Deciding between the devil and the deep blue sea

Author Neil Francis Published 15 October 2009

How do leaders make good decisions and flourish in the global financial crisis? Fenzl and Brudermann (2009) point out in their recently published study of decision making that in the current economic climate enterprises are faced with greater uncertainty than ever before. In this climate, leaders are faced with more frequent decision making about the devil (regulation and conformity) which takes time and focus away from the deep blue sea (innovation and playing by new rules for competitive advantage).

Kim and Mauborgne (2005) call the deep blue sea ‘blue ocean strategy,’ in which the enterprise uses value innovation to create a new ‘industry’ or rules for playing the game. This is in contrast to the risky business of playing in cluttered and intensely competitive existing 'cutthroat' industries – red oceans. [1] So, sticking to the devil you know won’t necessarily lead to prosperity or even survival.

Cemex, a Mexican concrete business, like everyone else in its industry sold its product by the cubic yard as a commodity (McGrath and MacMillan, 2005). When Lorenzo Zambrano came on board as CEO, he decided to change the internal perspective to one that customers actually valued: delivery when it was needed. Cemex modified its operations and unit of billing from cubic yards to flexible delivery within hours and sometimes minutes, accepting repeated changes to orders and helping customers anticipate their demand and cashflow. It grew from a small regional operation to the world’s third largest supplier of ready-mix concrete in an intensely competitive environment.

Why don’t leaders in more enterprises make better decisions like these? Geoff Officer, Managing Director of The Donington Group and who appears in the Leaders as Decision Makers course videos, says that managers and leaders usually cut their teeth in one climate or other – in an economic downturn or in times of strong growth – and when the climate changes become challenged and ineffective because they fail to adapt their decision-making styles and approaches.

So why do so many decision-makers fail to adapt? In their study of the influence of a group setting on decision making under risk and uncertainty, Fenzl and Bruderman made a number of highly relevant findings:

• Most people avoid situations of uncertainty where there is a paucity of facts or experience, whether their own or other people’s
• Most people have a tendency to preserve habits, plump for consistency and follow the status quo in unknown or untested situations, and avoid developing new behaviours (This confirms again the framing trap discussed in Leaders as Decision Makers in which decision makers routinely favour an option with a certain negative outcome over a decision which may have a strong positive outcome … or a larger potential negative outcome.)
• Anchoring – the first information or opinion brought to bear in the decision opportunity – is very influential in the option finally chosen. (This confirms again the anchoring trap discussed in Leaders as Decision Makers.)
• Psychological contagion of risk avoidance is also influential, such that fears of uncertainty and risk among any group decision makers quickly spreads to others.
• A quite small minority of people trust their own abilities in flexible thinking and subjective appraisal of known versus uncertain risks, therefore opting for uncertainty and seizing new opportunities. These people are entrepreneurs.

These findings make clear why courageous decision making is rare. Given increasingly litigious shareholders, is it any wonder that many supposed leaders are now becoming even more compliance oriented than before, leaving far less time to consider innovation and growth? Compliance-dominated decision making is likely in the longer term to put them at the mercy of competitors that have more entrepreneurial decision makers in the driver’s seat.

How will you ensure your own decisions are sound and valuable with an appropriate degree of risk, contributing to organisational prosperity? Find out in Leaders as Decision Makers.

References

Fenzl, T & Brudermann, T (2009) 'Risk behavior in decision-making in a multi-person-setting', The Journal of Socio-Economics, vol. 38, no. 5, pp. 752–56.

Kim, WC & Mauborgne, R (2005) Blue ocean strategy: How to Create Uncontested Market Space and make the Competition Irrelevant, Harvard Business School Press, Boston.

McGrath, RG & MacMillan, IC (2005) 'Market busting strategies for exceptional business growth', Harvard Business Review, vol. 83, no. 3, pp. 80–89.

[1] While the blue ocean strategy model has appealing elements, of itself it is not a sound exclusive framework for decision making. The authors did not use a control group in their analysis of performance; they did not report or analyse any businesses that used blue ocean strategy and failed; and despite back-analysed stellar cases there are no proactive cases yet reported despite ten years of publications on the model. Therefore, the model fails the empirical falsifiability test.