SPEED AND STRATEGIC CHOICES ACCELERATING DECISION-MAKING

by Kathleen M. Eisenhardt

When was the last time you had enough information and enough time to make the kind of careful, clear, well-thought-

out decision you would have liked to make? For most people it has been a long time — if ever. I want to explore how managers should make in­formed decisions within the context of a fast-paced environment that has poor information and high levels of competition.

Several myths about fast decision-making exist. One is that fast decision-making is about cutting down on information analysis. Another is that it is focused on eliminating conflict. Yet another is that it involves becoming a swash-buckling autocrat. Fast decision-making is really none of those things.

My research base is the computer industry — probably no other industry moved faster or was any more chaotic in the 1980s. I do a lot of work with semiconductor and microcomputer firms, trying to sharpen their decision-making. People in the com­puter industry have to make fast decisions — new product choices, financing decisions, new plant construction decisions, whether or not to form a strategic alliance. These decisions usually have to be made within two or three months, as contrasted with slow-moving decisions, which involve the same issues but on a time frame of 12 to 18 months. How do fast decision-makers do it?

T H E MYTH OF LIMITED INFORMATION

One of the myths about decision-making is that the way it becomes fast is by limiting information. Reduce the amount of information, thereby reducing the time needed to analyze and make a decision. In reality, fast decision-makers do the opposite; they review as much and sometimes more information than their slow counterparts. The crucial difference lies in the type of information fast decision-makers use. Slow decision-makers rely on planning and fu­turistic information. They spend time trying to track the paths of technology or markets, and then develop plans. In contrast, fast decision-makers look at real­time information, and focus on the present instead of the past or future.

Consider the following example of a well-known microcomputer firm, Zap.* Zap's top management

* Company names changed to ensure confidentiality.

team is known for making fast decisions; typically they will make decisions in three or four months. Their slower competitors take 12 to 18 months. How does Zap move so quickly?

Their management team is extremely dedicated to real-time information. They try to measure every­thing on a weekly or monthly basis — and they come close. They measure inventory, cash-flow, monthly engineering milestones and a variety of marketing measures. They also maintain fixed tar­gets on margins and key expense categories. While most companies have targets, what is unusual at Zap is the extent that people are familiar with them.

Zap is also a virtually memo-less company. Ex­ecutives communicate through electronic mail or through face-to-face meetings. They also hold meet­ings several times a week. People are supposed to be there; they are not to travel on those days.

At Zap, the vice president of finance is a very im­portant player — not a judge or an evaluator, but an information provider. The vice president of finance

Kathleen M. Eisenhardt is Associate Professor of Organization and Strategy at Stanford University. Her research interests include strategic decision­making and the management of technology-based firms.

30 Planning Review Special Issue

is in charge of letting everybody know what is going on quantitatively inside the company.

Real-time information at Zap is not confined to only internal quantitative numbers. They also gather soft outside data. The vice president of marketing tracks the moves of competitors and is responsible for keeping the different functions in the company informed about the competitive environment. The vice president of R&D does the same thing on the technology side.

In contrast to Zap, consider some of their slower decision-making competitors. Their emphasis is ei­ther on the past — on accounting information — or on the future — what is likely to happen in the mar­ket or in new technology. For example, one firm spent close to a year doing a technology study, try­ing to figure out what was going to happen in the microprocessor industry. And they more or less did, but it took them so long that they missed their opportunity. Another firm ran into financial difficul­ties and spent six months doing a forecast of the in­dustry without thinking about what they were going to do in response.

Why does real-time information speed up deci­sion-making? It is important to understand the intu­ition behind real-time information. Since it focuses on the present, it allows organizations to spot prob­lems and opportunities faster, which increases their intuition ability. And intuition is not an inherited trait. It comes from practice, from doing the same thing over and over. When you do something repeti­tively you develop patterns. The essence of intuition is pattern recognition.

Real-time information builds teamwork as well as intuition. Looking at real time information day after day, especially in a group setting, focuses people on improving the business to make it competitive now. In contrast, slow decision-makers emphasize plan­ning and forecasting, hoping the future will become clearer. Which it does not; the competitive environ­ment, particularly in the computer industry, is ever volatile. When new technologies develop so quickly, it is very hard to predict what will happen.

The M Y T H O F F E W C H O I C E S

A second myth about decision-making is that de­cision-makers save time by focusing on only one or two alternatives. In fact, they force themselves to look for more alternatives. They will even advocate and entertain alternatives that they do not believe in. A good example is Triumph,* a relatively small, fast decision-making company. Triumph's executive group was faced with lackluster performance and pressure from their investors to do something. In roughly a month's time they came up with four op­tions to improve the situation: sell some of their technology, redirect their strategy, execute better or

sell the entire company. All of these alternatives were researched simutaneously.

In contrast, slow decision-makers often spend many months developing one alternative and creat­ing a full-blown plan. Then, after all their develop­ment efforts, they decide that they are not happy with that alternative and begin creating another. By the time they decide to move on one, it may be months or even years later.

Multiple simultaneous alternatives are faster for several reasons. First, they can be analyzed more quickly through direct comparison. While it may not be possible to quantify their ad­vantages, very often one clearly is superior to another, or at least has better features. Second, building multiple alternatives lets a management team more sharply define their preferences. Often, people are not ex­actly sure what they want until they see some of the options that are available. By looking at multiple alternatives, an organization is able to more thoroughly understand its preferences in terms of markets, products, customers and so on.

