Making tough calls in alien environments
An awareness of existing rules of thumb is key to updating them
A doctor working in a busy emergency room and experienced in the art of triage makes a series of life-or-death decisions in an often chaotic, emotional and unsettling environment. In doing so the physician is using heuristics, or "rules of thumb", as the basis for expert judgment.
The doctor has learned, through years of experience, which critical elements to concentrate on, with an understanding of which pieces of information are important and which signs can be safely ignored. Through education, training, work and other experience, the physician has become an expert at decision-making in an uncertain environment.
An emergency room situation is not dissimilar to what many senior business executives are struggling with, as they look further afield for new opportunities and growth. When they are facing endless amounts of information, how do they figure out which elements are important in order to make a sound strategic decision?
UNSW Business School academic Elizabeth Maitland, a senior lecturer in the school of management, has spent many years researching decision-making processes in organisations. Her latest paper, Decision-making and Uncertainty: The Role of Heuristics and Experience in Assessing a Politically Hazardous Environment, is making waves in the business strategy world as it looks with fresh eyes at human judgment.
The paper, with co-author André Sammartino from the University of Melbourne, draws on the cognitive efforts of senior decision-makers in an inexperienced multinational ?as they assessed a potential acquisition in a politically hazardous African country.
"There has been great focus on the limitations of human judgment," Maitland says. "But the reality is that every strategic decision relies on judgment.
"You are dealing with something that is going to happen in the future and there is going to be uncertainty. You have to rely on judgment. So what we want to know when it comes to business is when is that judgment least fallible? Where does the skill come from in terms of being able to make strategic decisions well?"
'Until you understand the heuristics that you are already relying upon, you can’t identify the questions you're not asking'ELIZABETH MAITLAND
Gut instinct as a guide
To understand the process, we can learn from the way the human brain functions. Gavin Freeman, a performance psychologist and director of The Business Olympian, says the decision-making part of our brain sits in the limbic system, the emotional rather than cognitive component of the brain. Within this section is the amygdala, whose primary role is decision-making and emotional reactions.
"The amygdala is the part of our brain that first perceives information," Freeman says. "During what is known as an 'amygdala hijack' we have an emotional moment in which no cognitive reasoning makes sense.
"[Such as], when we walk into our house at night and it is dark. Our brain tells us there is something wrong. Then we hear a noise. We believe there is a murderer in the house. Then we switch the lights on and see it is the cat. But actually we knew it was the cat all along."
In this example, the individual is not drawing on stored knowledge because they are reacting purely on emotion, unlike the doctor in the emergency room who has a bank of stored knowledge (a.k.a. cognitive resources that include heuristics) to refer to.
"In business we have an idea, but because there is no rational or logical reasoning behind why we should do it or not, we're left to decision-making that is driven by emotion. This can be referred to as 'gut instinct', which can sometimes be a very good guide if we have the past experience to know which signs to look for," Freeman says.
"A good example is around recruitment. On paper somebody looks perfect but you interview them and gut instinct, as a result of your life experience, tells you this person is not right for the job."
According to Freeman, this also helps to explain differences between entrepreneurial businesses and conservative businesses.
"Conservative businesses don't have any of this sort of thinking going on," he explains.
"They think with a logical, rational brain and everything is tried and tested. There is a lot of data but little innovation. [Whereas] entrepreneurial businesses tend to operate more in the limbic system. They know what a particular strategy or idea looks like in their mind, then they figure out how to make it work."
But what happens when conservative organisations are forced to enter a limbic environment? How does a business that has never operated in a particular country or culture make a successful entry into that market?
Freeman believes the issue becomes about experience and how to balance gut instinct. Businesses can develop conscious learning from experience through training or work placements. But to build unconscious learning one must deviate from the well-trodden path, do the unexpected, experience things that possibly have nothing to do with the work or issue at hand.
This could translate into watching random TED talks, volunteering for a charity whose work has nothing to do with your business, helping out at an old people's home or travelling to a new and unexpected place.
Recognising new rules
Maitland, through her research within organisations, offers the same advice but in a different form.
"Rather than thinking about this as heuristics, it is really about being more aware," she says. "When you are confronted with a problem, what are the first things you need to latch on to? It is like the emergency room doctor. Where do you need to look to start working your way through the issue and to make a good decision?
"You probably come from a functional or operational background. Then, as you start working your way up, you move into more strategic roles. So you have to abandon the old rules and recognise new ones. It is about being aware of the decision-making drivers you're using now and, as you move into more senior roles, of how you must jettison some and pick up others."
According to Maitland, learning new types of rules in order to become more proficient at exercising judgment can only come from broad experience. Businesses need to begin to think of how they can develop great decision-makers by designing specific types of careers for promising individuals in the company.
And these individuals should develop a clear understanding of their own thinking codes. When they look at a strategic decision, which elements do they automatically see? A marketing expert will likely see different indicators to the ones interpreted by the IT manager.
"Then think about what is not in your story," Maitland says. "Until you understand the heuristics that you are already relying upon, you can't identify the questions you're not asking.
"When you identify the gaps you need to fill, ask how you might acquire those skills and that knowledge. It may come from mentors, job placement, education or some other form of experience. It can be difficult, but as a senior executive you need to have this knowledge."
Those who seek and gain such insight will, as Maitland's paper says, create a new reality in which heuristics become a powerful cognitive tool that enables, rather than limits, decision-making in dynamic and uncertain environments.