Wednesday, 27 July 2016

Heuristic: Business Decision Making

The goal of management is twofold: 1) recruit the right people, and, 2) make the right decisions. Simplistically, the better you are at these two activities, the more chance you have of success in business.

This post is about the second part, decision making.

Jeff Bezos articulated in his 1997 shareholders letter the framework he uses, as follows:

Type 1 decisions:
Some decisions are consequential and irreversible or nearly irreversible—one-way doors—and these decisions must be made methodically, carefully, slowly, with great deliberation and consultation. If you walk through and don’t like what you see on the other side, you can’t get back to where you were before.
Type 2 decisions: 
But most decisions aren’t like that—they are changeable, reversible—they’re two-way doors. If you’ve made a suboptimal Type 2 decision, you don’t have to live with the consequences for that long. You can reopen the door and go back through. Type 2 decisions can and should be made quickly by high judgment individuals or small groups.
My nature is to lean into things. My philosophy is to be brave and make decisions quickly. Sometimes this results in sub-optimal decisions. So I have used this framework, which allows me to at least pause to understand what type of consequences will result. I find it an effective heuristic for managers.

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