by Burke Robinson
Consulting Professor in the Management Science & Engineering Department
We choose to pursue available opportunities in competitive sports, business investments, public affairs, or personal relationships because they lead to desirable rewards. These opportunities, however, almost always come with significant risks – some that we anticipate, others that catch us by surprise. On the flip side, every risk that we encounter will also interweave with related chances for substantial rewards.
Those opportunities that lead to the greatest rewards invariably require that we take the greatest risks. The essence of good decision making is a reasoned evaluation of how we prefer to trade off these rewards and risks. Moreover, when we make decisions today to seize opportunities and manage the accompanying risks, we start to shape our future world.
We must be ever vigilant to avoid the common decision errors of either “extinction by instinct” or “paralysis by analysis.” We should instead use the right balance of both intuition and analysis so that we’ll make DAMN [1] good decisions – ones that are based on a well-tuned gut feel.
Our instinctive “action anxiety bias” [2] leads us to predictable yet ineffective responses to perceived risks. When confronted with a seemingly large and worrisome risk, we frequently feel that we must do something now before the situation gets worse. Perhaps it’s in our DNA, a vestige of the fight or flight response that our ancestors had when confronted by a wooly mammoth or a saber-toothed tiger. Unfortunately, taking action quickly can lead to adverse unintended consequences. Sometimes, after thoughtful and deliberative analysis, the best decision is to do nothing dramatically different from what we are currently doing. By continuing with our momentum strategy and living with its intended consequences, we can often reduce the probability of any undesirable consequences of our actions.
For example, the federal government’s actions in response to the Great Depression of 1929-1941 included drastic increases in spending, regulations, taxes, and social safety nets. The adverse unintended consequence for business was to prolong a severe economic crisis. [3] In contrast, during the post-war Depression of 1920-21, when most economic indicators were initially as worrisome as those in 1929, President Harding initially chose to do nothing as wages and prices fell, and as businesses failed. After the depression ended, however, the New York Federal Reserve lowered interest rates and Harding downsized the federal government. This resulted in the economic prosperity of the Roaring Twenties.[4]
Similarly, many scientists today are alarmed about the warming trend in global climate and have called for action to be taken immediately, before it’s too late. They want to follow the Precautionary Principle – better safe than sorry. But, other scientists counter that we should take a calculated risk whenever the costs of choosing safety exceed the benefits. They claim that, if the targeted carbon reduction is expected to dramatically curtail economic growth, then a significant number of countries may choose to change very little about their carbon output and simply adapt to the global warming consequences.
We should beware of charlatans and pop journalists who use weak anecdotal evidence to assert that snap decisions made spontaneously are better than carefully planned actions, or that “sleeping on it” is a good way to improve decision making.[5] Substantial academic research has shown that, when we rely on nothing but intuition to make our important decisions, we can easily: become victims of biased assessments[6], fall into a myriad of decision traps[7], engage in group think[8], mismanage our agreements[9], and ultimately play the blame game[10]. Unless we make well-reasoned and deliberative decisions, we inevitably will make choices that do not provide us with more of what we want[11].
Just to drive this point home: In December of 2000, at a Stanford graduate seminar, a popular consultant described his view of how successful companies make strategic decisions. He roundly criticized as “old school” the rigorous, quantitative analysis of business strategy. Instead, he lauded new economy companies that “think organically, have an evolutionary strategy, and fly by the seat of their pants.” His shining example of success was one of his long-standing clients, an energy trading company that was rapidly moving up the Fortune 100 list. Can you guess who the client was? Right, it was Enron, a company that no longer exists primarily because it relied too much on insufficiently analyzed gut feelings about markets and taxes.
On the other hand, our temptation to ignore intuition entirely and instead rely only on hard, objective data is equally misguided. Such data are usually from historical trends that may or may not be relevant to the uncertain future events that we anticipate will have the greatest impact. Relying only on data from the past is like driving by looking in a rear-view mirror. Even if our mirror is clean, it’s never as good as looking through our front windshield – no matter how dirty or foggy that windshield is. Our judgments about the probabilities of future uncertainties ought to combine any relevant objective data we have about the past with our best experts’ subjective judgments about the future. We can then capture the full range of uncertain outcomes that we expect to face, both on the upside and the downside[12]. By waiting for the “Holy Grail of certainty” on every possible piece of information that we think we’ll ever need, we may very well become paralyzed by our own analysis process and never make our most crucial decisions.
