorities—one of the book’s most memorable chapters is centered on that most inescapable of executive duties: making decisions.

FRAME WORK

The Drucker Institute’s Phalana Tiller visits with University of Kansas historian David Farber, who discusses the decision-making prowess of legendary General Motors Chairman Alfred Sloan.

GAUGING RISK

“In a world of incomplete information, you’re never going to be able to make the right decision all the time,” says Ecolab CEO Douglas Baker.

Drucker proffers his own seven steps for doing so successfully:

• Determine whether a decision is even necessary.
• Classify the problem. Is it common or unique?
• Define the problem. What is this situation really all about?
• Decide on what is right. That is, make the right kind of compromise.
• Get others to buy the decision.
• Convert the decision into action—that is, make it somebody’s work assignment and responsibility.
• Test the decision against actual results.

But, as wise as Drucker’s advice is, many highly effective people have their own tricks of the trade for making good decisions. Here are eight of them, used by a remarkable group of leaders—from business, the social sector and government—to help steer you through the most difficult stretches.

 

DECIDE WHAT SIDE OF WRONG YOU WANT TO BE ON

When decisions are made at Ecolab, a Fortune 500 company that provides water, hygiene and energy technologies and services, all of the fundamental rules apply: People do their homework, come up with analyses and map out possibilities. But CEO Douglas Baker also follows an additional rule: Figure out what sort of mistake is easiest to manage.

“In a world of incomplete information, you’re never going to be able to make the right decision all the time,” explains Baker, who is ranked as one of the world’s 100 top-performing CEOs by Harvard Business Review. “So often I think, ‘If I’m going to be wrong, on which side of wrong do I want to be?’”

If Ecolab is hiring, for example, is it best to have too many salespeople or too few? On a larger scale, how many office buildings should be added? Says Baker: “I’d rather have one too many salespeople and one too few office buildings.”

This approach wound up being critical to a decision in 2011 over how to finance the $8 billion acquisition of a chemicals company called Nalco Holding. “This is a lot of money for anybody and certainly was for us,” Baker points out.

The primary choice was between issuing debt or issuing stock. On the face of it, the case for debt was strong: Interest rates were low, making debt cheap, and shareholders prefer not to see their stock diluted. But a storm cloud was forming over Washington, with a congressional standoff raising the possibility of a government shutdown. If the shutdown were really to happen, credit markets could freeze and place the company in serious jeopardy.

nalco-main-1

So Baker chose to issue stock as well as debt. “This was not initially met with a warm response,” he says. “But our calculus was this: If you end up with too much stock—that is, the credit markets don’t freeze—it’s really easy to fix. You issue a three-line press memo announcing a share buyback and pay for it by borrowing the money you would have borrowed anyway.”

In short, using equity financing placed Ecolab on the right side of wrong. Several months later, after the crisis in Washington was averted and credit markets could exhale, Baker knew what to do. “We announced a buyback,” he says. And shareholders were happy again.

If you wait until you have all the facts and data you’d like to have, you’re too late.

MITCH DANIELS
President, Purdue University

DECIDE TODAY, REPAIR TOMORROW

With a long career in the public and private sectors—political advisor to Ronald Reagan, executive at Eli Lilly, head of the Office of Management and Budget during the first term of George W. Bush, two terms as governor of Indiana and, today, president of Purdue University—Mitch Daniels has developed a lot of rules about decision-making.

He serves up a few: “Religious about ends, agnostic about means.” “‘Oops’ isn’t a hard word.” “Results are trump.” (He says he may now have to reword this one.) He also keeps a copy of The Daily Drucker on his shelf—a practice that we wholeheartedly endorse.

But Daniels places particular emphasis on speed. “If you wait until you have all the facts and data you’d like to have, you’re too late,” he says. “That’s why the second-best decision today often produces a better result than the perfect decision in six months.”

One reason speed can be especially important in government is that leaders come into office with momentum, and if they want to make use of it they must tackle big efforts early on.

When Daniels became governor of Indiana in 2005, he faced a $700 million structural deficit as well as overburdened infrastructure that was overdue for improvements. Within two months, Daniels oversaw the passage of an austere budget that avoided tax increases and allowed the state to accumulate a reserve fund. He also pushed ahead on a plan to lease the Indiana Toll Road to a private company with all proceeds going to long-term investment in infrastructure.  This was a controversial deal, and some people advised him to wait and study the idea for a year.

“If we’d done that, it never would have happened,” Daniels says. Instead, he took the plunge, and it worked out well. “Today,” says Daniels, “there are billions of dollars of completed road and bridge projects, many of which had been on the books for decades, and people are much less likely to debate it once the results are literally concrete.”

