The Price of Intuitive Decision Making

By Kim Palacios

Some of the toughest executives to advise are those who describe themselves as intuitive decision makers, executives who attribute their career success to good instincts.  While instincts should play some role in decision making, so also should data.  In the absence of relevant metrics, it is nearly impossible to replicate the formula for great results and isolate (and avoid) decisions that lead to failure.

Intuitive decision makers rarely have trouble making plans—the trouble comes with sticking to them.  The train goes off the rails when, early on, the decision maker changes course in such a way that impedes the measurability of the original tactic.  The decision maker may defend this plan revision on the grounds that the second tactic also moves the enterprise toward the goal.  Yet, even if the second tactic ultimately achieves the goal, it still robs the enterprise of something important:  defensible lessons learned.

Suppose that a marketing executive at an in-store DVD kiosk company has $30k to spend on growing its user base in a given quarter and plans to spend the entire budget on radio advertising.  Now, suppose that one month into the quarter, the executive decides to scale down the radio campaign and invest half of the remaining budget on radio and the other half on television.  By the end of the quarter, the executive will have spent $20k on a three-month radio campaign and $10k on a 2-month television campaign.  Suppose that the first month sees 1,000 new users, the second month sees 1,500 new users, and the third month sees 750 new users.

Based on these results, how much should the executive spend in the subsequent quarter on advertising, and on what medium?  The answer isn’t clear.  By diverting from the plan before an isolated action could be correlated to specific results, the executive has no way of knowing what will be most effective in the future.  The results are also ambiguous enough to make it unclear as to whether the intuition to shift dollars to television was correct.

This has real business implications.  Companies are most successful when they understand their business drivers and can pull well-understood levers to cultivate specific results.  By making it more difficult to predict business performance as related to management decisions, businesses place more dollars at risk.  It also does not bode well for investors and Boards of Directors, particularly when business results are poor.  An executive is more likely to keep his job and be viewed as effective if he can prove he made justifiable, data-supported decisions, even if those decisions led to poor results.

So, what rules should intuitive decision makers follow?  The goal isn’t to ignore business instincts.  Again, these are important and do have an important role to play in business success if they are called-upon at the right time.  Business strategies and tactics should be tested as follows:

  1. Develop a goal-oriented plan
  2. Think through a sensible way to measure results
  3. Work the plan long enough to gather data-supported facts that justify future decisions
  4. Abandon what you can prove is not working
  5. Do more of what you can prove is working
  6. Let your instincts come into play only when it is truly the right time to try new things that might also help you reach your business goals
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