How to make better decisions.
Does your organization even know?
Years ago, before I co-founded Morozko Forge, I was in a meeting that devolved into a debate about which software platform we should use to develop a custom tool for our most important group of clients. I recommended a platform that was particularly well-suited to the job, but our lead programmer didn’t have experience with it. He advocated for a platform that was less suitable to our clients but more familiar to him.
As the conflict rose, the meeting became unproductive. So, I changed the topic by posing a question:
“How do decisions get made in our organization?”
The response: silence.
Nobody on the team really knew. One of our principal managers was out on medical leave, and it created an authority vacuum.
But even without that, we wouldn’t have been able to describe an explicit decision structure for our organization.
“Well,” one of the meeting participants finally offered, “we usually talk about things, and then I think Stan decides.”
“Well,” I answered, “Stan’s not here. So that decision-making process is gone. What shall we use instead?”
This time the answer came fast.
“Consensus!” everyone agreed.
So I asked another question: “What constitutes consensus?”
The problem with consensus
Many American organizations default to “consensus” in the absence of a clear decision-making process. Maybe it’s a result of America’s egalitarian ideology, or our natural aversion to conflict and criticism. Often, people gravitate toward consensus without even knowing what consensus is. And if consensus fails, they propose a vote.
But both consensus and voting are crappy decision processes.
They’re too slow — e.g., it isn’t clear when the time for decision has arrived.
The diffusion of responsibility makes accountability almost impossible.
They provide insufficient feedback on the quality of the decision.
They tend to reduce the decision criteria to the lowest common denominator.
They fail to foster creativity and innovation.
They are too risk-averse.
Since that conversation, I’ve realized most Americans are poor decision-makers. Although people who lead meetings and discussions often aspire to become managers, many managers don’t actually make the call on difficult decisions.
In fact, the typical American system of bureaucracy is actually designed to remove decision-making rights from managers.
Bureaucracy is about minimizing mistakes by establishing decision rules for as many conceivable conditions as the company can imagine.
Bureaucracy substitutes policy for judgment and algorithms for experiments.
That’s the purpose of bureaucratic policies. They serve as a substitute for judgment.
One advantage of bureaucracy is efficiency. It reduces the time and energy required to weigh and evaluate alternatives, and it typically guides the organization toward systems of specializing labor that avoid duplicating effort, output, and communicative confusion. But bureaucracy affords few opportunities to practice and improve decision-making skills. Thus, when an organization encounters a surprise, anomaly, or vacancy in authority, no one knows how to make a decision, because they haven’t practiced decision-making skills.
And sometimes, no decision is worse than any available alternative.
My undergraduate students in engineering business practices typically fall into the same consensus-based, no-decision trap that my software development team did. Without an explicit assignment of decision rights, they’re bogged down in a self-recursive loop of indecision.
To avoid the no-decision loop, people have to be trained to make decisions.
For example, Ray Dalio, founder of Bridgewater Associates, chronicles his company’s decision-making processes in his book, Principles. He believes in creating a culture of accountability and evaluation of decision quality. He also embraces mistakes as a source of knowledge, because he believes that will improve future decisions.
According to Dalio, decisions that can be reduced to algorithms are codified in computer code, rather than in bureaucracy. For decisions that computers can’t make, there’s a credibility-weighted consensus-based process.
If it sounds complicated, that’s because it is.
Your company doesn’t have to do it like Bridgewater. There are other models of decision-making. The point is that to make better decisions, the people in your company or on your team must know how better decisions get made.
What is a decision?
Although people probably make hundreds of decisions a day, few have thought about, or are able to describe, what constitutes a decision.
Ask a dozen people in your company, and several of them are going to tell you something like, “A decision is when you make up your mind about something. It’s when you make a choice, from among several different alternatives.”
But choices are prerequisites to a decision, not decisions themselves. Making a choice might provide some satisfaction in relief of anxiety, but it’s not a decision, because nothing (yet) is at stake.
A decision is an irreversible commitment of resources.
It’s not a decision when my niece makes a declaration at the family holiday picnic, “I’ve decided I’m moving to New York to pursue a new career as an actress!”
Although her relatives might cheer her on and make encouraging noises, until she commits resources (time, energy, money) that create opportunity costs, her declaration is a fantasy, not a decision. To elevate her career aspirations from her imagination to reality, she must make commitments that will be difficult to undo. For example, she might sign a lease on an new apartment and pay a security deposit, strengthening her decision to move. She might audition for roles, thus committing the time, energy, and ego risk of rejection, to strengthen her decision to pursue a new vocation.
Her problem is that making public declarations of intent is much more rewarding, with less effort, than an irreversible commitment of resources.