To illustrate this behavior, consider how often we overstudy a decision, leading to “death by a thousand cuts.” For example, when we amplify our doubts by exhaustively studying all possible risks of future energy supply, we often then postpone our strategy decisions about energy sources until we have every last bit of information that we think we’ll need – a never-ending task. Nuclear energy has been on hold in the U.S. ever since the 1979 Three Mile Island accident raised concerns about nuclear power plant design, safety, and radioactive waste. Critics of nuclear energy want to understand all of these risks with certainty before any new plant can be built. Meanwhile, countries such as France, Japan, and Korea continue to build and safely operate nuclear power plants. Additionally, the 1969 Santa Barbara and 2010 Deepwater Horizon oil spills have been used as rationales for halting U.S. offshore oil exploration and production. Critics of carbon-based energy insist that essentially all risks be eliminated before any new projects are approved. In the rest of the world, oil and gas drilling projects proceed with few, if any, restrictions off the shores of Latin America, Europe, Africa, the Middle East, and Southeast Asia.
Ultimately, the best approach for making DAMN good decisions is to tune up our intuition and gut feeling with a healthy dose of logical reasoning and critical analysis. Just as gambling casinos do, Mother Nature makes us place our bets before we see our cards. Thus, we need to consider how several creative and viable alternative paths are expected to play out across the full range of uncertain scenarios that we may eventually face. We can then choose the strategic path that we expect will deliver the most of what we want and value[13].
To tune up our intuition, we need both focus and discipline. A clear focus starts with an ambitious and appealing strategic vision, cleverly termed a BHAG – a big, hairy, audacious goal[14]. A clear focus also requires a strategic path that takes us from today to the vision’s destination. Our vision and strategy become real only if we add the discipline of operational excellence. This requires that well-practiced skills and competencies become core to our day-to-day activities. We are most effective when we learn from our mistakes as well as from the best practices of others. Even the best strategic visions and paths are worthless if not followed up with excellent implementation[15].
Passion is vital, but only when executing our chosen strategy. Decision making must always be a dispassionate process. We should reason deliberately, logically, and critically about our strategic choices. Then, once a decision is made, we should implement it by going “all in” with a passionate commitment to success and a willingness to spare no effort in pursuing our goals.
The U.S. space program illustrates how we can seize opportunities and manage risks. In 1961, President Kennedy responded to the Russian feat of putting a man in space by issuing a visionary challenge with a clear focus: “I believe that this nation should commit itself to achieving the goal, before this decade is out, of landing a man on the moon and returning him safely to the earth.”[16] A new organization, the National Aeronautics and Space Administration (NASA), provided the discipline necessary to carry out this vision. NASA was a highly motivated team of scientists, engineers, and test-pilot astronauts. Ultimately, Astronaut Neil Armstrong made history in 1969 as the first man to walk on the moon.
The need to manage risks came along with the rewards of many successful Apollo missions to explore the moon. In a 1967 launch pad fire, all three Apollo 1 astronauts died. The entire space program was suspended pending a thorough analysis of astronaut safety that led to redesign of the capsule and changes in launch procedures. Three years later, when Apollo 13 suffered an oxygen tank explosion halfway to the moon, it was intuition tuned up with analysis that turned a near-disaster into a successful rescue. Against overwhelming odds, all three astronauts returned safely to earth after a gutsy slingshot maneuver around the moon led to a perfectly executed homeward trajectory, and a well-timed repowering of the engines set up a surprisingly smooth, albeit toasty, re-entry.
In the sports world, cyclist Lance Armstrong fought for his life as he was treated for testicular cancer in 1996. Two years later, his cancer in remission, he resumed professional cycling. Lance then used a well-tuned gut feel to win seven, consecutive Tours de France (1999-2005).He was focused and disciplined as he did wind tunnel testing, rode the course in advance, and organized support team logistics. This tuned up his intuition so that during key climbs Lance could look into the eyes of nearby opponents, and then use his gut feeling to determine when to break away and increase his time advantage. What appeared to be snap judgments were actually well-conceived and perfectly implemented strategic decisions.
Unbeaten streaks, such as Lance’s seven in a row, are opportunities to set the bar very high. At Stanford, women’s tennis teams have won their last 179 home matches (regular season and postseason.) This home court domination started in 1999 and is the best winning record at home in NCAA Division I history – for any sport! Also, women’s basketball teams have a 63-game home winning streak. As well, men’s swimming teams have raised the bar with an ongoing 30-year unbeaten streak of Pac10 championships. And, for the last 16 years in a row, Stanford has won the Learfield Sports Directors’ Cup, an award given to the nation’s leading intercollegiate sports program. Lastly, Stanford has an ongoing streak of 35 consecutive years when at least one varsity team has won a national championship. The latest NCAA championship, Stanford’s 100th, was men’s gymnastics, the best team in the nation in 2009 and again in 2011. As long as streaks such as these continue, Stanford athletic supporters remain ecstatic, even as athletes in these sports become superstitiously reluctant to talk about their runs of wins.
