The Dynamics of Decision Making

The primary job of business owners, regardless of the type of work they provide, or the product they sell, is to make decisions. Simple decisions such as, which job to go to first, or what parts they might need for that service call, can have a significant impact on the operations. 

But the dynamics of decision making is a lot more involving than the route you chose or the supplies you stock in your truck. It is used in cases where the decision will affect your company in the long run.

For instance, it took me almost a year to decide to discontinue carpet cleaning services. I monitored the numbers to ensure I was doing the right decision.

It was a long analytical process. I started by pushing sales and offering up-sales. Then, I invested in better equipment so the tech would be able to get more done in less time.

It took several steps to come to the final conclusion. My company could not take on the competition. They were more mature, with better equipment, and I could not compete with their prices.

Consider the case of Ronald Shaich, former chairman and CEO of Panera Bread. Over the course of three decades, he worked on growing his company. It began as Cookie Jar, and later merged with Au Bon Pain — a cafe bakery similar to Panera Bread. In 1991 the company went public. 

But with his desire to focus solely on the Panera wing of the business, he came up with what he refers to as a “bet-the-job kind of choice.” In 1998, he considered selling Au Bon Pain. Despite the objection from the people around him, Shaich relied on his intuition and decided in favor of the sale. The sale resulted in a $73 million investment in Panera. As of the date of this writing, Panera Bread has about 2,000 locations. 

Likewise, Reed Hastings had a long-term view of Netflix and understood what the customers wanted before they realized they wanted it. 

From the start of Netflix, he knew that consumers would prefer movies delivered via the internet, eventually. Remember, this was back in 2000, and less than 7% of US homes had broadband. 

In 2011, Hastings decided to separate the DVD-by-mail business from the online streaming business. A decision that angered subscribers causing the stock price to significantly drop. 

Hastings later admitted “messing up” by not explaining what he had in mind. But that same year, Netflix stocks increased by 200%, mostly due to his decision. 

Both examples are the science of dynamic decision making.  

Experts propose several models of decision making. This post will expand on the rational model — which the decision-maker uses a four-stage sequence in making the decision. 

In this model, the subject is objective and has all of the information needed to make the decision, such as presented in the examples. Additionally, in this version, decision-makers are likely to find resistance or criticism for being unrealistic. 

Step 1: Identify the Problem or Opportunity

How do you define a problem? A problem is a situation regarded as unwelcome. For businesses, a better definition is a gap between the actual and the desired situations. 

As a business owner, you will have no shortage of problems. Customer complaints. Employee and contractors turnover. Production problems. 

They must be identified and carefully analyzed before making a move. Otherwise, you could find yourself with a bigger problem. However, not everything has to negatively affect your business. It could be an opportunity. 

An opportunity represents a situation where there are possibilities that could result in exceeding your goals and expectations. 

Whether you are facing a problem or opportunity, the goal is similar. You are trying to make improvements that will change your current state to a more desirable one. 

Thus, a full diagnosis of not only the problem or the opportunity but also the source of it. 

Step 2: Generate Alternative Solutions

The next logical step is to find a solution to the problem and its causes.

This is one of the most critical steps of any decision-making model, mostly because research found that most people struggle through this step for three different reasons:

• Rushing into judgment – before all of the data is analyzed, people will judge based on face value. Finding the source of the problem is key.
• Selecting readily available solutions or ideas –  not analyzing all possible solutions for the problem or opportunity
• Not allocating enough resources to find solutions – the right resources must be assigned to find a feasible solution to the problem at hand.

Take your time to write down all of the possible alternatives. They could be obvious and creative solutions to the same problem or opportunity. You could have several solutions to one single problem.

Keep in mind that finding the cause of the problem is essential for the success of this step. The decision-maker is encouraged to slow down when it comes to this step. Invest in studying a great number of potential solutions.

As I mentioned before, it took me almost a year to decide to quit the carpet cleaning. The perfect solution might take time to achieve. 

Step 3: Evaluate Alternatives and Choose a Solution

The first reaction of a small business owner, when a decision comes to mind, is to consider costs. However, there is much more than just cost. Before selecting a solution to your problem or opportunity, many questions must be answered.

• Is your choice ethical? 
• Is it feasible? Consider time, costs, resources, technology, customer resistance, etc. 
• Will it remove the causes and solve the problem? 

Run through each scenario the best you can. Write it down the pros and cons of each of them. 

Step 4: Implement and Evaluate the Solution

Once you chose the solution, you need to implement it. Depending on your decision it could take months or even years to see results. Most people will stop right here, but this step must go further. 

After the solution is implemented, you must evaluate the effectiveness of your decision. If the solution is effective, it will reduce the difference between the actual and desired states that created the problem. 

In my case, pushing up-sales provided a different outlook on my problem. Though it helped, it presented unintended results as well. Most of my technicians were not trained to make repairs. Thus, the strategy had to change again.

If you are not seeing the desired results, either the problem was not identified correctly or the solution was inappropriate. Assuming your solution did not work, you would return to step one to re-identify the problem at hand. Or in many cases, a new problem is at hand.

This process can continue until all feasible solutions are tried and the problem has been solved or changed. 

Conclusion

The rational model of decision-making outlines a logical process that you should use when making a decision. This process takes time, and you might not get the desired solution in the first go around. 

Thus, this process is based on optimization. Optimization involves solving the process by producing the best possible solution based on desirable assumptions. 

It is important to note that one of the most important factors to make the decision-making process effective is to leave emotions out of the process. At times it will be very difficult, as we make many decisions based on emotions. 

Herbert Simmon, a decision theorist once said, “The assumptions to perfect rationality are contrary to fact. It is not a question of approximation; they do not even remotely describe the processes that human beings use for making decisions in complex situations.”

With that in mind, the rational process provides three major benefits:

• The quality of decisions may be enhanced, in the sense that they follow more logically from all available knowledge and expertise.
• It reasons behind a decision transparent and available to scrutiny
• If made public, it discourages the decider from acting on the suspect of consideration, such as personal embarrassment. 

Remember that rational is one of many models in the decision-making process.  

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