Too many business managers are like my niece. They fantasize out loud about their aspirations, or make solemn declarations about change, but they never commit resources. They want the temporary satisfaction of a false resolve, so they announce public resolutions that reward their brains with the dope hit of false accomplishment, without incurring the expense, sacrifice, or risks of making commitments.
It’s not a decision until you’ve made an irreversible commitment of resources.
Who in your organization gets to make decisions?
As organizations grow, they become further and further removed from the people who founded them. The problem with that is, the people who founded the organization have excellent judgment about what constitutes a good idea (or the organization would never have succeeded), and the people who join the organization as it grows do not.
And how did these wise organizational Founders develop their excellent judgment? Typically, by making and learning from mistakes of the kind that Dalio refers to.
Nonetheless, once an organization figures out what’s working, the patience for mistakes wears thin, and institutional controls creep in to reduce the possibility of errors. We call these controls “bureaucracy” and it is this system of policies and procedures that constitute and enforce those controls.
The problem with error-minimizing bureaucracies is that so few people in the organization are permitted to make the mistakes necessary to develop their own excellent judgment. Instead, the entire organization becomes preoccupied with learning and conforming to the rules.
In bureaucratic organizations, their are few decision makers, because the policies, processes, and rules remove alternatives. For example, in No Rules Rules: Netflix and the Culture of Reinvention (Hastings & Meyer 2020) Netflix CEO Reed Hastings tells a story about an executive at one of Hasting’s earlier companies who was infuriated by a travel policy that refused to reimburse him for a $12 taxi fare.
The travel expense refusal wasn’t a decision made by an individual at the company. It was a rule that absolved any travel account manager from the responsibility of exercising judgment.
And there were no compensating rules that empowered anyone in the organizations to override it!
Most bureaucracies do not allow decision making. They operate by approval, in which managers at upper levels review resource allocations to ensure that they comply with policies. Eventually, you get a corporate culture like the one satirized in the 1985 movie Head Office.
To make better decisions, organizations must assign decision-making rights to the people in the organization and foster an environment that encourages them to experiment, make mistakes, receive feedback, and improve their judgment.
Most organizations have no idea how to do this.
For example, the first purchase I made right after I secured my very first National Science Foundation grant was an electric pencil sharpener. I wanted the sharpener so that I could take notes on the manuscripts and books I was reading for my dissertation. Because I wasn’t authorized to make such purchases, I put in a request that was subject to at least four different levels of organizational approval.
These multiple levels of review are intended to avoid fraud and misappropriation of grant funds, which (upon rare occasions) has been a legitimate problem. In fact, almost all purchases at my home University were treated like suspected fraud, no matter who initiated the purchase — because no one in any typical University organization is really authorized to commit $20 to the purchase of a pencil sharpener. We’re only authorized to initiate a series of reviews and approvals of proposed purchase commitments.
By contrast, almost any idiot in a University can call a meeting. And meetings, when you consider the salaries paid to the employees who show up for them, are much more expensive than pencil sharpeners.
To empower people in your organization to make decisions, you must communicate to them the resources they have the right to commit.
And not all resource commitments will come with a receipt.
What is your organizational decision process?
After your organization learns to recognize what decisions are, and who within the organization has the right to make them, it’s important to give the people in your organization some guidance regarding how to make good decisions.
For example, in Only the Paranoid Survive: Lessons from the CEO of Intel (Grove, 1988) Andy Grove describes the process by which production resources were allocated among different products at Intel Corporation. Managers at individual production facilities were already empowered to commit resources to either memory chips or microprocessors. To guide their decision, they had information about sales prices, production costs, and gross margins. The managers were directed to make decisions that would increase production of the most profitable products, according to the data available for their factory.
While almost everyone at Intel at the time thought of themselves as memory chip manufacturers first, and microprocessors as an accessory to the memory business, the managers were getting data telling them that the microprocessors were more profitable. So they allocated additional resources to microprocessors, and fewer to memory, because their decision process was to gather data and reallocate production resources in accordance with their margins.
When Grove finally made a commitment to exit the memory business altogether, he discovered that his managers had already put Intel on that path, by shifting the company towards microprocessors. This sped Intel’s transition, and according to Grove, probably saved the company additional losses from the crippling competition in the low-cost memory market.
In other words, Intel already understood that a decision is an irreversible commitment of resources. They already assigned decision rights to the production managers. And they’d provided sufficient guidance to managers about the decision-making process that when the corporation was faced with what felt like an existential crisis, the managers had already been steering production towards a resolution.
The Morozko Method to decision-making
The Morozko Forge decision-making Method has two important stages:
The first is to identify and formulate the problem you are trying to solve.
