Managing Decisions to Manage Outcomes
In the business world there are many different decisions made on a daily basis and our objective is to manage those decisions because decisions determine action. All the activities planned out, whether in operations or a new product development, are determined by the decisions we make. Take into consideration that in today’s society 60% of the workforce are knowledge workers. Knowledge workers produce knowledge, they don’t work in a factory producing widgets, and so, their output is decision-making. In today’s society, we’ve been able to separate knowledge workers, who make decisions, making everything more productive.
“The most valuable assets of a 20th-century company were its production equipment. The most valuable assets of a 21st-century institution, whether business or nonbusiness, will be its knowledge, workers, and their productivity.” - Peter Drucker
Doctors, architects, and computer programmers, their output is decision-making. If the output is decisions, then we should manage decisions instead of managing tasks. Managing tasks was important back in the 1900’s, when people produced widgets in factories. Thus, managers wanted employees to focus on directions because they figured out what activities employees should do in order to produce the product. However, in today’s society businesses run differently. Now people use their knowledge to make decisions that produce different outcomes. That’s why we should give knowledge workers, who often know more than their supervisors, the freedom to make decisions and change the activities that they do accordingly.
We want to manage decisions because humans have always struggled with decision-making. The thing is, our customers demand consistency. The fastest food chain in the world today is Starbucks. Mcdonald’s used to be the first, for many years but now they’re second. Mcdonald’s is second today because customers care about consistency more than anything. For a long time, Mcdonald’s was famous because they made sure, no matter where you are in the world, you can have the same product/output. Nevertheless, due to chain disruptions, they can't do that as well as they did before. Therefore, Starbucks is number one now, their product offerings are easier when maintaining consistency; coffee beans are universal. They also have food consistency because they all use frozen foods and the same food preparations.
Understanding Variability in Performance Management
Whenever you’re in a place where people have to make decisions, inevitably what comes along with it is variability; humans are never consistent. There are two types of variability that people fall into; bias and noise. The problem is, most variability that occurs in decision-making happens because people don’t depend on the data. If they depended on the data, they’d have better consistency in their judgment; they’d make better decisions.
Bias → is an inclination to make the same types of judgments about a thing; predictability.
Ex. If you hate the color blue, I can reasonably predict that between red and blue, you’d choose red.
Leads to inaccuracy.
Fails to use real data, enabling inaccuracy.
There is a right decision that should be made that’ll lead you to your outcome. But when people are biased they make inaccurate decisions because they fail to use reliable data; giving people an accuracy problem. Now, let’s talk about noise.
Noise → has a variation depending on the criteria you’re using to make decisions.
Variability happens because we use irrelevant information to make a decision.
Think about a dart board or a target for archery. Bias, it’s not accurate but it can be precise. Oftentimes, when you’re playing darts, you may miss the bullseye but still wind up within the same vicinity (up and to the right). If you keep going (up and to the right) and you’re precise, even though you’re not accurate, you can still make things predictable because you’re using the same form. Whereas, with noise you may not be precise but you could be accurate. A dart could land around the bullseye and keep the same distance around the bullseye, but never hit the bullseye. That's the difference between the two, noise isn’t predictable.
In general, our customers prefer that we’re precise. Most people can agree Mcdonald’s doesn’t have the best-tasting hamburger, anyone could list a dozen other places with better hamburgers. So why is Mcdonald’s so popular? They don’t have the best burgers but I can expect the same taste anywhere in the world anytime I want; it’s the consistency. People will buy consistency, even if it’s not accurate.
“Managers are agents of transformation, converting the workforce in developed countries from one of manual workers to one of highly educated knowledge workers.” - Peter Drucker
Here’s another example. For years we had a campaign in the US, “Milk does the body good,” promoting milk. This campaign may even still exist. The premise behind the campaign is in the commercial, that milk does the body good. About ⅔ of the people on Earth can’t digest milk, it doesn’t do good for most people’s bodies. But people believed the commercial and most often, in school there is a milk option, despite the ⅔ of people who can’t digest milk. In other words, as long as you are consistent/precise, people are happy. Even if you’re inaccurate, they’ll still accept it. As previously stated, bias is used to judge things a certain way, it’s precise. Even so, people talk about making better decisions by focusing on bias when the better way to be successful (in business) is through managing noise.
Changing Variability in Performance Management
At Bridgeport Digital we spend time with our teams on a regular basis to accomplish the goals of reducing waste and variation. As we discussed earlier, managing decisions is much different than managing tasks. When managing tasks, supervisors don’t want employees to have any variability in their activities. They don’t want variability in their employees' activities to make sure they don’t give any variability an output on the product.
In our society, where 60% of people are knowledge workers, most of the decisions made are not the same decisions, they’re unique instead. Consequently, I don’t want to restrict the variation in the actions that people do. I want to leave it to the knowledge workers to choose the right actions for the right decisions. I want to make sure they are incorporating all good practices that are necessary to make good decisions. In other words, it’s important for knowledge workers to have variability in what they do but less variability in the decision-making process.
Many people work under the assumption that the tasks that people do should be the same, that’s how to limit variability, which isn’t what you want to do when you manage knowledge workers. Instead, give knowledge workers as much variability as possible because knowledge workers want autonomy (it helps with motivation). The situations and things they decide on vary regularly, so it’s hard to know the right activities in advance, things change. The goal is to have less variability in the decision-making process and more variability in the activities that knowledge workers do.