Learning to make decisions

Stephan Born

Decisions are essential for the functioning of organizations. Even the founding of a company is a decision for a certain task or for a certain service - and thus a demarcation against other possibilities. These and other decisions live on in a company and are used as a guide for future decisions.

This can be seen clearly in the example of Kodak, which was the global market leader for analog photo and film material from the middle of the 20th century. The traditional company was determined to maintain this position, even when Kodak's research department achieved a breakthrough in 1975 and the first functioning digital camera was presented.

Since it was recognized that this new technology could endanger the successful core business, the management decided not to consistently pursue research in digital photography and instead continued to focus primarily on optimizing the proven analog areas. Even a market research study commissioned by Kodak at the beginning of the 1980's did nothing to change this decision line of the company - in retrospect, this is irritating, since the study concluded that digital photography would displace analog in the future. From the end of the 1980's, Kodak's sales collapsed, and even a digital camera, which had been introduced in cooperation with Nikon in the meantime, could not change the collapse in sales of analog photo and film material. In 2012, after a good 120 years of company history, the company had to file for insolvency and give up its entire core business.

Decisions are crucial - looking back

The cause of Kodak's decline was certainly not one wrong decision. Nor was it an unforeseeable event, as can be seen from the market research study commissioned by Kodak itself at the time. Rather, it will have been a combination of continued decisions within the company in the sense of "success proves us right, so let's keep it up" and expectations that ultimately led to insolvency. The distinctive term "expectation expectation" - introduced by Niklas Luhmann in his book Social Systems¹ - describes expectations that refer to a counterpart's expectation of ourselves. For example, a department head may expect that his supervisor has a certain expectation of a decision to be made by him. Thus, some decisions are more likely to be made by the department head and others are more likely not to be made. This is understandable from the individual's point of view and extremely useful for an organization as a whole, as the organization gains stability - certain patterns are repeated and, in the long term, a perception that is perceived as coherent and predictable emerges. However, if the department head decides contrary to the expectation of his superior as well as the company, it is conversely to be expected that he will have to deal with corresponding reactions: Request for explanation, lack of understanding, disappointment, rejection or perhaps even sanction.  

Kodak had an essential question to decide: Should one invest in the further development of proven and predictable products or in future and unknown ones? Present sales predictably to management and investors through known distribution channels and margin constructions, or gamble on uncertain ideas and possibilities? Digital was not yet known, consequently not calculable and could not be classified on the basis of the "ZDF principle" (figures, data, facts). Therefore, a recognized dimension for justifying decisions was missing.

Facts and figures - orientation for decisions

But are figures, data and facts always suitable for making a decision on their basis? Especially when it comes to decision-making questions that have to be answered by looking into the future and necessarily involve a high degree of uncertainty and complexity? In everyday life we make countless decisions - unconsciously and consciously. The latter are particularly noticeable to us when they are difficult decisions. For these difficult decisions, the term "undecidable decision" exists. This expresses the fact that the decision has to be made between two mutually exclusive alternatives - either the white or the blue shirt, the applicant Müller or Mayer for the one vacant position. The example of filling a vacancy makes it clear that we have to commit ourselves to the future. It is impossible to calculate the best result or to be sure on the basis of certain facts such as report card grades or age to decide with certainty which applicant will best fit into the company, contribute to its success and make positive contributions to changes in the future. Such a situation is complex - not rationally penetrable. We cannot conclusively describe the possible conditions now and in the future, they remain largely hidden from us, and what remains hidden, we cannot describe factually. In complex situations the fact-based basis for decision-making is consequently highly uncertain. It primarily confirms us again and again in what we want to know and see - visible in the example of Kodak.

Importance of communication

In families or in team conflicts, it is generally accepted that it "needs to be talked about again," that "talking it out" helps and paves the way for understanding the other point of view. Everyday idioms show this clearly, right up to the "last word". With these examples of communication patterns, we intuitively know that we can work through them with language - some are more adept at it, others less so. With this view, it is interesting to observe the tendency of organizations to act on the important decisions as if each of them is to be made on the basis of real, objective and hard facts and that a review of the usual communication patterns is not necessary in the process. The fact that decision-makers are human beings and therefore cannot decide rationally was the subject of several articles in a 2019 issue of Harvard Business Manager magazine².

From theory to practice through observation and learning

In summary, in organizations we often have to deal with decisions about complex conditions that we cannot completely understand and predict. In many cases, the established decision patterns and routines work well - as evidenced by the numerous companies that have existed successfully for many years. At the same time, there is the example of Kodak as well as other situations in which a deviation from the existing decision paths is necessary and essential for survival.

To make this difference usable for one's own organization and to encourage managers to start observing decision-making themselves and to actively deal with it, it's important to determine several things: On the basis of which construction of reality is a decision made? How is complexity simplified? What alternatives are considered? How long-term are decisions binding? How are future realities constructed and opportunities and risks of decisions predefined? What is learned from decisions and subsequent realization? And how is what is learned communicated within the organization?

This can take place in small trials and ideally accompanied by neutral third parties with knowledge of organizational theory. Short-cycle tests, concurrent observation and the decision whether the test goes well - or not. It's easy to recognize the outlined procedure as an Agile method, as this approach allows companies to adapt faster and more effectively to the requirements of their changing environment. Although a decision considered in isolation does not improve per se, the consequence of decision upon decision, which is relevant for an organization as a whole, can be observed and alternative paths can be taken if needed. In particular, if decision-making models are already being thought about or even tested in addition to the proven linear procedure, its a substantial benefit to the organization.

Finally, from an external perspective as a consultant: In order to get to know a company quickly, I recommend not immediately looking at organizational charts - but observing how decisions are made within the company. In particular, when it is reported from within the company that, as in the case of many, a decision that was only made after what felt like an eternity, no one understood why the desired effect did not occur - even though every step was well thought out and objectively supported with numerous facts.

Sources

Source 1: Niklas Luhmann: Soziale Systeme. Suhrkamp 2001. ISBN 3-518-28266-2 (Groundbreaking framework that offers a profound paradigm shift in the way organizations approach decisions. With its unique perspective on organizational dynamics, Luhmann's theory provides a lens through which decisions are not just isolated events, but integral components of a larger, interconnected system)
Source 2: Harvard Business Manager, December 2019

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