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Be a better decider
As reinvention pressure rises,
CEOs need to rewire their decision-making.
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Illustrations by Martin Barreto
In brief
2 min
CEOs are used to making tough decisions under fire. That’s why they’re CEOs. But the unprecedented pressures facing today’s executives—specifically, climate change, novel tech such as AI, and social and economic disruption—are presenting leaders with stark choices about how their company makes money and creates value. Unfortunately, that reinvention pressure can quickly expose subpar decision-making habits. And when PwC’s 28th Annual Global CEO Survey asked executives about the extent to which they’ve adopted a series of proven decision-making best practices, the results showed that there’s considerable progress to be made:
By delving into those best practices, this issue of s+b explores how business leaders can retool their strategic decision-making in the face of continuous disruption. Doing so comes down to three imperatives:
- Adopting a process mindset
- Fostering trust, debate, and dissent
- Leveraging uncertainty
By getting these moves right, not only can leaders better navigate reinvention; they can reap concrete benefits in the here and now. When PwC conducted further analysis of data from the CEO Survey, a positive association emerged between good decision-making practices (as represented by a decision quality index) and profit margins:
What’s more, the analysis showed a similar relationship between decision quality and the likelihood of taking business actions associated with reinvention. That finding sheds light on a basic truth: being a better decider can help leaders forge a path to the kinds of breakthrough ideas that can set in motion meaningful reinvention.
In depth
5 min
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1. Adopt a
process mindset
Senior leaders are used to judging strategic decisions by their outcomes. And why wouldn’t they? In business, results matter. But when it comes to decision-making, relying mainly on outcomes can be risky. That’s because outcomes are often determined by factors outside a leader’s control, including luck. So, if not outcomes, what should guide strategic decisions? To put it bluntly: process, process, process. When it comes to decision quality, process is the only thing that leaders can fully control.
A healthy decision process is the sum of discrete, repeatable practices that help reduce or eliminate individual subjectivity and subconscious behaviors, such as confirmation bias (tending to seek information that supports existing beliefs), affinity bias (unconsciously preferring people like oneself), and status quo bias (favoring the current situation over change).
To abandon anything is always bitterly resisted.”
—Peter Drucker, author and educator
In an article in California Management Review, Olivier Sibony, Dan Lovallo, and Thomas C. Powell identified three key types of company-level strategic decision processes that are particularly susceptible to behavioral biases: investment decisions, such as mergers and acquisitions and product launches, which can fall prey to overconfidence and unrealistic optimism; resource allocation decisions, which can be negatively impacted by anchoring (a tendency to rely on the information most readily at hand, such as last year’s budget); and blue sky decisions, such as those involving new strategies and new markets, which can be susceptible to the halo effect (misattributing multiple positive outcomes to a single attractive characteristic). The authors assert that a helpful way to combat unconscious biases is a firm-level decision “architecture” that can be effectuated by seven powerful levers:
A good decision architecture is one in which executives apply these levers selectively and with varying degrees of strength. Consider, for example, a company that lacks established processes for evaluating mergers and acquisitions. When an opportunity arises, the leadership and board fall into overconfidence and wishful thinking. As a result, they overpay for the target and fail to realize full value from the deal. For large, one-off investment decisions like these, higher levels of formality, layering, and closure can help to scaffold decision processes and neutralize excess optimism. No matter what exact combination of levers is being deployed, the takeaway is the same: following a good process increases the probability of having good outcomes.
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2. Foster trust, debate,
and dissent
Though executives desire honest input, they inevitably find themselves surrounded by people who may be hesitant to provide it. After all, who wants to contradict the boss? It’s a circumstance that leads to inferior decisions that rely on missing or incomplete information. Breaking out of the executive echo chamber means casting a wide net for contradictory viewpoints, and making sure that challenges to executive thinking are not only permissible but encouraged.
A fantastic model of collaboration: thinking partners who aren’t echo chambers.”
—Margaret Heffernan, writer and entrepreneur, from her TED Talk “Dare to Disagree”
Neither of those things is possible without robust internal feedback mechanisms that promote dissent and debate, both of which PwC’s Global Workforce Hopes and Fears Survey 2023 has shown to be powerful catalysts for trust:
Trust, in turn, depends on transparency and a collegial, team-based decision culture. Corporate leadership teams can help executives—and those they delegate to—be more confident and transparent deciders by:
- assuming positive intent on the part of those offering dissenting viewpoints;
- creating time to interact informally within teams and across functions;
- making sure decision criteria are conveyed beyond the C-suite and subjected to scrutiny;
- ensuring that colleagues know the context for the decisions they’re tasked with (e.g., the values, strategies, and goals the decisions are meant to support);
- ensuring that decision-makers have access to the information they’ll need; and
- demonstrating accountability for executive decisions and their consequences.
Trust needs to extend beyond the company walls, too. As business ecosystems become a vital mode of value creation—already a reality for many top-performing companies—executives can radically expand their pool of opinions and viewpoints, sourced from trusted partnerships and alliances.
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3. Leverage uncertainty
A sound process doesn’t eliminate uncertainty from decision-making. Rather, it helps leaders manage uncertainty in a more advantageous and strategic way. As external disruptions increase the pressure to reinvent the business, that uncertainty often takes the form of novel and untested opportunities, which executives must get better at handling—or even just recognizing. That means asking themselves not simply whether they may be pursuing the wrong opportunities—a so-called error of commission—but, more critically, whether they may be committing an error of omission by missing opportunities altogether.
We focus on what we know and neglect what we do not know….”
—Daniel Kahneman, author and Nobel laureate
Embedding the latter question in the decision process can build strategic foresight, a quality that leaders of high-performing companies disproportionately possess—and disproportionately act on—according to PwC research. Building strategic foresight means improving the ability to detect market shifts and other early inflection points and signals of increasing reinvention pressure. It’s an aptitude that Columbia Business School professor and author Rita McGrath calls “seeing around corners.”
That kind of acuity isn’t a magical power, though. It can depend in large part on another decision-making best practice: considering individual decisions within the context of the company’s greater portfolio of opportunities, which can help situate highly uncertain moves and outcomes in a broader context. CEOs can do this by mapping execution uncertainty (“Can we do this?”) to market uncertainty (“Will the market want this?”), assigning explicit probabilities to each potential outcome, and spreading investments and actions across this opportunity matrix in optimal ways.
Cutting across these actions is a willingness to ground some decisions in the principle of “intelligent failure,” as articulated by Harvard Business School professor Amy Edmondson. Intelligent failure accepts that experimentation—and the risk of failure accompanying it—is sometimes the only path to success in the face of uncertainty. The central message: some failures are smarter than others because they help us identify a path toward eventual success.
In conclusion
It is our choices, Harry, that show what we truly are, far more than our abilities.”
—Albus Dumbledore, in Harry Potter and the Chamber of Secrets, by J.K. Rowling
For C-suite leaders, fundamentally changing how decisions get made often requires overcoming unconscious biases and behaviors and ingrained organizational barriers. But CEOs and their leadership teams can dramatically improve the quality of their decision-making by heeding three basic principles: using process, not outcomes, to judge the quality of decisions; fostering a culture of trust and collegial dissent; and leveraging uncertainty for competitive advantage. Changing entrenched decision-making habits isn’t easy, but the size of the potential prize—the successful reinvention of your business—makes it worth the effort.
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