Thoughts on Strategy, Part II

Life is the sum of all our choices, as Albert Camus once wrote. By extrapolation, history equals the accumulated choices of all mankind. Indeed, no matter who we were, are or will be, from the moment we wake up until the second we fall asleep, our days were, are and will be filled with decisions.

Many of them, even in the corporate setting in which we act, are mundane. Others are anything but, their implications, positive or negative, potentially enormous. All ultimately boil down to an either-or decision — either we decide to do something, or we do not. While decision implies an end to deliberation and a beginning of action, remaining undecided is no less a choice, one of inaction over action.

Every choice carries a consequential cost in the form of opportunity lost from paths not taken. By explicitly choosing to do one thing, we implicitly choose not to do another.

The essence of our decisions is, thus, one of sacrifice.

Not every sacrifice will be equally carefully weighted. Far from every choice will require the same decision process, nor should it. Strategic decisions, however, are the cornerstones of future direction. They are contextually dependent and involve competitive dimensions, thus differing greatly from the hypothetical choices made in the safe surroundings of research or isolated consumer events. As a result, they require a mental model of sorts, never to guarantee an outcome but to better the odds of one.

Strategic decisions are, either explicitly or implicitly, made with the intention of outdoing an adversary — while understanding that the adversary is simultaneously attempting the very same maneuver. Above all else, this means that the outcome that matters is relative, not absolute. However, increases in absolute performance can, of course, have dramatic effects on relative performance. One must therefore grasp not merely the marketplace in which one acts, but also the means and internal capabilities with which one can act.

Consequently, the first step inevitably becomes one of information gathering. This, importantly, does not mean one should collect all the data one is capable of, though it all too often does. Defensive decision-making regularly leads to information-gathering not for enlightenment but enablement of post hoc inferences to escape blame. Or to put it in colloquial terms: one uses data the way a drunk uses a lamppost — for support, not illumination. The aim should instead be to gain enough of an understanding to weigh risk, identify uncertainty and judge capabilities.

One must also acknowledge the interplay between the context and the nature of the decision. Occasionally (particularly in situations where competition is intense, payoff distribution severely skewed or a win is necessary for survival), failure to act is the greatest sin, as Phil Rosenzweig once wrote. Though action is risky, it carries at the very least a modicum of potential success. Inaction brings none. In other scenarios, however, it might be prudent not to err on the side of action, but on the side of caution — when decisions are large, complex and difficult to reverse.

To complicate matters further, different decisions carry different feedback loops. The consequences of certain choices will be almost immediate, while the outcome of others invariably will require time to materialize, similar to how activation evaluation is relatively fast, while brand-building evaluation is relatively slow. In a modern business world of immense pressure, this often means that decision-makers are attracted by the siren song of the short-term, but be wary. In a corporate setting, one can overdose on placebos. The value of a path lies not in the ease with which one can travel down it, but in the destination to which it takes us.

In order to counteract our inclinations, we must come to terms with the fact that we are all, due to millennia of evolution, psychologically primed to gravitate towards conscious decisions with the speed at which they make sense to us on a subconscious level. Every person alive is susceptible to narrative fallacies, confirmation biases, illusory superiority, clustering illusions and halo effects. Choices that seem sensible from an individual perspective can turn out to be senseless from a company perspective. If we are to improve the odds not merely of success, but of making the right decisions, we must be aware of the psychological factors that often lead us astray.

While strategic-decision making in practice often carries certain safeguards against subconscious direction, such as decisions being made to a larger degree by teams, one can nonetheless get fooled by the false sense of security that consensus provides. Biases, such as pluralistic ignorance, are equally plentiful in groups. Every stakeholder involved in a decision process will inevitably be pulled down by the riptide of its psychological undercurrents.

Combined, the aforementioned aspects to decision-making — context, nature, psychology — allow a post hoc analysis independent of performance. This can perhaps feel somewhat counterintuitive, after all, surely what matters to a company is the outcome. But corporate success is a matter of achieving positive results over a sustained period of time. The aim of strategic decision-making is to improve the odds of such an outcome, to increase the baseline and overall long-term performance. What matters, therefore, is not exclusively the result of an individual given decision after the fact (negative results don’t necessarily mean that mistakes were made nor do positive outcomes necessarily mean flawless process, the difference may simply be one of luck, i.e. randomness in one’s favor), but the quality of the decision-making itself.

Contrary to promises made in business books, and perhaps therefore by extension popular belief, there is no guaranteed path to performance. The nature of business is inherently complex and thus impossible to precisely predict. It follows that only a fool would attempt to explain, or claim to know, every detail that led to an outcome.

At least by understanding the context, nature and psychology of our decisions we can turn the odds in our favor, assist in action and improve analysis of outcome. We can increase the likelihood of future fortunes and thereby, collectively, define the future history of our businesses, a sum of all our choices.

So, which one will you make today?