Abstract
Bending the Law of Unintended Consequences explores the problem of improving critical decisions and their outcomes. This chapter sets the stage for this inquiry by defining criticality and explaining why it is so difficult to make critical decisions effectively. Section 2.1 explains criticality by proposing four defining criteria and then providing illustrative examples. Section 2.2 explains how these four defining criteria complicate the lives of critical decision-makers. Section 2.3 argues that decision-making should be viewed as a process rather than an event, and it presents a reference model for that core business process. Section 2.4 argues that existing approaches for making critical decisions are ineffective at protecting businesses from the Law of Unintended Consequences.
Access this chapter
Tax calculation will be finalised at checkout
Purchases are for personal use only
Notes
- 1.
Hogarth [16] terms them “future-choice” decisions.
- 2.
Porter [27].
- 3.
Critical decisions are largely irreversible: you can’t simply unwind them and try again. They expend both resources (e.g., time and capital) and intangible assets like trust and good will (e.g., with partners, customers, or employees) that can’t be reconstituted if they don’t turn out well. Rosenzweig [28].
- 4.
Although this book focuses on businesses, most of this discussion applies with minor adjustments to critical decisions made by governments and other non-commercial organizations as well.
- 5.
eSteel and ChemMatch were two pioneering net markets, supporting B2B trading for steel and steel products and bulk chemicals, respectively. Chapter 11 discusses the details of decisions facing net market entrepreneurs and their would-be customers (buyers and sellers of materials and products)
- 6.
These tectonic disruptions largely failed to materialize. Virtually all net markets failed during the dot-com bust (see Chap. 11).
- 7.
- 8.
Large “serial” acquirers are common in technology, health care, and finance (e.g., Microsoft, Oracle, Anthem, Thermo Fisher Scientific, Sanofi Genzyme). General Electric was previously well-known for its acquisition acumen. Ashkenas et al. [1].
- 9.
Similarly, medical “centers of excellence” that perform large numbers of transplants or other complex operations produce superior patient outcomes. https://www.ncbi.nlm.nih.gov/pmc/articles/PMC5516836/.
- 10.
Portfolio theory aims to maximize the expected return on investment (ROI) of a set of financial assets for a given amount of risk. https://faculty.washington.edu/ezivot/econ424/introductionPortfolioTheory.pdf. But most critical decisions involve more than two factors (e.g., ROI, risk) and often factors that are difficult to quantify precisely, making them harder to model mathematically and determine optimal solutions.
- 11.
It must also be noted that Eisenhower placed great store on the planning process itself as a vital preparation for action, observing that while “plans are useless, but planning is indispensable.”
- 12.
Chapter 8 describes game theory, a branch of decision sciences that developed expressly to model the dynamic interactions of decision-making parties with competing or overlapping interests.
- 13.
Chapter 4 discusses “stability” biases that encourage inertia and the preservation of status quo despite emerging opportunities and impending threats from competitors or changing market tastes.
- 14.
See http://news.bbc.co.uk/2/hi/business/7239220.stm and https://qz.com/741056/the-stunning-collapse-of-yahoos-valuation/. The bulk of Yahoo’s residual value lay in Yahoo’s 40% stake in Alibaba, a Chinese e-commerce company.
- 15.
Garvin and Roberto [10].
- 16.
- 17.
Das and Teng [5].
- 18.
Day and Schoemaker [7].
- 19.
- 20.
- 21.
- 22.
Reconstructing a reliable history is deceptively challenging. Experience is a cryptic oracle at best, given our predispositions towards vivid narratives and positing clear causality retroactively. Watts [42].
- 23.
- 24.
Keeney [18].
- 25.
Strong framing ensures that the team properly identifies and agrees to both the questions to be asked and the decisions to be made as a (business) strategy is developed. Bradley et al. [40].
- 26.
- 27.
Nuseibeh and Easterbrook [22].
- 28.
Keeney’s book responds to this problem by recommending a decision theory technique called utility theory (cf. Sect. 7.3).
- 29.
The US-led invasion of Iraq in 2003 offers a tragic example. Framed as a military operation to topple the regime of Saddam Hussein, the invasion was a stunning success. But framed as an action to produce a stable and friendly democratic government that would help stabilize the Middle East, the intervention was an unmitigated failure that spawned a host of costly and tragic unintended consequences.
- 30.
- 31.
- 32.
The decisions in Nutt’s study included many operational as well as critical decisions. That said, the undisciplined decision-making practices of senior managers uncovered by Nutt would certainly drive bad outcomes for the critical decisions in which they would have participated as well.
- 33.
