of London Business School, a specialist in decision sciences and risk analysis. According to Degraeve, the only way companies can inculcate a culture of experimentation and innovation is by accepting failures in decisions and not blaming the decision-makers for bad results. Such a practice encourages them to take risks, and ultimately produces better and more winners.
In a conversation with Amit Ranjan Rai, he discusses the fundamentals of a sound decision-making process and how to build a culture of innovation and risk-taking in companies. Excerpts:
You insists that decision-making needs to be a proper process. Why?
Decision-making is a proper process. It is not a random collection of thoughts, ideas, opinions or observations that we volunteer in a meeting, with people making a summary out of it and drawing conclusions.
That is rather a random process and the results are also random, sometimes even worse, leading to chaos. Decision-making is actually a structured process and research shows that its results are, on an average, better than a random process.
What are the fundamentals of a structured decision-making process?
The process is a series of questions that good decision-makers ask themselves. You can essentially summarise it by saying, it is about ICACI. The "C" is about "criteria". Understand what you or company is aiming for, what the objective is, what is that you are trying to achieve. What is the problem, what are you trying to solve? Primarily, this involves, identifying the criteria for a decision.
The "A" stands for "alternatives", that is, thinking carefully what can you do about the problem and what are the different courses of action available. Are those courses of action feasible?
The second "C" is for "constraints". You make decisions within an environment of, say, limited resources, or skills that the workforce offers, and so on. The first "I" relates to "information" [or data available], and the last is about "intuition", which is related essentially to your experience in an area. That, in a nutshell, is the process of decision-making. If you go through ICACI while making a decision, you have gone through a comprehensive process of decision-making. Every organisation must consider these elements when it comes to making decisions.
By information, do you mean the data available to the company? How can this be utilised efficiently?
Yes, but then, of course, companies are mostly overwhelmed with data. The critical question is what information is relevant to the problem, and what can be easily left out.
A key information question that you need to ask once you have drawn a conclusion on what looks like a good decision, is: What information would I need to make me change my mind? This information is asking for disconfirming the conclusion. The natural tendency of people is to look for information that confirms your opinion.
But once you reach a conclusion, you should ask yourself what do I actually need to change my mind? If you cannot find it, you can confidently stick with your opinion, but if you see a valid counter-argument to your conclusion, maybe you need to start with the process of decision-making again.
What about experience? A leader at the top may have so much experience that he can easily make out what is right or wrong without any such process. Does he really needs to go through such a thorough decision-making process?
Yes, even top executives need to follow such a process. The relevant intuition to be used in decision-making is intuition grounded in experience. So, of course, the more experience you have the better, but the problem is that your experience is limited to particular areas, and you do not have experience in other areas.
Yet you also rely on your intuition in areas where you do not have any experience and that is very scary, because then you make intuitive calls in areas where you have no experience whatsoever.
The process of decision-making is about stepping back, thinking twice, challenging your intuition and experience. One of the critical jobs of senior executives is to recognise in what situation they have experience, and in what they don't.
They have to make a distinction "" if they make a decision in an area in which they have a lot of experience, then probably they can use the process to a lesser extent, but if it is in a situation where they have less experience, they would need the process of decision-making much more to help those decisions be sound.
In that context, how do you weigh the information or other factors that challenge your intuition or experience?
If your intuition is confirmed by information by using the process of decision-making, great "" your intuition has been confirmed by your analysis. But if your intuition is rebuffed by your analysis "" your intuition says A and analysis points to B "" you will wonder, why? This means either your intuition is wrong or your analysis is wrong. But then you have the opportunity to explore and ask questions, and involve others.
Good decision-making is also about effective communication with other stakeholders in the decision. It is about asking other people about criteria, alternatives and constraints "" by asking other people you are involving them in the process of decision-making. Their answers come from their experience.
But, at the same time, the decision-making process is not only about communication and understanding, it is ultimately about action "" joint commitment to action. It's about engaging your team towards the choice that has been made. Business is about action, it's about ultimately doing things.
Your current research focuses on creation of organisational culture that stimulates risk-taking, innovation and experimentation in companies. How can such a culture be built?
A fundamental insight in decision-making is understanding the difference between a decision and the result of a decision. The decision and the result are not the same. You make a decision today and then you implement that decision "" that takes time.
You implement it over a period "" tomorrow, next week, next month and so on. It indicates that decision-making is forward-looking and you are always dealing with the future. And the critical characteristic of future is: it is uncertain. That's why you face risks and uncertainties.
You see the result, but you see it much later. Many things can happen in between which can turn good decisions into bad results, and likewise, a bad decision into a good one. But there is an important difference between the decision and the result. And most people are confused by this "" for them good results mean good decisions. But that may not be true "" there could have been a good result out of a bad decision.
Factors in between can make a good decision have bad results. In such a situation, the critical thing is to understand why we had a bad result "" is it because we made a bad decision, or bad implementation, or because of something else which was beyond the control of the managers and the organisation, say, the market itself changing?
If you understand why you've had a bad result, it is much easier know where the blame lies. If you have a bad result but the decision made has been good, you cannot blame the decision-maker. Instead, the decision-maker should be congratulated for making a good decision.
Recognising that bad results can happen also because of unforeseen circumstances, actually creates that culture of experimentation, risk-taking and innovation.
If you know that you are going to be blamed for a bad result, you are never going to make decisions. It is a fact that most of the times you will only get bad results, and there will only be a few good results. A leader looking into why we have had a bad results is key to escalating a culture of innovation and experimentation.
But how do you deal with the risk of having too many bad results?
There is only one way of doing it, and that is by making lots of decisions, doing lots of different projects, and experimenting a lot "" while most of them will fail, you will always have a few winners.
Once a CEO of company told me, when we fail, we fail big time. What an awful thing to say, one would think. But it's much better to fail many times in smaller ways, because that means you will also have a few winners, and that means that you are also experimenting, innovating and trying a lot. That is the way to manage risks and failures "" making many, many decisions.
