Monday, October 31, 2011

When can you trust your gut?

When can you trust your gut?

Nobel laureate Daniel Kahneman and psychologist Gary Klein debate the power and perils of intuition for senior executives.

In this week’s reading: The real Value of Strategic Planning, there is one comment by Henry Mintzberg who noted that real strategy is made informally [1]. This is a very interesting statement and made me think of my summer internship experience in Bayer-Medrad when observing the senior executives decision making and strategy formulating process. I also read an article [2] about strategic decision styles different executive may have, which contain many interesting statements.

During my summer internship, I fortunately have a lot of chance in working with VP of emerging market development. My work function there is international marketing and I remembered my first question raised in front of him is: “What do you think is the most important quality for a good marketer?” His answer is very easy: “Vision! You need to have a sense of the market trend, sometimes just by guessing but gut feelings from good marketers turn out to be accurate.” Later through several communications with him, I got to know the real meaning of the vision he mentioned. It is a long process of experience, information gathering, discussion with people, deep insights into the industry that form good vision, ie, intuition that can quickly help you come up with strategic ideas under time pressure. I also observed the way of his decision making process when our company decided to launch new product in APAC region and need to decide the market prioritization. At the first meeting, he lay out the strategy very quickly without too much previous research into the specific market situation. He said his gut feeling told him that we should launch product xx in xx market first very confidently. However, during the following one month after the meeting, he kept talking with people during lunch, in the hallway to gather suggestions and opinions, validating his gut feelings in different ways. He even talked with me, an intern student very openly, taking my opinions into his consideration. At the end of my internship, we had another meeting for the formal strategic planning of the new product launch and our final decision is actually his gut feeling at the first meeting, but this time, with more persuasive information and support.

I found this article: “Strategic decision: when can you trust your gut?” from McKinsey Quarterly. This article is about the interviews with two scholars: Daniel kahneman & Gary Klein representing different schools of thought but found some common ground in the perspective of strategic decision from intuitive choices.

During their interviews, they expressed their opinions towards under what condition should corporate leaders use their intuition, whether intuition is more reliable under uncertain condition, problem of overconfidence, pre-mortem techniques, checklists, intervention that aims to eliminate bias etc and they also make their final remarks by providing their suggestion to make good decisions. I would like to point out several statements that I like best in this article.

· Every situation has a certain structure, a basis that allows for the born of intuition. Intuition is not coming from nowhere, instead, it is based on the past experience and future feedback. Whether decision makers have chance to get feedback will decide whether they can strengthen their intuition and gain expertise.

· There is a contradiction in selecting leaders. People expect leaders to be “John Wayne” type, ie, making good decision, acting upon emergency quickly and people associate leaders with decisiveness. However, there is a cost of this perception: People are selected for overconfidence and leaders are pushed to make bold but unstructured decision. They misunderstand intuition.

· The two scholars both provide suggestions in improving quality of meetings and they both mentioned the importance of meetings. Allowing for challenges, sharing information and opinions, promoting curiosity etc. should be highly cherished in high quality meetings.

This article is quite interesting to me because the two scholars analyzed the intuition in many different angles and raised their different opinions toward similar problems. As I can see from many news and articles, nowadays, making intuitional decision and informative strategic planning are more and more attached importance to. However, corporate leaders may have misunderstanding towards such concepts. This article investigates very deeply into this issue and is really provoking. Hopefully corporate leaders will think over these insights and use them to grow.

After reading this article, I start to think of the following questions:

· If informative strategic planning is important and intuition should be valued, why so many corporations go out for help from big strategy consulting firm like BCG, McKinsey for their suggestions? Is strategic consulting really necessary?

· Under what condition will strategic consulting firm help the corporation most?

· For the use of pre-mortem, based on my experience, I think it is so hard under complex strategic decision situation to predict what factors carry what kind of weight in the strategy implementation. It’s so hard to know beforehand what obstacles will happen. Is there a systemic way to balance different risk factors?

· Corporate leaders tend to have their “gut feeling” first and have it validated. Is it possible that the past experience as well as the overconfidence of corporate leaders does not allow this validation process, ie, people will look for data based on these “gut feelings”?

Source:

[1] The real value of strategic planning- From reading material

[2]Strategic decisions: When can you trust your gut?

https://www.mckinseyquarterly.com/Strategy/Strategic_Thinking/Strategic_decisions_When_can_you_trust_your_gut_2557#

Saturday, October 29, 2011

Playing war games to win

They can be a powerful business tool—but only if you get the design right.

The article “Playing war games to win” was published in the McKinsey Quarterly of March 2011. I chose this article because it relates to first week’s class as it shows “war stuff” is still used in connection to strategizing, and it shows an approach to develop strategies for companies. It is also relevant for the topics discussed in week 2, since gaming might be a way to improve strategic planning. I find this article especially interesting because I’m doing a master at Delft University of Technology in the Netherlands that specializes on modeling, simulation, and gaming.

The article starts with an example of a company that used war games to prepare for the uncertainties of the post-crisis landscape. In this case, the use of war games was very successful as it led to many insights that the company could use in their strategy to prevent a decrease its market share. However, many companies do not learn a lot from war games because they misjudge the suitability of the games, they use the wrong participants, or they use standardized game design software which is often not appropriate for their situation.

To improve the use of war games in strategy development, companies should ask themselves four questions:

1. Can a war game help with our problem?
2. What kind of game should we play?
3. Who will design and play the game?
4. How often should we play?

The answer to the first question is, in short, that if analysis will not provide the right answers, gaming can be used to get an insight on the range of possibilities that executives should consider. Industry environments where two or three outcomes seem plausible along each of several dimensions are most suitable. Also, there must be competitive dynamics between the company and stakeholders, and it must be possible to represent stakeholders in a real way.

The second question was answered by stating that the kind of game that should be played depends on the purpose of the game. If a more tactical question is posed like “Should we raise prices 5 percent or not”, then a tactical game should be used in which different game rounds are run. If a more strategic question is posed like “How can we increase market share”, then the outcome will not be a tactical list of things to do, but it will be a guidance on what the company’s direction should be etc.

The answer to the third question, again, depends on whether it is a tactical or a strategic game. Tactical games are more straightforward, the design of a strategic game is more complex; a tactical game needs fewer participants than a strategic game.


The answer to the fourth question is that mostly games are played just once, since it is often pointless to run the same game multiple times; the same uncertainties will be tested with the same participants. However, it is beneficial to replay the game with new participants, or when conditions are changing. Replaying the game with the same participants and the same conditions may only be useful when a group has to practice for an upcoming event, like a negotiation with a client.

In short, the article states that using war games can be a powerful learning experience that can increase the quality of decision making if executives ask themselves the previous four questions.

This article is interesting as it introduces a way to increase the quality of strategy development which is not used very often. However, even though the question “Who will design the game” is posed in the article, the question isn’t really answered. Neither does the article pose the question of how to design games. Since more and more companies originate that actually only focus on developing serious games, I think the use of serious games in companies may increase dramatically in the following years, but it may also be possible that companies will not see the value in using serious games. That is why I’m interested in the following questions:

How soon will serious games be used to develop strategies in a large number of companies? Will using serious games become a standard way of increasing the quality of strategy development in companies?

Source:
Horn, J. (2011). Playing war games to win. Retrieved from:
https://www.mckinseyquarterly.com/Strategy/Strategy_in_Practice/Playing_war_games_to_win_2757