Prominent examples include the turnover in industries such as transportation (e.g., railroads, automobiles, airplanes), energy, and computers (e.g., in the transitions from mainframes to minicomputers to workstations to personal computers).
- 34.
Stock indexes are only rough proxy indicators, since mergers and acquisitions (M&A) can signal market attractiveness as well as outright failure. That said, many companies stumble out the top tier because they make poor critical decisions or otherwise fall behind in performance in their markets.
- 35.
Pascale et al. [26].
- 36.
Hagel and Brown [13].
- 37.
Handscomb et al. [14].
- 38.
See, for example, Silver [32]. He writes “But as was the case in other fields, like earthquake forecasting during the period (1970s and 1980s), improved technology did not cover for the lack of theoretical understanding about the economy; it only gave economists faster and more elaborate ways to mistake noise for a signal”.
- 39.
Hillier et al. [15].
- 40.
Simon [33]. OR enthusiasts will no doubt object, but such protests evoke Maslow’s famous observation: “If the only tool you have is a hammer, you tend to see every problem as a nail.” True, OR models can be constructed for a great many problems, but this often requires numerous simplifying assumptions. The salient question is whether they idealize or abstract the problem to such a degree that solutions become implausible or unrealistic.
- 41.
- 42.
- 43.
- 44.
- 45.
Accessed all URLs 05 Jul 2019.
References
Accessed all URLs 05 Jul 2019.
Ashkenas, Ronald N., Lawrence J. DeMonaco, and Suzanne Francis. 1998. Making the Deal Real: How GE Capital Integrates Acquisitions. Harvard Business Review. 76 (1): 165-178.
Betsch, Tilmann. 2008. The Nature of Intuition and Its Neglect in Research on Judgment and Decision-making. In: Henning Plessner, Cornelia Betsch, and Tilmann Betsch (Eds), Intuition in Judgment and Decision-Making (pp. 3-22). New York: Lawrence Erlbaum Associates.
Choo, Chun Wei. 2006. The Knowing Organization: How Organizations Use Information to Construct Meaning, Create Knowledge, and Make Decisions. New York: Oxford University Press.
Christensen, Clayton M. 1997. The Innovator’s Dilemma: When New Technologies Cause Great Firms to Fail. Boston, MA: Harvard Business School Press.
Das, T.K., & Bing-Sheng Teng. 1999. Cognitive biases and strategic decision processes: An integrative perspective. Journal of Management Studies. 36(6): 757-778.
Davenport, Thomas H. 2009. Make Better Decisions. Harvard Business Review. 87(11):117-123.
Day, George S., and Paul J. H. Schoemaker. 2006. Peripheral Vision: Detecting the Weak Signals that Will Make or Break Your Company. Boston, MA: Harvard Business School Press.
Dye, Renee, Oliver Sibony, and Vincent Truong. 2009 Flaws in strategic decision-making: McKinsey Global Survey Results. McKinsey Quarterly. (1) Available at https://www.mckinsey.com/business-functions/strategy-and-corporate-finance/our-insights/flaws-in-strategic-decision-making-mckinsey-global-survey-results.
Fuld, Leonard M. 2006. The Secret Language of Competitive Intelligence: How to See Through and Stay Ahead of Business Disruptions, Distortions, Rumors and Smoke Screens. New York: Crown Business.
Garvin, David A. and Michael A. Roberto. 2001. What You Don’t Know About Making Decisions. Harvard Business Review. 79 (9): 108-116.
Gilad, Benjamin. 2009. Business War Games: How Large, Small, and New Companies Can Vastly Improve Their Strategies and Outmaneuver the Competition. Franklin Lakes NJ: Career Press.
Gladwell, Malcolm. 2005. Blink: The Power of Thinking without Thinking. New York: Little, Brown, and Company.
Hagel, John and John Seely Brown. 2005. The Only Sustainable Edge: Why Business Strategy Depends On Productive Friction And Dynamic Specialization, Cambridge, MA: Harvard Business School Press.
Handscomb, Christopher, and Shail Thanker. 2018. Active agility: the five avenues to success. Available at https://www.mckinsey.com/business-functions/organization/our-insights/the-organization-blog/activate-agility-get-these-five-things-right.
Hillier, Robert, Gerald J. Lieberman, Bodhibrata Nag, and Preetam Basu. (2017) Introduction to Operations Research. 10th Edition. New York: McGraw Hill.
Hogarth, Robin M. 2010. Subways, Coconuts, and Foggy MineFields: An Approach to Studying Future-Choice Decisions. In: Michel-Ikerkan, Erwann, and Paul Slovic (Eds). The Irrational Economist: Making Decisions in a Dangerous World (pp. 21-29). New York: Perseus Books Group.
