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Making Decisions in Groups
Tom Davenport, Babson College professor and coauthor of “Judgment Calls: Twelve Stories of Big Decisions and the Teams That Got Them Right.”
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An interview with Tom Davenport, Babson College professor and coauthor of Judgment Calls: Twelve Stories of Big Decisions and the Teams That Got Them Right.
Welcome to the HBR IdeaCast from Harvard Business Review. I’m Sarah Green.
Today I’m talking about big decisions and judgment calls with Tom Davenport, who holds the President’s chair in Information Technology and Management at Babson College. He has written 14 books, his latest with Brook Manville is called Judgment Calls: 12 Stories of Big Decisions and the Teams that Got Them Right. Tom, thanks much for talking with us today.
Hi, Sarah. Happy to be here.
So when you say a judgment call, that makes me think of gut decision. Where do you stand with regard to the camp of people who say that you just need to go with your gut when you’re making decisions, because if you second guess that first instinct and dive into the details, you’ll just get distracted and make the wrong choice?
Well, we certainly did not mean for it to suggest that. I’ve done a lot of work on analytics, and I’m not a huge fan of the gut in general.
So the term is really about not so much focusing on individual judgment, but what we call organizational judgment. The idea that organizations can build through various means better capabilities for making big decisions.
And that’s really the idea of the single heroic leader, the great man, we refer to it in a somewhat sexist fashion, but unfortunately that’s the way it was in many cases. That’s an obsolete model, and you really need to look much more broadly at the entire capability of the organization to make better decisions.
Now, I’m glad you emphasized that point about team decision making and organizational judgment. Because I have to say that collaborative decision making is one of my least favorite things. And perhaps that’s because, this is a mundane example, but I always associate it with the process of trying to decide with a group of people what movie to watch. That never goes well, you always end up picking a movie that is everyone’s last choice.
And in organizations you get sometimes the same kinds of dynamics, but with much higher stakes. So does it have to be awful? How do we prevent it from becoming just a total mess?
Well, I think it depends on the type of decision. It may be worth it if you’re choosing a movie to have a benevolent dictator decide for you. But if it’s a really big decision about what’s your strategy, or should I acquire a different company or whatever, the execution of those decisions is so important, and the commitment of the people involved is so important, that I think it’s worth the effort to get into a more collaborative process.
The other thing I would say is that collaborative decision making is one of the ways that you build organizational judgment. But there are a variety of others as well, Including analytics, the use of data and analytics. And that can be time consuming in its own way, but once you’ve figured out how to go about it, it can be lightning fast.
So our point was that no single approach to organizational judgment is a good idea. You should really vary it depending on the circumstances.
Now, it’s interesting. I’m glad you’ve brought up analytics. Because in some cases, if you look at some recent bad decisions by companies, there was no lack of data of information. If you look at something like the BP oil spill, or the Upper Big Branch Mine explosion, both those companies, BP and Massey Energy, had plenty of information, but still their judgement was flawed.
So how do you talk about the intersection there between analytics where you do have a lot of expertise, and something a little squishier like judgment?
Well I should say there are a few disastrous decisions that we address in the first chapter. But mostly we’re focusing on good decisions and positive role models that organizations can emulate. So we don’t spend a lot of time talking about those big disasters, but they certainly do happen. And I’m not sure we’ll ever know exactly what the detailed process that was going on in the BP story. There’s a fair amount of evidence, since it’s gotten to the courts and so on.
But BP is an interesting example of an organization that had built a lot of capabilities for organizational judgment. They were one of the earliest adopters of knowledge management, and they were big believers in what they called peer assist, this idea that one part of the organization would help another when things went wrong. And they built-up some video conferencing capabilities to share knowledge across the organization. And then they let it all sort of fritter away.
And I think they sort of prematurely declared victory on that issue. And said, well, we don’t need any centralized capabilities for that anymore, we can sort of let different businesses build it up. And I think they were feeling that Exxon Mobil was more profitable than they were, so they really needed to cut costs. And they sort of threw out the baby with the judgment bath water in that particular case.
