Ministry

Making Strategy Stick (Part Three)

By jgiroux ⋅ September 3, 2008 ⋅  Print This Post ⋅ Post a comment

WARNING!! This is a pretty long article.

Barrier 2: Decision Paralysis

Most people in an organization aren’t in charge of formulating strategy; they just have to understand the strategy, internalize it, and use it to make decisions. But many strategies are not concrete enough to resolve a well-established psychological bias called decision paralysis.

Psychologists have uncovered situations where the mere existence of choice, even choice between several good options, seems to paralyze us in making decisions. A study, conducted by Eldar Shafir, a psychologist, and Donald Redelmeier, a physician, in the Journal of the American Medical Association, shows that even experienced decision makers can be paralyzed by choice.

� Psychologists have uncovered situations where the mere existence of choice, even choice between several good options, seems to paralyze us in making decisions.

Shafir and Redelmeier presented doctors—members of the Ontario College of Family Physicians—with a medical history describing the condition of a 67-year-old man. He was experiencing chronic hip pain because of arthritis. Doctors had tried several drugs to treat the pain, but they had stopped because the drugs either didn’t work or produced serious side effects. An alternative to prescribing drugs would be to refer the patient for hip replacement surgery, which could solve the problem permanently. On the other hand, hip replacement is a difficult surgery that often involves three or more months of recovery.

Then the doctors in the study are presented with a twist: Before they can opt for the referral for hip replacement surgery—which seems the sole remaining hope—they discover, after checking with their pharmacy, that there’s one other medication that hasn’t yet been tried. The doctors in the experiment were asked: Would you write the referral or try the additional medication? 47% chose to try the medication before surgery.

But you can never generate enough rules to encompass the decisions that must be made by your employees.

Another group of physicians saw the same patient history but were told that when they checked the pharmacy, they discovered two additional medications that hadn’t yet been tried.�  Given two options, only 28% chose to try either one. Seeing more good options made trained physicians less likely to choose any of them. This isn’t rational behavior, but it’s human—something about the presence of multiple options seemed to make doctors freeze rather than act.

Similar decision paralysis was found with a group of legislators in the Ontario Parliament. The legislators were given information about a small hospital that was providing substandard care in an area well-served by other hospitals. Patient outcomes at this hospital were low and there were three malpractice suits outstanding against it. When legislators were given a choice of closing the hospital versus doing nothing, 74% chose to close it. But another group of legislators learned about the first substandard hospital and also a second substandard hospital in a different city. When presented with information about two substandard hospitals, only 36% of the legislators chose to close either one. Why? When decision options multiply, they leave people numb and inactive.

Think about the sources of decision paralysis that surely exist in your organization. Every organization is forced to make choices among attractive options: Customer service versus cost minimization. Revenue growth versus maximizing profitability. Quality versus speed to market. People development versus the needs of the quarter. Fold together lots of these tensions—an atmosphere full of potential opportunities and risks and uncertainties and incomplete information—and you’ve got a recipe for paralysis.

Furthermore, many classic strategy statements, such as the quest to be the “low-cost provider”, simply don’t speak to many of these tradeoffs, for instance the trade-off between quality and speed to market. Now, leaders could solve decision paralysis by encoding everything into a rule—Try all available medications before proceeding to surgery! And close any small hospital with more than three malpractice suits! Many companies do, in fact, adopt this approach—witness the 3-inch-thick binders given to new employees to explain “company policy.” But you can never generate enough rules to encompass the decisions that must be made by your employees. The world is complex, and it evolves. Yet rules forbid anyone from adapting to the world except the leaders who are writing the rules.

How can strategy liberate employees from decision paralysis? When people are able to talk about strategy, they’re more likely to set priorities appropriately than when strategy only exists as a set of rules. Frontline employees want to do the right thing. Most of them find it quite easy to decide between the right thing and the wrong thing. The problem is deciding between the right thing and the right thing.

The hardest decisions, after all, are the ones where we must decide between two good options. Consider the Costco salmon story. If you’re selling scads of salmon at $5.99 per pound, and then subsequently you secure a supply higher-quality salmon at a lower price, what do you do? You know that there’s enough demand for the salmon to exhaust your supply at the $5.99 price point. So do you maintain the price (or even raise it) to deliver a better bottom line for shareholders? Or do you cut the price to maintain your focus on value for customers? This is a choice between two good options. To make such a choice, you need an index of priorities, and the salmon story provides it. The salmon story is a statement of competitive advantage that drives home the message that Costco’s priority is the customer over the shareholder. (Or, to be more precise, customer value over short-term shareholder profits.)

When people are able to talk about strategy, they’re more likely to set priorities appropriately than when strategy only exists as a set of rules.� 

Organizations, in formulating their strategies, must grapple with their internal capabilities. What capabilities do we need to succeed? What skills will our employees need to successfully please customers, and how will we get better at serving our customers over time? An example of strategic language that speaks to internal capabilities comes from Thomas Alva Edison, the inventor of the phonograph and light bulb. Edison was not a lone inventor; he created the first industrial R&D lab in Menlo Park, New Jersey. The researchers in his labs were called “muckers.” The term comes from two slang phrases of the time—“to muck in” was to work together as mates, and “to muck around” was to fool around. Why was this a good way for Edison’s researchers to talk strategy?

In any entrepreneurial organization, there is a natural tension between productivity and experimentation. Innovation requires collaboration, experimentation, and freedom—but these qualities also produce tangents and wasted time and errors. Edison’s environment, then, is ripe for decision paralysis: How do we decide between productivity and experimentation? Productivity promises efficient work, better margins, more orders. Experimentation promises new products and other opportunities. How do you choose in the myriad daily situations where the conflict will arise? (E.g., “Is it okay to spend the next hour of my time fooling around in the lab?”)

The “muckers” term is a strategy statement masquerading as a nickname. It makes it clear that, given the tough choice between productivity and experimentation, you choose experimentation. Why? Because you’re a mucker. Muckers don’t obsess over Gantt charts. Muckers muck. And muckers muck because that is precisely the organizational capability that will make Menlo Park successful. Talking strategy in a thoughtful way can relieve the burden of decision paralysis.

Check back next Friday for Part Four!

About The Authors: Brothers Chip Heath and Dan Heath are the co-authors of “Made to Stick: Why Some Ideas Survive and Others Die”. Chip and Dan have spoken and consulted on the topic of “making ideas stick” with audiences from organizations such as Microsoft, Nissan, Fannie Mae, and West Point. Chip Heath is a Professor of Organizational Behavior in the Graduate School of Business at Stanford University. He lives in Los Gatos, California. Dan Heath is a consultant at Duke Corporate Education. A former researcher at Harvard Business School, he is a co-founder of Thinkwell, an innovative new-media textbook company. He lives in Raleigh, North Carolina.