Making Decisions

Prof. J. Edward Russo

Making Decisions

Prof. J. Edward Russo

Samuel Curtis Johnson Graduate School of Management
Cornell University
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What you already know

• Write 5 points of advice on how to make good decisions

in your profession
• What advice about good decision making would you give
to a person new to your profession?

Coin toss problem

• Coin 1: Probability (heads) = .45
• Coin 2: Probability (heads) = .55

• Choose Coin 2
• Coin 1: Heads, $10,000
• Coin 2: Tails, $0

• Was choosing Coin 2 a good or bad decision?

– Opinion 1: “It’s all about the outcome”
– Opinion 2: “If you had a second chance, you would choose Coin 2”

• The closest we can guarantee to good decision outcomes,

is good decision processes
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 Making Decisions
Prof. J. Edward Russo

• Why is it clear that a good process and not a good outcome

should guide the choice of a coin?
– Clear logic
– Depends only on chance
• Different from most professional decisions
– Best process is unknown
– Depends on both skill and chance

Reward process over outcome

• The story of the dinner meeting

• Have you ever been recognized for a good decision process
in spite of an inferior outcome? If not you, do you know
anyone who has?

Controllable
Factors:
Implementation

Thinking/Decision Decision
Process Outcome

Uncontrollable
Factors: Chance

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 Making Decisions
Prof. J. Edward Russo

Framing

“Seek simplicity, then distrust it”

- Alfred North Whitehead

Frames

• A frame is a mental structure that simplifies and guides

our understanding of a complex reality
• Used for different purposes
– Perception, sense-making
– Decision making
– Communication

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 Making Decisions
Prof. J. Edward Russo

Frames in memory

• Frames can be retained in memory as key elements

of our knowledge
– Automobile
– Family
– Entrepreneur

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Frames in memory

• Frames can be retained in memory as key elements

of our knowledge
– Automobile
– Family
– Entrepreneur

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 Making Decisions
Prof. J. Edward Russo

Buyer-seller frames

• Transaction
• Relation

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Transaction frame Relationship frame

• Profit • Trust
• Delivery schedule • Fairness
• Agreement/contract • Win-win
• Close the sale • Long-term
• Product specs • Personal relationship

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The fired salesman

• A salesperson in the company is highly valued

• “Relational” salesman
• “Transactional” new VP of sales
• After 6 months
• 5 months later
• The happy ending(s)
• The salesman became strategic in his framing

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 Making Decisions
Prof. J. Edward Russo

A new stone crushing plant in India

• 2004, rapid growth in construction

• Old family business in mining and stone crushing
• Proposed new plant welcomed by village
• 30 days after inauguration, protests, fires, beatings,
destruction of equipment, and plant closure

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Why the failure?

• Village elders reveal the problems from their frame

or from their perspective
• No locals hired as workers (small contractors hired
to bring cheap labor from elsewhere)
• No local transport used (a low-cost transport service
from Delhi)
• Elders not even invited to the inauguration ceremony

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Frame change

• Old frame: Economic efficiency (project run by an engineer)

• New frame: Efficiency plus local needs and sentiment
• New actions: Locals hired for unskilled construction,
security, and local trucking
• New result: Village support, 3 more crushing plants built
by 2009

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 Making Decisions
Prof. J. Edward Russo

Why China and the U.S.

aren’t on the same page
• “China’s post-Mao leadership has been dominated
by engineers…But times are changing. An analysis
of younger rising stars… reveals that cadres trained
in the ‘soft sciences’ – especially law – are quickly catching
up as leaders realize they need a broad range of skills
to govern… Of the eight fastest-rising young Politburo
stars, none got their highest degree in engineering.
Instead, their educational backgrounds… include
economics, history, management, journalism, business
and law (three have legal training)”
Source: Newsweek, 8 September, 2009; http://www.newsweek.com/id/214993
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Boeing: suppliers or partners

• “A good example of how corporate relationships

have changed in recent years is Boeing…
Whereas with the 777 aircraft the company worked
with 500-700 suppliers, for the 787 it has chosen just
under 100 ‘partners’
• “The difference is not just in the numbers,
but in the relationship. Suppliers provide what they’re
asked for; partners share responsibility for a project”

20 Source: The Economist, 21 January 2006, p. 18

Techniques for generating multiple frames

• Creativity methods
– Brainstorming
– Analogy
• Different people, different perspectives
– The value of “different” people in the organization
– Networking within the organization and outside it
– A multi-industry board of advisors
– Business books read and applied to the decision
• Look to competitors
• Frame the situation as would someone