VOX BOX

WHAT IS THE MOST COMMON PITFALL YOU SEE WHEN IT COMES TO DECISION-MAKING IN YOUR SECTOR?

—Interviews by T.A. Frank

TANYA MENON

Associate Professor, Fisher College of Business, Ohio State University; Co-author, Stop Spending, Start Managing

STEVE SCHEIER

Founder and CEO, Scheier & Barber + Group; Author, Do More Good. Better

G. EDWARD DESEVE

Executive in Residence, Brookings Executive Education; Author, The Presidential Appointee’s Handbook

When it comes to decision-making in the private sector, we have more data than ever, but we don’t know how to integrate it meaningfully. If data is food, a lot of it is made up of empty calories that we consume rapidly, leaving us no wiser. We have to spend less time collecting data and mining it for correlations and more time pausing to digest it. In my classes, I have my graduating business students step back and write down all of the key insights that they’ve had through their two years of lectures, across all their academic classes. Then I ask them to look for relationships between these ideas and form a one-page visual model of these insights. Most find that they can start playing in the spaces between ideas, discovering patterns and applying them to unexpected fields. Thinking in this way also helps you to make decisions when data is incomplete, because it forces you to step back and see the big picture. This is just one example of how to shift from passively consuming data to actively integrating lessons into the bigger picture, where you find knowledge and wisdom. Relevant data, better integrated, leads to better decisions.

Despite all of their great work, many nonprofits suffer from a variety of decision-making maladies. These include taking too long to make decisions, revisiting decisions and either relying too much on consensus or concentrating too much decision-making power in the hands of too few people. These pitfalls come from fear of failure or fear of conflict, and they prevent individuals from productively contributing to their organization’s decision-making process. As a result, nonprofit decision-making is often confused, and people feel stuck and disempowered. In our work with nonprofits, we seek to create more effective decision-making environments so that these organizations can do more, better. We work to drive decision-making down into the organization and teach people to advocate for themselves when it comes to decisions they want to make or get involved in. By using our methods—conducting an inventory of decisions, prioritizing them and encouraging people to advocate for themselves on the decisions they want to make—nonprofits can establish a “blameless” decision-making culture, in which people can play a bigger role in making decisions and can advocate without fear. That is how you eliminate bottlenecks, help the organization move forward and keep executive directors focused on the bigger picture.

Government decision makers have a tendency to swing between rashness and timidity. Rashness usually happens because of perceived timeliness that may not be real, and it causes people to make decisions too fast. Timidity, or a lack of intestinal fortitude, often results from a lack of information, making people succumb to analysis paralysis and avoid making a decision at all. So there’s fluctuation between these poles. Instead, you have to look at the evidence in an organized way and manage the risks. Government has avoided the issue of risk management for some time, but the private sector, particularly insurance companies, has a very organized way of looking at it. Each year at Davos, for example, there’s “The Global Risks Report,” which examines issues like climate change and so on. People in government need to be able to assemble the evidence, look at the risks and then in a timely manner make a decision that’s not too timid, not too rash, but thoughtful moving forward. Mastering that is the biggest challenge in government decision-making.

TANYA MENON

Associate Professor, Fisher College of Business, Ohio State University; Co-author, Stop Spending, Start Managing

MORE

When it comes to decision-making in the private sector, we have more data than ever, but we don’t know how to integrate it meaningfully. If data is food, a lot of it is made up of empty calories that we consume rapidly, leaving us no wiser. We have to spend less time collecting data and mining it for correlations and more time pausing to digest it. In my classes, I have my graduating business students step back and write down all of the key insights that they’ve had through their two years of lectures, across all their academic classes. Then I ask them to look for relationships between these ideas and form a one-page visual model of these insights. Most find that they can start playing in the spaces between ideas, discovering patterns and applying them to unexpected fields. Thinking in this way also helps you to make decisions when data is incomplete, because it forces you to step back and see the big picture. This is just one example of how to shift from passively consuming data to actively integrating lessons into the bigger picture, where you find knowledge and wisdom. Relevant data, better integrated, leads to better decisions.