Third, multiple alternatives are confidence build­ers. When a management team feels like they have covered all the bases — analyzed all the choices — they can be confident when making their decision. They are not plagued by the feeling that they forgot something, that they chose rashly without being aware of all the alternatives. And confidence is a key feature in making fast decisions. Much of the reason why most people take so long to choose is because they lack the confidence to do so.

The final way multiple alternatives enable faster decision-making is by providing a fall-back position. Overall, multiple alternatives use a breadth, not depth, analysis strategy. The management team looks at a lot of alternatives and does not spend as much time analyzing them, as opposed to looking at a few alternatives and analyzing them in great depth.

T H E M Y T H O F A D V I C E

The third myth about fast decision-makers is that they gather advice haphazardly. In truth, most fast decision-makers seek expert counsel, using a two-tier advice-gathering process. First, they ask every­one whose opinion is relevant what they think should be done, what they think the issues are and so forth. Second, they seek addi­tional advice through conversation with an experienced business counselor with whom they previously have developed a trusting relationship.

Good counselors are usually older, expe­rienced, and often perceive themselves as being on a career plateau. They have climbed as far up the ladder as they want to and are happy where

"Much of the reason why most people take so long to choose is because they lack the confidence to do so."

"Counselors accelerate decision-making because they are efficient informa­tion sources — they know a lot."

Conference Executive Summary • Sept./Oct. 1992 31

"Of the microcomputer companies we studied, the fast decision-makers were more profitable."

"Interestingly enough, slow decision-makers know they are slow, and know that being slow is a problem."

they are. They like their jobs and are proud of what they have accomplished. They also often have been personal acquaintances of their company's CEO for a long time. They have an experiential base and a broader perspective that can greatly benefit manage­ment teams.

Counselors accelerate decision-making because they are efficient information sources — they know a lot. They also know how to be discreet. You can tell them things, you can develop a relationship with them, you can say things and you know that they will keep them confidential. Business counselors

also inspire faster decision-making for one of the same reasons multiple simultaneous alternatives do: both build confidence. When faced with a difficult decision, sit­ting down and talking about it with some­one you respect helps clarify and sharpen the issues. Even if the person you are talk­

ing with disagrees with you or does not understand what you are talking about, the fact that you have talked it over with them gives you confidence.

T H E M Y T H O F C O N F L I C T

One of the myths of decision-making is that con­flict slows down choice. The idea is that people ar­gue with one another, and nothing happens. In fact, fast decision-makers know that conflict is essential to a quality decision. The key to keeping it fast is not centered on whether you have conflict, but on how you resolve it. Fast decision-makers use a two-step process called "consensus with qualification." They begin by trying to reach a consensus, by dis­cussing the alternatives and trying to establish which is best. If they do not reach a consensus

within a reasonable time, everyone on the management team knows that the CEO or the most relevant top executive will make the choice.

On the other hand, slow decision-makers usually will not make a decision until a consensus is established. In some cases, if

members of the management team are deadlocked, they may become frustrated enough to leave. That is not an acceptable way to reach an agreement. Nor, when the management team is facing a dead­line, is it constructive when the CEO steps in abruptly and makes the call, potentially alienating members of the executive staff.

The major drawback of operating by consensus alone is that it essentially gives everyone on the management team veto power. As a result, an inter­esting yet dangerous psychological phenomenon sometimes occurs. When slow decision-makers are unable to reach a consensus and run up against dead­lines after spending a great deal of time analyzing one or two alternatives, they will sometimes choose

an "off-the-wall" alternative that somebody hastily conceived. Their rationale is that since all of their other alternatives are clearly not acceptable, and since their backs are against the wall, they might as well clutch at straws.

The consensus with qualification approach is fast because it is realistic about conflict. It allows intelli­gent people to disagree about what the future holds. It is also popular — everyone on the management team wants to share their perspective, but few want to bear the responsibility of making the decision solo, unless it concerns an area that is highly impor­tant to them.

T H E MYTH OF ISOLATION

The final myth is that fast decision-makers treat each decision as an isolated event. Actually, they strive to integrate their focal decision with other key decisions in the organization's tactical plan. In effect, they try to make the decision at hand com­plement the firm's overall strategic direction. They try to comprehend how the implications of the deci­sion will impact tactical and strategic implementa­tion efforts.

Why does thinking about one decision in the con­text of other decisions lead to faster action? Again it builds confidence, this time through creating a psy­chological illusion of control. The management team plans things, even though they do not really have much control of the future. This illusion of control yields confidence, which again is a big factor in making fast decisions.

Integrating the decision also improves the man­agement team's understanding of the organization — by thinking about one decision in the context of others, decision-makers start to see how functions that are seemingly independent are actually linked strategically.

In general, fast decision-makers make frequent, quick, integrated decisions; their slower counterparts tend to see decisions as big, isolated, scary events. Fast decision-makers also tend to see individual de­cisions as part of an overarching pattern rather than as discrete issues.

Do these fast decision-making tactics work? Of the microcomputer companies we studied, the fast decision-makers were more profitable. The slow de­cision-makers were mediocre or poor performers. Some of them no longer exist.

There is qualitative evidence as well: fast deci­sion-makers attribute their success to their speed. They say, "You have got to keep up with the indus­try. The worst decision is no decision at all. You must take action." Interestingly enough, slow deci­sion-makers know they are slow, and know that being slow is a problem. What they do not know is how to be fast.

32 Planning Review Special Issue