But I think there are other cases where organizations that had a lot of data and used it for other decisions. Netflix, for example, very data-oriented company in many cases. But Reed Hastings, the CEO, admitted they didn’t use any data at all when they decided that they were going to split-off the mail distribution of DVDs from the streaming part of the company and raise prices, they just got a little arrogant. So hubris can hurt you no matter how much data you have around the organization.
Well, in that case let’s get to one of the more positive examples that you talk about in the book as a way to illustrate how the process can work better in the moment. Because I think one of the risks that I know I always run with decisions is you always look back and say oh, well, we should have done that differently, or we did that and it worked out really well. And it’s hard to sometimes tie together the process in the moment with the outcome.
Well, it’s true that you can have a bad process and a good outcome, luck comes into play in many cases. And you can have a good process and a bad outcome. I think because there is that lack of connection sometimes between the process and outcome, it’s probably more useful to evaluate the process than to evaluate the outcome. I mean, the outcome is one thing you want to look at, but if you’re just lucky you may well not be so lucky the next time.
So what’s a team in the book that did have a good process, regardless of the outcome?
Well, there are a variety of them. One of the ones that I focused a lot on and I’ve worked there over the years is Partners HealthCare, which is a Boston area academic medical center, several leading hospitals like Mass General and Brigham and Women’s and so on, teaching hospitals for Harvard. And they have been investing for, I don’t know, probably a couple of decades now, in better decision making using technology for patient care.
So they were one of the first organizations to adopt electronic medical records, they were one of the first to put some intelligent provider order entry in. So if I prescribe you a drug, and it turns out some people think that’s not the best drug for that circumstance, the system will come back and tell you you may want to reevaluate your decision.
In the book, we talk about a new application that they’re experimenting with called Smart Forms that basically leads you as the physician and the patient through the care process. So it makes it easier, I think, for the physician to point out to the patient some of the care protocols that might make sense. And in the book we talk about giving an antibiotic when someone has a sinus infection. Physicians generally find that a bad idea, but they often find it difficult to communicate that to patients who want an antibiotic under any circumstances.
And so in this particular case it’s just a prototype, but they’re working with a patient and using this Smart Forms device to help communicate to the patient what’s the right thing to do under the circumstance. And they’ve had fantastic success with their organizational judgment. They reduced adverse drug events, for example drug interactions and the wrong dosage and so on, by 55% using some of these tools.
So that’s interesting, because that actually seems like it’s about, to me, finding ways to optimize many small decisions made by many people over a huge organization that adds up in the end to something greater than the sum of its parts, which is the health of people like me who actually are patients of partners. So I appreciate that.
What about some of the really big decisions? Like, if you look at something like a merger and acquisition decision, most of those notoriously fail. So how do companies get those big, big gambles wrong so often, and how can they get them right, more importantly?
Well I think there is a tension built into M&A decisions. We talk about some of the disasters in that space in the introduction to the book. There are some natural limitations on how many people you can get involved, obviously, for reasons of insider trading and so on. So that probably prohibits the collaborative process that organizations ought to use. We did focus on a couple of cases where organizations were collaborative in big decisions about their strategy, and really the way they organized the company.
So for example, Media General, which is a regional media company with print and television outlets, as well as an online business. It was facing the same challenge that many organizations have, including yours Sarah, which is how do we organize to deal with content across all of these channels?
And, as you know, in traditional media people were organized by channel if you were a print journalist and you didn’t worry that much about the internet and TV and so on. And a lot of organizations have had a tough time with this. You can sort of say well, we’re going to be media independent, or channel independent, but unless you all work together to try to figure out how that’s going to work, it’s probably not going to be executed very well.
So they had a much more participative decision process about that than they had ever done in the past, and it seems to be working quite well for them. We also looked at a foundation, the Wallace Foundation, and their major strategy change to focus on educational leadership issues. From being a more traditional foundation that works on a lot of things, we really are only going to make an impact if we focus our efforts a little bit here.
I’d like to talk a little bit about the financial sector, because that is a sector that has been eviscerated in the media for having bad judgment in recent memory. But you actually mention an example of a company, Vanguard, in the book that displayed good judgment. So tell us a little bit about what makes them different.