STEVE SCHEIER

Founder and CEO, Scheier & Barber + Group; Author, Do More Good. Better

MORE

Despite all of their great work, many nonprofits suffer from a variety of decision-making maladies. These include taking too long to make decisions, revisiting decisions and either relying too much on consensus or concentrating too much decision-making power in the hands of too few people. These pitfalls come from fear of failure or fear of conflict, and they prevent individuals from productively contributing to their organization’s decision-making process. As a result, nonprofit decision-making is often confused, and people feel stuck and disempowered. In our work with nonprofits, we seek to create more effective decision-making environments so that these organizations can do more, better. We work to drive decision-making down into the organization and teach people to advocate for themselves when it comes to decisions they want to make or get involved in. By using our methods—conducting an inventory of decisions, prioritizing them and encouraging people to advocate for themselves on the decisions they want to make—nonprofits can establish a “blameless” decision-making culture, in which people can play a bigger role in making decisions and can advocate without fear. That is how you eliminate bottlenecks, help the organization move forward and keep executive directors focused on the bigger picture.

G. EDWARD DESEVE

Executive in Residence, Brookings Executive Education; Author, The Presidential Appointee’s Handbook

MORE

Government decision makers have a tendency to swing between rashness and timidity. Rashness usually happens because of perceived timeliness that may not be real, and it causes people to make decisions too fast. Timidity, or a lack of intestinal fortitude, often results from a lack of information, making people succumb to analysis paralysis and avoid making a decision at all. So there’s fluctuation between these poles. Instead, you have to look at the evidence in an organized way and manage the risks. Government has avoided the issue of risk management for some time, but the private sector, particularly insurance companies, has a very organized way of looking at it. Each year at Davos, for example, there’s “The Global Risks Report,” which examines issues like climate change and so on. People in government need to be able to assemble the evidence, look at the risks and then in a timely manner make a decision that’s not too timid, not too rash, but thoughtful moving forward. Mastering that is the biggest challenge in government decision-making.

CALL ME IN THE MORNING

Veteran diplomat Christina Figueres asks herself a question before she goes to bed— and then uses the restorative power of sleep to help her make the right decisions.

Daniels recognizes that speedy decisions can sometimes lead to mistakes, but he says the way to deal with that is to switch paths while sticking to the end goal.

This came into play when he was trying to reform Indiana’s welfare system, which he says was “fraud-ridden and horribly inefficient.” IBM won a contract to streamline and automate the system, but, after a few years, Daniels felt that the company had been overly ambitious and failed to deliver enough traditional services such as face-to-face contact with aid recipients. He terminated the contract, awarding the lead role to a different vendor, ACS. This set off lawsuits and earned Daniels bad press for a while, but he says ACS eventually delivered the results for which he’d hoped.

“We justly took some criticism, which we accepted,” Daniels says of the IBM episode. “But you have to have the confidence to say that whether you get it right the first time or the second time—and the slings and arrows along the way are no fun—all that matters in the end is whether the job got done or not.”

direct-from-drucker2x

 

SLEEP ON IT

Many executives claim to need hardly any sleep, and most of us try to get by with as little as possible, regarding slumber as critical but costly to getting stuff done. Perhaps, however, you should view shut-eye in a new light: It can help you make better decisions.

From 2010 to 2016, Christiana Figueres was executive secretary of the United Nations Framework Convention on Climate Change, and before that she served as vice president of the body. The post involved a lot of diplomacy, which automatically came with many sensitive decisions, and Figueres found rest to be a crucial tool for doing her work.

One form that rest takes is meditation, which Figueres says allows her to dial down the “internal noise that competes with our voice of wisdom.” Another form is sleep, to which Figueres assigns serious homework.

“I give myself a question when I go to bed,” she says, “and trust the answer to evolve overnight and be present for me in the morning.”

The question can be about complex matters of policy or something as simple as where she left her missing keys.

The former sort of question became necessary during the last few days of the 2008 United Nations Climate Change Conference, held in Poznan, Poland. Figueres was directing the negotiations between representatives of 195 countries and, after getting buy-in from enough key players, she had put together a draft of a modest but significant action plan that could keep things moving toward something bigger down the road. The next step was to present this carefully balanced text to all of the governments. Officially, it was another opportunity for them to offer feedback and suggest alterations. In reality, though, even minor tinkering was likely to blow up the agreement.

“I went to bed asking myself the question how to present it,” Figueres recalls. “When I awoke, I had the idea of using a soft take-it-or-leave-it approach, so that governments wouldn’t feel an imposition but would still appreciate the delicate nature of the balance.”

The decision panned out. The text was approved.

figueres-main-2

SELL THE TOUGHEST DECISIONS BY REFRAMING THEM

When Rich Stearns worked in the private sector—as CEO of Parker Brothers, the maker of games, and as CEO of Lenox, the producer of china—he made plenty of hard decisions. But some of the toughest have come as president of World Vision U.S., a Christian humanitarian organization, which he has headed for the past 19 years.

