In the real world, it is obviously tough to objectively study the success of your business decisions. As Mark Chussil points out over at the Harvard Business Review, it isn’t as if you can run a double-blind real-world study where one group of people makes one decision and the other group makes another, and you track the results. Which business wants to be the control group that might have a terrible lack of success?
Chussil gets around this, insofar as that is possible, by running a tournament where actual businesspeople run simulated businesses with a finite number of choices they can exercise, and then Chussil tracks how successful the outcomes are.
The Tournament is based on three fictitious industries: Ailing, Fast Growth, and Mature. Each industry has three competitors that start out identical in every way (cost structure, product line, performance, etc.). The Tournament takes into account price sensitivities and elasticities, customer loyalty, market growth, costs, and competitive response. Tournament entrants see the relevant information before they devise their strategies. The time horizon is three years and entrants devise strategies that make quarterly moves. Price is the only lever they can pull.
I know that sounds like a simple problem. It isn’t. The number of simulations the Tournament runs and analyzes, with the current 653 entrants, is just over 139 million per industry. The number of possible outcomes in each industry is 3,201,872,665,419.
Having a tournament of high-level (and already successful) businesspeople engaging in some controlled decision-making also allowed Chussil to assess the different approaches those individuals use to make choices. Which type of decision-maker would have the most successful outcomes?
Chussil found that while we usually assume people who are confident and able to make quick decisions are effective decision-makers, the opposite may be truer.
First, Chussil asked the participants how confident they felt about their decision and how long it took them to get there. This allowed him to group decision-makers into four main types:
He threw out the “I guessed” people because in real life (hopefully) successful and conscientious business leaders don’t just flip a coin. That left two types of decision-makers. First, there were people highly confident in their decisions. Some of those made their confident decisions quickly (the “I already knows”) and some made those confident decisions slowly (the “now I knows”). The remainder of people—the “I don’t knows”—were not 100% solid on their decision and took a while to get there.
Unexpectedly, the “I don’t knows” had the most favorable results in the business simulations–and in real life. Those individuals also tended to be younger and female. Chussil has some thoughts on why that group may experience more success: they didn’t already assume they knew the answer.
In one case, the new vice president of a troubled business brought together about thirty managers, each with decades in the business. The managers considered the war game an amusing waste of time. They all knew the answer already, they said, and no other options were possible. Then, role-playing their business and its competitors, they discovered that their already-known answer simply would not work. The managers suddenly found new options.We war-gamed one, and it worked, and they rolled it out in real life, and it worked. The new VP got promoted.
It’s not that the managers didn’t care or were incompetent; it’s that they were overconfident. When you think you know the answer, you sincerely believe it’s a waste of time to keep looking for it. It feels like continuing to search for your keys after you’ve found them.
It turns out that being cognizant of what you don’t know and being willing to consider a wide variety of options can lead to a higher rate of business success, even if you don’t feel as confident in the outcome. In other words: consider slowing down and living with a bit of uncertainty.