Almost every business I know focuses on decision quality measured in very large part by their outcomes. Good outcome = Good decision. Bad outcome = Bad decision.
Is that always true? Is it effective to use that yardstick to evaluate decisions?
Does it hurt a business over time when good decisions that have bad outcomes are ignored, and bad decisions that lead to good outcomes are celebrated?
The answer is that it does. In profound and often invisible ways.
You make a well researched real-estate investment a month before the worst hurricane of the decade hits. Good decision = Bad outcome.
Or you make a stock purchase on a tip from a friend, and it happens to be the next Google. Bad decision = Good outcome.
These are extreme examples, but you get the idea. It manifests in subtle ways every week in most businesses.
The key challenge or opportunity for leaders:
- Gain deeper understanding of your teams and your beliefs and biases, and the thought patterns that connect those beliefs and biases to decisions.
- Calibrate rewards and penalties to reinforce the separation between decision quality and random, uncontrollable factors, viz., “luck”.
- Develop greater clarity and alignment about the “right person” for your unique performance culture.
Why is this issue important for every leader to consider?
Because not separating luck from decision quality in assessing outcomes often leads to
- learning the wrong lessons, and
- abandoning decisions that will, over time, yield higher cumulative returns.