Kahneman, Daniel. 2011. Thinking Fast and Slow. New York: Farrar, Strauss & Giroux.
Keeney, Ralph L. 1992. Value-Focused Thinking: A Path to Creative Decisionmaking. Cambridge, MA: Harvard University Press.
Klein, Gary A. 1998. Sources of Power: How People Make Decisions. Cambridge, MA: MIT Press.
Lovallo, Dan P. and Oliver Sibony. 2010. The case for behavioral strategy. McKinsey Quarterly. (2): 30-40.
Mannix, Elizabeth A., Margaret A. Neale, Jack A Goncalo, (Eds). 2009. Creativity in Groups. Bingley, UK: Emerald Publishing.
Nuseibeh, Bashar and Steve Easterbrook. 2000. Requirements engineering: a roadmap. Proceedings of the Conference on the Future of Software engineering (ICSE ’00). 35-46.https://doi.org/10.1145/336512.336523.
Nutt, Paul. 1993. The Identification of Solution ideas during Organizational Decision-making. Management Science 39(9): 1071-85.
___.1998. Framing Strategic Decisions. Organization Science 9(2): 195-216.
___.1999. Surprising but True: Half the Decisions in Organizations Fail. The Academy of Management Executive 13(4): 75-90.
Pascale, Richard T., Mark Millemann, and Linda Gioja. 2000. Surfing at the Edge of Chaos: The Laws of Nature and the New Laws of Business. New York: Random House.
Porter, Michael E. 1996. What is Strategy? Harvard Business Review 76(6): 61-77.
Rosenzweig, Phil. 2014. Making Better Decisions over Time. Strategy + Business. 75. Available at https://www.strategy-business.com/article/00227.
Russo, J. Edward, and Paul J.H. Schoemaker. 2001. Winning Decisions: Getting It Right the First Time. New York. Doubleday Currency.
Schrage, Michael. 2003. Daniel Kahneman: The Thought Leader Interview. Strategy + Business. (33). Available at https://www.strategy-business.com/article/03409?gko=7a903. Accessed 05 Jul 2019.
Sibony, Olivier, and Dan Lovallo. 2010. Strategic Decisions: When Can You Trust Your Gut? McKinsey Quarterly. Available at https://www.mckinsey.com/business-functions/strategy-and-corporate-finance/our-insights/strategic-decisions-when-can-you-trust-your-gut.
Silver, Nate. 2012. The Signal and The Noise: why so many predictions fail – but some don’t. New York: Penguin Books.
Simon, Herbert A. 1998. The Sciences of the Artificial. Cambridge, MA. MIT Press.
Snowden, David J. 2005. Strategy in the context of uncertainty. Handbook of Business Strategy. 6(1). 47-54. https//:doi.org/:https://doi.org/10.1108/08944310510556955.
Snowden, David J. and Boone, Mary E. 2007. A Leader’s Framework for Decision-making. Harvard Business Review 85(11): 68-76.
Stewart, Thomas R., and Cynthia M. Lusk. 1994. Seven Components of Judgmental Forecasting Skill: Implications for Research and the Improvement of forecasts. Journal of Forecasting. 13: 579-599.
Surowiecki, James. 2004. The Wisdom of Crowds. New York: Random House.
Weick, Karl E. 1995. Sensemaking in Organizations. Thousand Oaks, CA: SAGE Publications.
Zsambok, Caroline E. and Gary Klein (Eds). 1997. Naturalistic Decision Making. New York: Lawrence Erlbaum Associations, Inc.
Bradley, Chris, Angus Dawson, and Sven Smit. 2013. The strategic yardstick you can’t afford to ignore. McKinsey Quarterly. (4):24-35.
Collins, Jim. 2009. How the Mighty Fail and Why Some Companies Never Give In. New York: HarperCollins.
Watts, Duncan J. 2011. Everything is Obvious (Once You Know The Answer: How Common Sense Fails Us. New York: Random House.
Author information
Authors and Affiliations
Rights and permissions
Copyright information
© 2020 Springer Nature Switzerland AG
About this chapter
Cite this chapter
Adler, R.M. (2020). Critical Decisions. In: Bending the Law of Unintended Consequences. Springer, Cham. https://doi.org/10.1007/978-3-030-32714-9_2
Download citation
DOI: https://doi.org/10.1007/978-3-030-32714-9_2
Published:
Publisher Name: Springer, Cham
Print ISBN: 978-3-030-32713-2
Online ISBN: 978-3-030-32714-9
eBook Packages: Business and ManagementBusiness and Management (R0)