Yeah, I was quite interested in that issue last week. Some of listeners might recall the big brouhaha over the guy at Goldman Sachs who resigned. And as a parting shot, ran an editorial in the New York Times saying Goldman had lost its moral compass and was really only interested in making money and not helping clients.
And so I thought immediately of our chapter about Vanguard where it’s just the opposite. In fact, I wrote a little blog post for the HBR site, called it the “Anti-Goldman Culture.” At Vanguard, it’s pretty amazing how much people are willing to sort of band together on behalf of customers.
We profiled a woman named Mabel Yu who had resisted the efforts by Wall Street to sell Vanguard’s customers these mortgage-backed derivatives that went awry in the financial crisis. And Mabel was looking at these things, she was supposed to be rating Triple A bonds, and she was saying jeez, these don’t seem like Triple A to me, but I can’t even make sense of them. She was staying up late at night, literally making herself sick doing this.
Finally decided that no, this is not good for us. And even though they’re rated Triple A we should not make them available to our customers. And even though the whole industry was basically pushing these things, and there was a general feeling that customers could make somewhat more money if they did buy into these, the returns were quite good. Mabel said no, and Vanguard backed her up.
It turned out, of course, the whole industry went south. Mabel ended up being called before Congress to testify about the practices of the investment banks and the rating agencies in particular. She was profiled in a big NPR story.
What I really loved about Vanguard is they didn’t make a big deal out of all of this, because they said that’s everybody’s job. I mean, Mabel did the right thing and we’re proud of her, but we try to do this every day.
And Jack Bogle, who founded Vanguard and I think put in place a lot of the values there, to celebrate her act, he took her out to lunch at the company cafeteria and gave her a $5 coupon. It wasn’t quite enough for her to get the lunch that she wanted, but she said Mr. Bogle’s very frugal, so I wanted not to go over the limit.
And actually heard after I blogged about this, I heard from Jack Bogle in an email over the weekend saying I’m really proud of our firm. Reading about it like this, it makes me feel like the values have really been inculcated well.
So if you are a person in a firm who wants to move your organization a little bit more towards that kind of culture, I know the book is primarily sort of a series of really interesting stories and case studies, but did you notice any patterns? Is there any best practice or piece of advice that you would give someone to say here’s one or two things that you could do in your company to at least a little closer to that kind of good organizational judgment?
Sure. Well, I think, as you say, we tried not to write a typical management book and fill it full of prescriptions, but we certainly have a few of those. And one is to try to figure out what angle on organizational judgment makes sense for your organization.
I mean, if you have a senior management team that is not collaborating well on major decisions, then addressing that would seem to be a pretty important factor. If you have a lot of really smart people, and you’d like to get them a little bit more engaged in the problems of the company, we have a case study about EMC and how they used social media to really get involved in a cost-cutting exercise during the financial crisis, then there are a lot of tools to do that.
And you can be like Google, or some of these organizations that know, we hired a lot of really smart people, we ought to harness their capabilities. They do that extremely well. If you are a firm that has a lot of data, and you’re not necessarily using it to make all the decisions that you could, then you need to work on the analytic side.
So I think it’s trying to decide where best can I bulk up on organizational judgment. And I think that’s step two. Step one is just realizing that judgment is not just the realm of a few individuals at the top of the organization, it’s something that really belongs to the entire organization.
Yeah, and that can be kind of sobering I’m imagining at some point when you realize that.
Yeah, I think there are a lot of organizations that historically have problems in making decisions, and over and over again it’s an issue. We looked at one of those, NASA, which of course had sent a couple of space shuttles to disastrous outcomes.
And as a result, they totally changed their decision process– I’m talking about the decision whether to launch a shuttle or not– and even have the astronauts in the room while they’re making the decision. They’re full participants in the process. So that does kind of focus your mind a little bit on is this really worth launching when there are people sitting in the room who could die as a result of a bad decision.
Well, that’s some good advice and a good place to start. Thanks so much for talking with us today, Tom.
My pleasure.
That was Thomas Davenport, and the book is Judgment Calls: 12 Stories of Big Decisions and the Teams that Got Them Right. For more, visit hbr.org.