July 17, 2005 4:20 pm

Book review: How to make good decisions

Why Great Leaders Don’t Take Yes For An Answer
Managing for Conflict and Consensus

Michael Roberto
Wharton School Publishing, $29.95, £17.99

The Right Decision Every Time
How to Reach Perfect Clarity on Tough Decisions

Luda Kopeikina, Prentice Hall, $27.95, £16.99

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IN Management

Mathematicians have been fascinated by decision-making since Daniel Bernoulli wowed eighteenth18th-century Basel with his theory of expected value (see below). Early students of management were also quick to realise the practical importance of how decisions get made. The Effective Executive (1966), Peter Drucker’s seminal treatise onthe discipline of getting how to get things done, contains a sage chapter on the subject.

Those well versed in decision theory and practice will find little new materialmeat in two new books on the subject: Why Great Leaders Don’t Take Yes For An Answer, by Michael Roberto, a professor at Harvard Business School, and The Right Decision Every Time, by Luda Kopeikina, a former General Electric executive. The rest of us, however, would be well advised to browse through one or both.

Roberto argues that the key to good decision-making is maintaining a delicatebalance between dissent and consensus. As Bernoulli would have confirmed, the right decision is more likely to resultif all the availableoptions alternativeshave been thoroughly explored. This is facilitatedeasier most likely in an environment that encourages dissent and tolerates discord.

Yet too much discord is destructive. Once a final decision has been reached, efficiency requires that an organisation rallies behind it. The job of any leader is to create an organisation that resembles the Balkans before a decision and Switzerland after the event.

Roberto studied dozens of debacles and tragedies, ranging from the Columbia space shuttle disaster to the commercially disastrous launch of New Coke. In each case he found a singular lack of candour, conflict and debate in the run-up to fateful decisions. Options were not fully discussed, consequences not fully explored.

In The Right Decision Every Time, Kopeikina is less concerned with group dynamics than on the ability of individual decision-makers to focus their attention on what really matters. As star athletes spend hours each week in training, so star decision-makers (she cites corporate chiefs such as Jack Welch, her former boss at GE, and Larry Bossidy, former chief executive of AlliedSignal) improve their skills through “continuous scrutiny of their decisions and continuous improvement on what they have done in the past”.

There is good sense in this. An oft-repeated Druckerism is that a good decision process should include a mechanism for testing decisions against outcomes. There would be fewer bad decisions if organisations (and individual managers) were mature enough to examine the process that led to important decisions, good and bad.

Yet it is hard to imagine Drucker waxing lyrical about a state of “perfect clarity” and “mastery” that can arise from such diligence. It is no surprise to learn that Kopeikina conducted her research while a visiting scholar at the Massachusetts Institute of Technology’s Sloan School of Management, academic home to Peter Senge, author of The Fifth Discipline (1990) and proponent of the Zen-like idea that successful management is a matter of “personal mastery”.

Whether you swallow this variety of management advice is a matter of taste. Like oysters, it is either a rare delicacy or an overrated bag of brine. Love it or loathe it.

While their approaches are very different, Roberto and Kopeikina start from a common premise: the quality of organisational decisions can be improved, if managers would pay more attention to decision-making processes.

Yet anecdotal evidence suggests that few organisations have heeded the advice. More than 300 years after Bernoulli and nearly 40 since the publication of The Effective Executive, many big decisions are made on the basis of partial information and in an atmosphere of don’t-rock-the-boat.

The lesson? It is not enough for managers to decide to hone decision-making processes. They need to carry out that decision.

FT Business School returns next week

A BEGINNER’S GUIDE TO DECISION THEORY

How do you choose between a number of possible actions, each of which could give rise to more than one possible outcome with different probabilities?

In the 18th century, Daniel Bernoulli, a Dutch-born mathematician, proposed that you should work out the value of each possible outcome and the probability that each will occur. Then multiply the value by the probability to give an “expected value”. The rational course of action is the one that gives the highest expected value.

One problem with this is that decision-makers rarely know either values or probabilities with any precision. Another is that the value of outcomes turns out to depend on the decision-maker’s preferences. In the late 20th century, behavioural economists such as Daniel Kahneman and Amos Tversky developed theories to explain these effects. Their “prospect theory” is based on the observation that people apply different yardsticks to financial gains and losses.

Most decisions, moreover, take place in a social or market setting, where outcomes depend on the responses of third parties. This realisation led to the development of game theory, a branch of mathematics now taught in business schools.

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