The risk, of course, is that at some point a team will lose and the streak will end, or another university will win the Directors’ Cup, or no Stanford team in a given year will win a national championship. This may very well unleash a raft of recriminations, regret, remorse, second-guessing, and a whole host of other negative behaviors. Effective management of these risks can return the focus and discipline to starting a new streak, as was done by the Chicago Bulls basketball teams led by Michael Jordan and coached by Phil Jackson. Their outstanding three-peat of NBA titles from 1990-1993 was followed by an equally impressive repeat three-peat from 1995-1998.
Stanford teams have dominated NCAA women’s tennis with 16 national championships and 5 runner-up positions since 1982. However, Stanford started the 2010 postseason as the #8 seed and was matched against top-ranked Baylor in the quarterfinals. Revenge was clearly a motivating factor since Baylor had routinely defeated Stanford and had knocked the team out of the postseason each of the two previous years. Stanford confronted this risk directly and upset Baylor 4-2, then rolled past #5 Notre Dame 4-1, and finally dispensed perennial contender Florida 4-1. The dogpile after the game reflected the passion of a Stanford team that overcame adversity to get back on top. Anyone who saw those matches had to be impressed by the focus and discipline of athletes who used well-coached instincts to win key points.
Stanford women’s basketball teams frequently reached the Final Four in the 1990′s and won national championships in 1990 and 1992. Then, in 1998, a major upset occurred after Stanford compiled a 17-1 record in Pac 10 games, won the conference championship, and earned a #1 seed. An untimely injury led Stanford to a demoralizing loss to 16-seed Harvard in a first-round NCAA tournament game at home. Undeterred, Tara VanDerveer coached the team through its rebound from this embarrassment. With increasingly talented recruits, she developed offensive and defensive strategies that systematically moved the team during successive post seasons back into the Sweet Sixteen, then the Elite Eight, and ultimately the Final Four from 2008-2011. The clear focus and high-energy discipline of recent teams is apparent to long-time supporters. Stanford played in the national championship game in both 2008 and 2010, and has been one of the few teams in the country capable of beating the twin powerhouses of Tennessee and Connecticut. Most of their creative playmaking on the court is the result of a well-rehearsed team able to take advantage of its intuition at key moments in the game. At the close of 2010, this was abundantly clear to the sold-out crowd at Maples as well as the record number of ESPN viewers who all watched the dramatic ending of the 90-game win streak of Gino & the UConn Huskies; Stanford stunned them not only by a final score of 71-59, but also by leading the game wire-to-wire.
The dominant performance of the Stanford men’s volleyball team in its run to secure the 2010 national championship demonstrates how a clear and aligned strategic direction in combination with passionate operational excellence can lead to great success. John Kosty, National Coach of the Year in 2010, focused the team on playing volleyball to its maximum potential. His efforts started with a vision from assistant coach Al Roderigues. On a ride home from one of the 25 defeats in 2007, Al told a despondent group of freshmen that they could go from “worst to first” by the time they were seniors. With this vision securely in mind, John implemented a comprehensive strategy over the next four years to recruit coaches and players who had the skills, experience, and dedication to make that vision come true.
Steadily, year by year, the players continued to improve their volleyball excellence. As a direct consequence, the team started winning more and more consecutive sets. They won their last 14 sets of the 2010 regular season, and then went on to win 15 out of 16 post-season sets and capture their first national championship since 1997. Players reported being “in the zone” where all of their energy and enthusiasm was focused on winning each point, one point at a time. The result was a performance so dominating that Penn State opponents frequently raised both hands and rolled their eyes in disbelief.
After an appearance in the 2000 Rose Bowl, the Stanford football program struggled with increasingly disappointing records under three different head coaches. In 2006, the team had an embarrassing win-loss record of 1-11. That same season, Jim Harbaugh coached the University of San Diego football team to an 11-1 record. Stanford took notice and successfully recruited Jim to work his magic on The Farm.
