I am still amazed when I see how business owners or leaders take their decisions. Many just tell me they take such decisions based on their experience….this is when I normally reply that their experience is a filtered understanding based on circumstances that are surely different from today’s turbulence. So is your experience a real sound way to base your decisions on?
Experience seems like a reliable guide, yet sometimes it fools us instead of making us wiser. The problem is that we view the past through numerous filters that distort our perceptions. As a result, our interpretations of experience are biased, and the judgments and decisions we base on those interpretations can be misguided.
If our goal is to improve decision making, that we need to understand what is needed to improve our decisions. In the business environment, the outcomes of decisions are highly visible, readily available for us to observe and judge. But the details of the decision process, which we can control far more than the result, typically don’t catch our attention. If the aim is to learn from experience—mistakes as well as successes—acknowledging that process is crucial.We celebrate successes and condemn failures—a response that disregards the underlying causes. Lets us take the example of two firms that use the same risky strategy, but one gets lucky and prospers while the other doesn’t. Business leaders would celebrate the first one and condemn the second—a response that disregards the underlying causes. The tendency to over reward the results of a decision and under reward its quality is known as the outcome bias.This bias can influence our actions in subtle ways. A good outcome can lead us to stick with a questionable strategy, and a bad outcome can cause us to change or discard a strategy that may still be worthwhile.
So our attention to outcomes—and disregard of the processes that create them—makes solutions seem more valuable than preventive actions. A decision maker who solves a burning problem can be identified and rewarded, while one who takes action to avoid the same problem is far harder to spot.
Furthermore, many time we overvalue our own experience. Our own reasoning abilities can sabotage how we collect information and evaluate evidence. We end up learning the wrong lessons from our experience—even when it’s possible to learn the right ones. One issue is that we tend to search for and use evidence that confirms our beliefs and hypotheses, and we gloss over or ignore information that contradicts them—an exercise of selectively building and interpreting experience known as the confirmation bias. We can easily support our beloved superstitions, spurious correlations, and bogus connections. This natural tendency of the human mind hinders competent decision making.
Our belief in the relationship between the past and the future also can interfere with our view of the world. Predictions based on experience make the crucial assumption that the future will resemble the past. Research suggests that not even experts with a tremendous amount of experience are proficient in foreseeing economic, social, and technological developments. Business leaders should be aware that just because something seems obvious after the fact does not mean that it could have been predicted. Decision makers often fall into this hindsight bias, which can lead to overconfidence and illusions of control. When it comes to effective decision making, not knowing that you cannot predict is a bigger sin than not being able to predict.How
Data-based decision making
I am a firm believer of the data driven culture i.e. making sure that decisions are supported by data. In many businesses I deal with they many times do not even have the systems in place to collect data and some have the data but do not know how to analyse it properly.
It is true that some experts conclude that data could be subject to all kinds of bias and if who is analysing the data cherry-picks information to suit managers’ expectations, managers will be reassured about their decisions and see no need to improve them – which leads to misleading insights that are data-approved and hence even harder to challenge.
However, I still believe if a proper and correct way of collating data and analysying it setup backed by a data driven culture it could improve decision making immensely.
By basing your decision on data, you will be more confident of the decisions you are taking. Once you begin collecting and analysing data, you’re likely to find that it’s easier to reach a confident decision about virtually any business challenge, whether you’re deciding to launch or discontinue a product, adjust your marketing message, branch into a new market, or something else entirely.Data performs multiple roles. On the one hand, it serves to benchmark what currently exists, which allows you to better understand the impact that any decision you make will have on your business. Beyond this, data is logical and concrete in a way that gut instinct and intuition simply aren’t. By removing the subjective elements from your business decisions, you can instill confidence in yourself and your company as a whole. This confidence allows your organisation to commit fully to a particular vision or strategy without being overly concerned that the wrong decision has been made.
Moreover, using data and its analysis will allow you, as a business to become more proactive. When you first implement a data-driven decision-making process, it’s likely to be reactionary in nature. The data tells a story, which you and your organization must then react to. While this is valuable in its own right, it’s not the only role that data and analysis can play within your business. Given enough practice and the right types and quantities of data, it’s possible to leverage it in a more proactive way—for example, by identifying business opportunities before your competition does, or by detecting threats before they grow too serious.
So please, now more than ever before, as the external environment is still choppy and challenging, make sure to keep your experience in check and to setup all the process and systems necessary to base your decision on the proper collection and analysis of data.