The second is to share lots of ideas and speculate about the consequences in a process we call “What if?”
What problem are you trying to solve (and why is it important)?
When Steve Jobs launched the iphone over 10 years ago, he was explicit about the problem that the iphone solved for mobile phone users. Most people didn’t even know they had a problem… until Jobs showed them the Apple solution.
And that’s the value with asking ‘What problem are you trying to solve?’
Most people are so preoccupied with their own “solutions” that they forget what problem they’re trying to solve. They lose their focus. They dilute their efforts, and as a result they wind up with lots of great solutions for problems that don’t exist.
I had an exchange with one subordinate who was two hours into an inventory solution without an understanding of the problem. Instead of asking, “What problem am I trying to solve?” this subordinate (and others) kept researching solutions to problems we didn’t have.
As a start up company, our survival depends upon our ability to identify, formulate, and solve important problems. When we lose track of the problem we’re trying to solve at any particular moment, we’ve lost our path to profitability.
In another exchange, a particularly clever and creative subordinate wanted to show me a new heat exchanger design he had just finished prototyping. He was beaming with his preliminary results, and he wanted to share them and improve the idea further.
But I interrupted him and asked, “What problem are you trying to solve?”
He said, “Oh, I don’t have a problem!”
And I lost my temper, because all of his creative energy could take us in the wrong direction if he wasn’t able to improve his capacity to identify, formulate, and articulate problems.
I scolded him:
Well, that sucks that YOU don’t have a problem, because our future as a startup depends on your ability to identify, formulate, and solve problems that make life better for our customers, and I have about 99 problems I’ve got to attend to, and here you are — one of our brightest and most clever companions — and you can’t find one single damn problem inside our company to be working on?
He understood that his enthusiasm for his new solution had caused him to lose sight of the problem he was working on, and that his response was a reflex instead of an explanation.
When we use the prompt, “What problem are you trying to solve?” we sometimes activate an emotional, defensive response. As children, we learn that teachers, parents, bullies, and other authority figures will threaten us with the challenge:
What’s your problem?
Many of us learned to avoid conflict and confrontation by saying, “I don’t have a problem,” and that’s exactly what my subordinate found himself doing when he was trying to present his new prototype. In fact, this type of conflict-avoidant behavior is exactly why most organizations suffer from a failure to identify and formulate important problems.
In this case, my clever engineer regained his composure, restarted his presentation with “The problem is that our units take a long time to cool down in hot Phoenix summers, wearing out our compressors and disappointing our customers.”
Now that’s a problem for which I have a lot of patience and creative energy!
After we understand the problem we’re trying to solve, it’s time to generate solutions. It’s OK if we start with crappy solutions, because each idea could lead to a better one.
One of the things that is a comfort to me when brainstorming for new solutions is reminding myself:
My first idea is rarely good enough.
By asking, “What if… ?” we think through the consequences of of different alternatives. We’re simply speculating at this point. We’re creating thought experiments about what would change in the world if we implemented whatever idea it is that we’re asking about.
For example, we had a leaky tub that defied our usual troubleshooting and repair protocols. So we ran a series of “What if … ?” thought experiments.
It sounds like this:
What if we threw the tub away and started with a new one?
If we threw this tub away and started with a new one, we would save ourselves hours of head-scratching, we would finish producing the unit faster, we would increase our materials costs by about $110, and we would never learn about what was causing the problem and how to prevent it.
What if we used Fuze-it to seal all of the seams from the inside?
If we used Fuze-it to seal all the seams from the inside, it would take us an hour to apply the seal and retest the tub, and we might discover a reliable way of repairing leaky tubs and save ourselves from having to purchase a new $110 tub.
(This experiment sounded good enough to try, but our brainstorming process doesn’t stop there. We often keep going, just to see if we could improve upon the idea).
What if we used aluminum impregnated nitrile rubber to seal all the seams from the inside?
If we used aluminum impregnated nitrile rubber sealant to seal all the seams from the inside, it might take several hours for the sealant to cure before we could retest the tub, and we might discovery a reliable way of repairing leaky tubs and save ourselves the expense of having to purchase a new $110 tub.
(We decided to use both the Fuze-it and the nitrile rubber in separate experiments. The Fuze-it was faster, cheaper, and worked great!)
The whole point to asking “What if… ?” is to generate enough solutions to ensure we might find one that is good enough. Only by describing the consequences of the solution, rather than judging it, can we come to understand what a world with that solution in it might look like to us.
After a few years of implementing the “What if… ?” protocol, I’ve discovered that the most common mistake is short cutting the process by misinterpreting the question as a command.