In the late 1990s, Stearns and his team decided to address the toll taken by AIDS in Africa. Many of World Vision’s usual supporters were reluctant to confront the issue, since they associated AIDS with promiscuity and drug use. Stearns and his colleagues challenged this bias by reframing things: They reminded donors that customers of African brothels were only a small fraction of those affected by AIDS.

“We took a strategy of focusing on orphans and widows,” he says. The organization raised hundreds of millions of dollars and, according to Stearns, wound up generating enthusiasm in Congress for the President’s Emergency Plan for AIDS Relief, passed in 2003.

A couple of years ago, World Vision set out to help another group unpopular in some quarters: refugees from the conflict in Syria.

“Fear was strong in the American public, and there was an anti-Muslim bias and an anti-refugee bias,” Stearns says. “People were also experiencing Middle East fatigue after two long and painful wars.”

So what to do?

Again, Stearns reframed things—not just for donors, but also for his own employees—as he looked to provide millions of displaced Syrians with shelter, education and sanitation at refugee camps in neighboring countries.

“I fell back on those core Christian values,” he says. “I was a stranger and you invited me in.”

The campaign has been a success. In just the past few weeks, World Vision has distributed about 2,500 blankets and 1,000 mattresses to 3,500 people fleeing Aleppo. And the organization says it is planning to scale up its efforts to support 100,000 newly displaced Syrians.

WATER 
COOLER 
CHATTER

Dwight Eisenhower said that the decision to land his D-Day forces at Cherbourg, which several colleagues argued would be a futile slaughter, was the toughest he ever had to make. Tweet this


Barack Obama has said that he has suits of only two colors—blue and gray—because “I’m trying to pare down decisions.” Tweet this


“Decision fatigue” causes people to make worse and worse choices, which is one reason why car dealers have success at adding on options at the conclusion of a sale. Tweet this


The 17th century philosopher Blaise Pascal argued that belief in God required finite sacrifice (some pleasures or luxuries) but offered infinite reward (eternal paradise after death) and therefore made best sense despite incomplete information, an argument—“Pascal’s Wager”— viewed as the first formal use of decision theory. Tweet this


hat-tip to: CNN; Vanity Fair; New York Times; and the Internet Encyclopedia of Philosophy, respectively.

BROADEN THE SCOPE OF CHOICES

When behavioral economist Dan Ariely goes out to dinner, he likes to ask the waiter which dish on the menu is the most unusual, rather than which is best or most popular.

“I think one of the challenges in decision-making is how to expand the scope to include choices that you don’t normally consider,” he says, noting that novel ideas and experiences often lead to innovations and improvements.

“In general, trying new things is recipe for a better life,” Ariely says. “We often do things many times, not really allowing any variance or any learning.”

Similarly, when deciding whether to accept a client or work assignment, Ariely likes to consider if a potential opportunity offers something unfamiliar. He recalls being contacted by someone in the financial sector who wanted him to consult on a product that would allow people to buy large blocks of stock. Despite knowing very little about stocks—and warning the caller of this—Ariely was drawn to the novelty of the gig. And so he traveled to Toronto to spend a day with this new client.

“During that day I learned a lot about the stock market,” Ariely says. “And I taught them about how to create trust, which is something you need when you sell blocks of stock.”

Plunging into the unknown does require one form of preparation, however: accepting a higher risk of failure.

If you’re going to make unusual decisions, therefore, keep the stakes at a reasonable level—by making your choices more about small projects, say, than about really weighty matters such as war and peace.

Also, be ready to appreciate the insights gained from things that don’t work out. The unusual entree might taste bad or the strange client might be a dud, but you’ll be the wiser for it. You “celebrate in those cases,” as Ariely puts it, and “change the focus from enjoyment to learning.”

 

GO BIG

Lee Ehmke, president and CEO of the Houston Zoo, estimates that he makes upward of 10 major decisions a year—about personnel, budgets, strategy and animals coming or going, among other things. One rule he brings to them: Be disposed toward going big.

In fact, if a non-incremental approach isn’t among the alternatives being considered, ask if it should be.

Ehmke learned this lesson after moving from New York to Minnesota in 2000 to head up the Minnesota Zoo, a state-owned asset with declining attendance. For the first couple of years, his impact was minimal.

“I realized that trying to advance slowly and build up credibility and do things one step at a time wasn’t getting us anywhere,” he says.

So Ehmke stopped looking at how to shuffle around limited resources (an annual operating budget of about $17 million) and instead came up with something truly transformative: a makeover that would cost many times that amount and turn the zoo into a world-class, rather than provincial, institution.

Specifically, the exhibits would become more immersive, the walks shorter and the concrete less ubiquitous.