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in a different industry

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 Making Decisions
Prof. J. Edward Russo

Characteristics of effective decision makers

• A lack of self-delusion
• An ability to make intuitive decisions with accuracy
in the absence of models or conventional data
• An ability to simplify highly complex situations to facilitate
clear-cut decision making
• A tolerance for ambiguity, and a decisiveness
in indeterminate settings

Source: Pelton, Warren J., Sonja Sackmann, and Robert Boguslaw (1990),
Tough Choices: The Decision-Making Styles of America’s Top 50 CEOs;
Dow Jones-Irwin, Homewood, IL

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Frame control

“People are divided into the righteous and the unrighteous.

But the righteous get to do the dividing”
- Anonymous

• Defensive frame control: avoid being framed by others

– Framing by a subordinate
– Japanese-Americans interned during World War II

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Offensive frame control

• Get others to accept your framing of the situation

– Persuading down the organizational ladder
without frame imposition
– The three hod carriers

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 Making Decisions
Prof. J. Edward Russo

Gathering intelligence

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Distorted information

• Story: new product development

– First stage of product testing - focus group
– Both groups in the team thought their position
turned out to be correct
– How could this be?
• Self-serving distortions
• Evidence is filtered or interpreted to fit
a desired explanation

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 Making Decisions
Prof. J. Edward Russo

Avoiding distortion

• Step 1: Awareness
• Step 2: Focus on process
Rules of good process

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The confirmation bias

• People like and seek confirmation

• They dislike and fail to seek disconfirmation
• Why?
• Lesson: Distinguish between
– The outcome
– The process
• Goal: To devise the best decision process, not to get
the most correct intermediate outcomes along the way

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Avoiding disconfirming information in MIS

• “Access to more information results in its selective use

to support preconceived positions... (managers) assume
that the quality of decisions has improved because
of the amount of information that supports it” (p. 50)
• IT systems are used to confirm preconceived forecasts
or plans by selecting confirming information only
• The more information available, the more “successful”
a strategy of seeking confirmation can be

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 Making Decisions
Prof. J. Edward Russo

Escaping the confirmation trap

• Step 1: Awareness
– Do you want certain outcomes to occur?
– If so, be careful of seeking evidence in their favor
and avoiding evidence against them
• Step 2: Seek some disconfirming evidence
– Against the desired outcome
– For the undesired outcomes

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Coming to conclusions

“Be willing to make decisions. That’s the most

important quality in a good leader. Don’t fall victim
to what I call the ready-aim-aim-aim-aim syndrome.
You must be willing to fire”

T. Boone Pickens

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 Making Decisions
Prof. J. Edward Russo

A pyramid of approaches

• Higher levels
– Yield greater quality of the process of coming to conclusions
– Require more time and effort
– Provide a clearer decision process to you and to others

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The case of the combative CFO

• America Today, a new national U.S. newspaper,
continues to lose money
• The CEO says that he has successfully launched
a newspaper before; he can make this work; give him time
• The CFO says that the newspaper is losing money,
has always lost money, and is projected to continue to lose
money; it’s time to pull the plug
• How is each one coming to his conclusions?
• If you were a Director, which path would you take?

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Source: Harvard Business Review, July-August 1992, 2-7

Learning from experience

Experience is inevitable;
learning is not

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 Making Decisions
Prof. J. Edward Russo

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Learning from experience

• Learning from experience is an enduring understanding

of the causes of outcomes
• Learning should be based on all the information available
• Understanding may be incomplete or uncertain

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Organizational learning

• Post-project appraisal unit at British Petroleum in 1980s

• U.S. Army in the 1990’s - not “fighting the last war” over again
• The spread of Lessons Learned Analyses

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 Making Decisions
Prof. J. Edward Russo

Innovation and learning

3M “Scheme for Survival”
or

The responsibilities of managers

1. Don’t shoot people who make mistakes;

shoot people who don’t learn from their mistakes
2. Be self-critical
3. Create a sense of urgency

Note: A mistake is OK if it’s new, but not if it’s old (i.e., repeated)

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What you know now

• Write 5 points of advice on how to make good decisions
in your profession
• What advice about good decision making would you give
to a person new to your profession?

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Good-bye

• Thank you for your time; now it’s up to you

• “At the day of judgment, we will not be asked

what we have read, but what we have done”
- Thomas A. Kempis, 1420

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 Making Decisions
Prof. J. Edward Russo

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