Managers Should Rethink Rational Decision-Making | Michael Ballé | McGrawHill BusinessBlog

Michel Baudin‘s comments: The title of the article appears to promote irrational decision making, which should be a hard sell. Michael Ballé seems to know what a goldfish is aware of, and I wonder how. According to Etymology OnLine, “rationality” actually is a 17th-century French word and, to this day, means the quality of being based on reason, not of being “aligned with a goal.” The German connection, perhaps, is Max Weber who described goal alignment as one of two subcategories of rationality in social behaviors (“Zweckrationalität”) in Economy and Society, a book published in 1922, after his death — that is, in the 20th century, not the 19th.

If you are a Lean expert, no one expects you to discuss German philosophy. If, however, you choose to go there, it helps if you start with a paragraph that withstands a 5-min fact check on Google. For an analysis of management decision making, I prefer to start with what Kaoru Ishikawa said in his book on TQC.

Ishikawa’s summary of decision making by managers as he had observed it was “KKD,” which stood for:

• Keiken (経験), or experience, as in “We’ve always done it this way” or “We go by what we did before.”
• Kan (感), feeling or intuition, as in “I can’t tell you why it’s the right decision, I just know it is.”
• Dokyo (度胸), courage or guts, as in “A leader must decide quickly. You play to win.”

He contrasted this with his recommendation to base decisions on data and statistical analysis. I said “start with” because entirely disregarding experience, intuition, and guts is neither realistic nor wise. You can’t get human beings to do it and, even if you did, it is doubtful that you would make better decisions. What you can do is use experience and intuition to formulate hypotheses or theories and analyze data to refute or support them. Then, knowing the imperfections of all three stages of this process, it still takes guts to make a decision.

Also, statistical analysis, as I believe Ishikawa meant it, is too restrictive. The classical methods used in quality control are all centered on learning characteristics of populations from measurements about their members. They can tell you that a process is drifting from measurements on workpieces leaving it, but they won’t guide you in finding the root cause of one failure.

The classical methods can tell you the average number of needles per haystack and where it’s trending, but not how to find a specific needle in a specific haystack. This is a search problem which, since World War II, has been approached as a separate application of probability theory, not taught in statistics courses. It starts with prior knowledge, including any theory you might have learned, your experience of previous, similar situations that you remember explicitly, and responses that have become conditioned reflexes and that are what we mean by intuition.

When troubleshooting an electronic device, you don’t need data analysis to tell you to first check whether it is plugged in or has an empty battery. It’s the most common cause, it’s easy to check and fix. In search, you use prior knowledge to assign probabilities that the needle is in various sections of the haystack. Then you have different methods to find it that vary in time required, cost, and effectiveness, defined as the probability of finding the needle in a section if it is there. You can visually inspect the outside of the haystack, use a metal detector, take apart a section and sift through the hay, or you can burn the section. As you proceed through your search, you update the probabilities based on what you learn and adjust your methods. It works for finding wrecks on the ocean floor, diagnosing diseases, and finding the causes of failure in defective units in manufacturing.

Ishikawa’s discussion is strictly in terms of effectiveness in solving problems. Weber considered, more generally, what he called “social actions,” which goes beyond problem-solving. His other types of rationality, consistency with values or ethics (“Wertrationalitāt”) refrains you from, say, stealing to achieve a goal, even when it might the most expeditious way to do it. It comes into play when you fit today’s action within the context of many more actions to come.

Weber also identifies two other drivers of behavior but does not call them rational:

• Emotional affect on the decision maker (”

  Affektuelles Handeln“).  A decision can be effective in reaching a goal, ethically justifiable, and yet have consequences that are unbearable for the decision maker. Such a situation is eloquently depicted in the 2015 movie Eye in the Sky.

• Consistency with habits or tradition (“Traditionales Handeln”). A course of action can be effective, ethical and free of unbearable side effects, yet not be followed because it is so inconsistent with tradition that the leader fears a mutiny when attempting it.