Going big worked. This new approach attracted the enthusiasm of the governor and quickly pulled in $35 million in state funding. Donations from private donors also climbed.

Ehmke says that, ever since, he’s made sure to include a going-big option in the mix. “Decisions that go big and bold,” he says, “capture attention and create excitement and interest and often success.”

Decisions that go big and bold capture attention and create excitement and interest and often success.

LEE EHMKE
President and CEO, Houston Zoo

LET YOUR VALUES DRIVE YOUR DECISIONS

Since 2009, Tom and Kate Chappell have run a clothing company called Ramblers Way, which specializes in creating “non-itchy” wool garments sourced ethically and made entirely in the United States, both to ensure environmental standards and provide employment to Americans. But they’re best known for having founded and led Tom’s of Maine, famous for its toothpaste, deodorant and soap, which was purchased in 2006 by Colgate-Palmolive for $100 million.

Each time they’ve confronted difficult decisions, the Chappells say, the answers have become much clearer after being viewed through the prism of their organization’s core values.

At both of their companies, one value has been a commitment to creating products that are healthy for people and the environment. Another has been to educate consumers on how their purchases benefit the planet and their own well-being.

Like all businesses, Ramblers Way has faced plenty of challenges. For example, the fabric used by Ramblers Way relies on a scarce type of wool—Rambouillet Merino—and sourcing it exclusively in the United States became difficult a few years ago because of the company’s rapid growth and fluctuations in supply.

One option was to compromise on the texture of the wool or blend in other fibers, but that would weaken the appeal of the brand. Another was to source it outside of the country, but that risked undermining the company’s commitment to sound environmental practices.

Eventually, the Chappells chose to source in part from abroad, but they imposed a condition: All of their wool providers would have to meet something called the Global Organic Textile Standard to help ensure that they were acting in ecologically and socially responsible ways.

The Chappells’ core values, in other words, drove their decision.

A second challenge came from their approach to promoting their garments. Originally, the Chappells sold wholesale to independent clothing retailers. But this deprived Ramblers Way of interaction with their own customers. And since educating consumers is a core value for the Chappells, they decided to cut out the intermediaries and launch an online store as well as three of the brick-and-mortar variety.

This new approach has wound up working well. “It allowed us to lower our retail prices considerably,” says Tom Chappell. “And it’s given us control over our business, because we’re educating consumers and we have a direct relationship.”

They now plan to open 20 more branded stores.

AFTER YOU MAKE A DECISION, SHOOT HOLES IN IT

In the summer of 2009, one year after a financial crash that nearly brought down Wall Street, a proposed settlement landed on the desk of United States District Court Judge Jed Rakoff.

The parties involved were the U.S. Securities and Exchange Commission and the Bank of America, the latter of which had agreed to pay a $33 million fine for having failed to inform its shareholders of several facts that were critical to a questionable deal it made when it acquired Merrill Lynch. With most settlements, especially those involving a government agency, the judge will glance at them quickly and sign off.

Rakoff, however, chose to apply a rule that he uses for all important cases: He made a list of the three best arguments that could be mustered against his own decision.

“I know that if I don’t have a clear and coherent answer to each of the objections,” he says, “then I have to rethink the entire decision.”

In this instance, says Rakoff, the first objection that he wrote down was that Bank of America shareholders were paying the settlement, even though they were the ones who’d allegedly been defrauded. “I tried really hard to come up with an answer to that,” Rakoff says. “And I couldn’t.”

This led Rakoff to veto the settlement, an extremely rare move that made him a hero to some and a villain to others.

Eventually, the parties returned with a settlement that placed the financial obligations on former Merrill Lynch shareholders, the beneficiaries of the misconduct. Rakoff approved this one.

“I know that many people who have to regularly make important decisions pride themselves on making them quickly,” the judge says. “It’s almost a macho thing.”

As he well knows, however, it’s often better to slow down a bit and play devil’s advocate—against yourself. *

Tweet this article

Monday Mandate*

What will you do on Monday that’s different?

DIGEST A LITTLE DRUCKER

If you haven’t ever read it, or haven’t read it for a while, now is a great time to study up on Peter Drucker’s pointers for sound decision-making by ordering a special 50th anniversary edition of The Effective Executive.

TAKE STOCK OF YOUR DECISIONS

Go through the last few big decisions you’ve made and ask yourself: Is there someone clearly responsible for carrying each of them out? Do they have clear deadlines? And do all of the people who will be affected understand what’s coming?

ENCOURAGE DISSENT

The next time your team meets and easily agrees on a decision, don’t approve. Instead, urge everyone to think through possible alternatives and try to stimulate the imagination through healthy disagreement.