When your subordinates respond to your “What if… ?” by saying, “OK, I’ll do that,” they have removed themselves from the decision process. And that’s going to result in a lot of inferior decisions.
By what criteria will you assess the quality of different solutions?
Once you’ve described the consequences of different alternatives, it’s important to understand which to experiment with first. To prioritize each, we must understand the criteria by which we assess our resources commitments.
Thus, we ask ourselves a series of questions, in the following order:
Will this experiment result in new knowledge? (I.e., what might we learn?)
At this stage of our start up, knowledge is the single most important resource we have. It could be knowledge of technique, such as how to repair a tub. It could be knowledge of the market, such as customer preferences and values. It could even be knowledge of one another, and specific strengths each brings to our company.
If the experiment will create new knowledge, it becomes a high resource priority.
Will this experiment take care of our customers?
The entire point of our health and wellness company is to help people take better care of themselves. Experimenting with solutions that come at the expense of our customers is antithetical to our mission, so that doesn’t won’t work for us. No one is going value a health and wellness company that does not provide knowledge and equipment for taking care of health and wellness. That doesn’t mean we do everything for our customers, because caring for our customers means empowering them to do for themselves. Sometimes struggle to make the distinction between caring for and doing for. Nevertheless, this question prompts us to consider how our proposed solutions might impact our customers, because:
“The purpose of business is to create customers.
— Peter Drucker.
Will this experiment take care of our companions?
To enable our customers to better care for themselves, we must exemplify taking care of ourselves. Put another way, without caring for ourselves, we cannot expect to be able to care for our customers. Solutions that come at the health and wellness expense of our companions will undermine our capacity to provide the necessary knowledge and equipment to our customers, and undermine our credibility in the marketplace.
Will this experiment conform to our vision of the future world in which we want to live?
Responses to this question require clarity about the future vision of the company and the change we seek to make in the world. For us, that vision includes a world that is free from Type 2 diabetes, free from Alzheimer’s, free from obesity, and free from all the maladies of modern living.
The mission of Morozko Forge is to provide the knowledge and equipment necessary to live a natural life in an unnatural world.
Not every decision we make will be on direct path towards that vision, and that’s OK. We’re not asking for the shortest path, or the best path, or even the quickest path.
When we ask whether an experiment conforms to our vision, we’re seeking to clarify our vision and the space within it for the experiment we’re contemplating. Sometimes, we won’t know the answer to this question until we run the experiment.
And other times, asking this question makes it clear that the experiment will not take us closer to the future world we seek, in which case we discard the experiment.
Might this experiment generate more resources than it consumes?
In this final question, we’re finally getting to what MBA programs might call “return on investment” — but don’t think that means we’re reducing the answer to a financial spreadsheet.
Although money is important to the health of our company, at this stage of our venture, our creative energy is even more important.
So what we’re prompting in this question is a multi-dimensional examination of the resources we’re committing to a decisions in terms of energy, time, and money, relative to the return we will realize in all three of those resource categories. When we make resource commitments that generate more energy, more time, and more money, we accumulate the resources we need to grow our venture.
Every decision is an experiment
Although I’ve described a decision as an “irreversible commitment of resources,” that doesn’t mean we can’t make a different decision later. It only means that the resources we’ve committed to the previous decision can’t be recouped.
A new decision might commit additional resources to undo the previous decision, and that’s OK — even if it gets expensive sometimes.
Thinking of every decision as an experiment gives us the freedom of being wrong without the anticipatory anxiety of regret.
In Designing Your Life (2016) Stanford Professors Bill Burnett and Dave Evans encourage readers to think of commitments as experiments that allow trying new things, learning, and trying again. They argue for the application of what’s typically called “design thinking” to personal and career choices.
The difficulty with design thinking is that you’re always going to be wrong.
When you’re trying new things, you can hardly ever get it right the first time. For many, the imagined humiliation of being wrong is so painful that they’ll never do the experimenting that continue their learning. As a result, people get stuck in old patterns, old habits, and failed “solutions” that stopped working long ago — while their energy is misdirected into defending themselves against the nagging suspicion that they might bear some responsibility for their own failures.
At Morozko Forge, talking about every decision as an experiment releases us from the ego investment in being right. It helps dissolve the anticipatory anxiety of being proved wrong, and managing that anxiety is essential for the growth of our venture.
When we think in terms of experiments, rather than in terms of answers, it refocuses our energy on our most important decision question, “Will this experiment result in new knowledge?”
Our organization makes decisions by:
- Assigning decision rights,
- Describing decision processes,
- Setting criteria for evaluating alternatives, and
- Running experiments.
I wonder if your organization might benefit from adopting some of the same practices?