A Structured Approach to Strategic Decisions

Headnote

Reducing errors in judgment requires a disciplined process.

Envision the following situations: A board of directors considers acquiring a competitor. A marketing team decides whether to launch a new product. A venture capital investment committee chooses among an array of startups to fund.

All those strategic decisions share a common feature: They are evaluative judgments. To make such tough calls, people must boil down a large amount of complex information to either (1) numerical scores for competing options or (2) a yes-no decision on whether to choose a specific path. Of course, some management decisions are made without weighing quite so much information. But strategic decisions tend to involve the distillation of complexity into a single path forward.

Given how unreliable human judgment is, all evaluations are susceptible to errors. These errors can stem from known cognitive biases - or they can be random errors, sometimes called "noise." Unreliability in judgment has long been recognized and studied, particularly in the context of decision-making about hiring. We draw inspiration from that body of research and experience to suggest a practical, broadly applicable approach to reducing errors in strategic decision-making. We call it the Mediating Assessments Protocol (MAP), and we'll describe it here, after discussing the underpinning research.

Strategic Options Are Like Job Candidates

The body of research on the job interview, the most common tool for employee selection, contains a wealth of information about the accuracy of evaluative judgments.1 Most companies still use traditional (unstructured) interviews to make a global evaluation. The interviewer starts with an open mind, accumulates information about the candidate, and then reaches a conclusion.

Unfortunately, a vast amount of evidence indicates that unstructured interviews lead to biased evaluations that have very little predictive value.2 That's because the interviewer forms a mental model (colloquially known as an "impression") of a candidate, a process that psychologists have shown has three specific limitations:

1. Excessive coherence. Mental models are usually simpler and more coherent than the reality they aim to assess. As interviewers, if we assume, for instance, that a particular candidate is an extrovert, we tend to ask questions that confirm this hypothesis.

2. A "quick and sticky" quality. We form our mental models rapidly, often on the basis of limited evidence at...