With a clear vision to secure Stanford’s first Rose Bowl win since 1972, Jim crafted a strategy to recruit and develop a winning team of coaches and players. Stanford football now emphasizes intensive strength and conditioning, a playbook based on NFL offenses and defenses, and a competitive edge of unbridled enthusiasm. Recent teams have become increasingly unpredictable on both offense and defense, as they use their finely tuned intuition to keep opponents guessing. Their focus on excellence, a disciplined game-plan execution, and an “all in” passion have resulted in improved win-loss records:
- 4-8 in 2007 (including the “biggest upset ever” in NCAA football history as a 41-point underdog that beat #1-ranked USC in the Coliseum by a score of 24-23, and a Big Game victory, 20-13),
- 5-7 in 2008 (rushing well enough that it could have easily been a 7-5 season with a bowl bid),
- 8-5 in 2009 (posting a 51-42 upset of #7-ranked Oregon, a 55-21 drubbing of USC in the Coliseum, and an impressive showing in the Sun Bowl against Oklahoma),
- 12-1 in 2010 (highlighted by 3 conference shutouts, a dominant 48-14 Big Game win, a 40-12 blowout of Virginia Tech in the Orange Bowl, and a final ranking as the #4 team in the country.After Jim left to coach the Forty Niners, Stanford wisely gave its head coach reins to David Shaw – a wide receiver from 1991-94 and disciple of his coach, the late Bill Walsh. David’s focus now is on winning the conference championship and a BCS bowl each and every year, by seizing key opportunities and managing risks.
In summary, when we face our biggest and most important decisions, a well-tuned gut feel – based on a clear focus on vision and strategy, a disciplined implementation, and a passionate commitment to success – is obviously the best way to get the most of what we want. The choices we make depend on how we trade off rewards and risks, and may very well have long-term consequences for our lives.
We should boldly seize our opportunities and carefully manage the accompanying risks. Kairos, the Greek god of opportunity, was an athletic youth with winged feet and a lock of hair falling over his forehead, but none on the back of his head. “The lock of hair on his forehead indicated that while he is easy to catch as he approaches, yet, when he has passed by, the moment of action has likewise expired, and that, if opportunity (kairos) is neglected, it cannot be recovered.”[17] Thus, both the Greeks, in Kairos, and Shakespeare, in Julius Caesar, recognize that the quintessential challenge is to seize opportunities quickly, before they disappear, and then to make the most of what we have grasped.
At Stanford, the home of champions, scholar-athletes routinely make DAMN good decisions – ones with focus, discipline, and passion – that lead to uncommon levels of success. Women’s tennis and basketball, as well as men’s volleyball and football, are just a few of the many teams on campus with outstanding opportunities for individual, conference, and national championships year after year.
——————— Bio ——————————-
Burke Robinson (BA ’71, MS ’76, PhD ’79) is a Consulting Professor in the Management Science & Engineering Department and CEO of his own management consulting firm. He is dedicated to helping everyone make better decisions all the time. He consults to senior executives and board members of leading companies around the world, and helps them with complex decisions about strategy and change in their organizations. He teaches undergraduate and graduate courses on decision making in organizations, decision analysis applications, and decision analysis projects – all with a pragmatic focus on how to improve the quality of both decision process and content. Student athletes in his courses often do papers or projects that critically analyze their own decisions about turning professional in their sport. For more information, please see his website www.burkerobinson.com.
[1] DAMN is an acronym for Decision Analysis Methods and Norms…what did you think it meant?
[2] Harvey, Jerry B. The Abilene Paradox. San Francisco: Jossey-Bass, 1996.
[3] Kennedy, David. Freedom from Fear: The American People in Depression and War, 1929-1945. New York: Oxford University Press, 1999.
[4] Shlaes, Amity. The Forgotten Man: A New History of the Great Depression. New York: HarperCollins, 2007.
[5] Gladwell, Malcolm. Blink. New York: Back Bay Books, 2007.
[6] Kahneman, Daniel; Slovic, Paul; & Tversky, Amos. Judgment under Uncertainty: Heuristics and Biases. New York: Cambridge University Press, 1982.
[7] Russo, J. Edward, and Schoemaker, Paul J.H. Decision Traps. New York: DoubledayBusiness, 1989.
[8] Janis, Irving L., and Mann, Leon. Decision Making. New York: Free Press, 1979.
[9] Harvey, op. cit.
[10] Douglas, Mary. Risk and Blame: Essays in Cultural Theory. New York: Routledge, 1994.
[11] Newell, Ben R., Wong, Kwan Yao, Cheung, Jeremy C. H. and Rakow, Tim (2008) Think, blink or sleep on it? The impact of modes of thought on complex decision making, The Quarterly Journal of Experimental Psychology, 62:4,707 — 732
[12] Celona, John, and McNamee, Peter. Decision Analysis for the Professional, 4th ed. Menlo Park: Smart Org, Inc., 2005.
[13] Celona and McNamee, op. cit.
[14] Collins, Jim, and Porras, Jerry I. Built to Last: Successful Habits of Visionary Companies. New York: HarperBusiness, 2004.
[15] Welch, Jack, and Welch, Suzy. Winning. New York: HarperBusiness, 2005.
[16] Kennedy, President John F. Special Message to the Congress on Urgent National Needs.25 May 1961.
[17] Callistratus. Descriptions 6 (translation by Fairbanks). Greek rhetorician, C4th A.D.