Mind Tools for Managers

Chapter 7Make Smart Decisions

One of the great puzzles in the business world (and indeed in other walks of life such as politics) is explaining why smart people often make dumb decisions. For example, Blockbuster's executives had the opportunity to buy Netflix for $50 million in 2000, but they turned it down – and Netflix went on to wipe Blockbuster out entirely. To make sense of decisions like these, we not only need to understand the strategic context in which they were made, but we also need to consider the psychology and group dynamics of the decision makers. Although there are many benefits to getting multiple people involved in decision making, it turns out that teams are often remarkably dysfunctional.

To make better decisions as a manager, you first need to understand established techniques that provide systematic insight into the issue at hand. For the most part, these are highly rational techniques. The first is to decide if an investment or a choice makes financial sense on the basis of current information (#38). Then you need to take into account multiple quantitative and qualitative factors (#39), and a broader range of qualitative aspects such as opportunities, risks, reactions, and ethics (#40). You need to consider the downsides as well, in terms of understanding what could potentially go wrong (#41) and prioritizing risks by impact and probability of occurrence (#42).

But it is also important to be conscious of the limitations of all these techniques. In particular, ...