Labyrinth- the Art of Decision-Making Read online

  The funeral ceremonies for Maria and Lech Kaczyński were held a week later, with thousands of Poles turning out to say farewell to the couple. Numerous foreign leaders, though, failed to make it to the funeral for reasons beyond their control: Iceland’s Eyjafjallajökull volcano erupted on April 14, spewing enormous volumes of volcanic ash into the skies. Eurocontrol, the intergovernmental agency created in 1960 to manage air traffic in Europe, made an instantaneous and sensible decision: as there had never been a comparable eruption, it was impossible to assess the scale of the problem or level of risk, and so it ordered that flights across the continent be suspended as of April 15. Travel to and from Europe halted immediately. In the days that followed, a total of 104,000 flights, which would have carried some 10 million passengers, were canceled due to the flight disruptions. Of the passengers affected, hundreds of thousands were stranded at airports with no idea how long the crisis would last. Some tried to look for alternative means of transport, borrowing cars or fighting for train tickets; others camped out in the airport terminals in the hope of flights suddenly recommencing. Eurocontrol, however, offered no crumbs of optimism, especially as a computer simulation conducted by experts had confirmed the agency’s belief that any attempt at flying would end in tragedy. The flight ban remained in place for eight days, and it was April 23 before the first planes were allowed to taxi out onto runways. Not long after, Eurocontrol was accused of having taken draconian measures and overestimating the real level of risk. The main argument leveled against Eurocontrol was that several airlines (including Lufthansa, KLM, and Air France) had conducted more than twenty test flights along the ash-filled air corridors in the real world, not a simulated one. The planes flew with only skeleton crews and, of course, no passengers. Not a single irregularity in the functioning of the craft was observed during any of these flights, and all the aircraft landed safely. Final estimates put the cost of the ban to carriers at around $1.7 billion.

  No one knew it at the time, of course, but much more would be lost as a result of the Daimler-Benz and Chrysler merger. On May 7, 1998, everything looked rosy. That day, a press conference was held, with the CEOs of each company, Robert J. Eaton and Jürgen E. Schrempp, basking in the glow of the cameras as they announced a “merger of equals.” And so the world’s third-largest car maker was created, with annual earnings of over $150 billion. Automotive industry analysts were ecstatic, stressing the excellent synergy between the two organizations. For Chrysler, the deal provided the opportunity to break into the European market; for Daimler, renowned for its Mercedes limousines, it meant broadening its range to include the minivans, off-roaders, and pickups that its US partner, the owner of brands such as Dodge and Jeep, was famed for. Both firms would make massive savings by integrating their purchasing operations as well as research and development. Costs were projected to fall by $1.7 billion within twelve months of the merger, and by $3 billion annually after seven years. Few eyebrows were raised, therefore, when one of the oldest and most influential magazines in the sector, Automotive Industries (AI), published in the USA since 1895, called it the “deal of the century.” For Daimler, which paid the dizzying sum of $36 billion for Chrysler, it was definitely the expenditure of the century. It was also a move that ended in tears for both firms.

  All the events described above occurred in totally unrelated worlds, but they share a common denominator: mistakes that were made during the decision-making process. The road to each unfortunate event was paved with the good intentions of those responsible, all of whom had significant experience and numerous past successes to their credit. Their errors can be traced to a combination of numerous interrelated reasons: relying on past successes, ignoring significant information, conducting superficial analysis, yielding to outside pressure, putting too much faith in luck, or misinterpreting important data, for example.

  All of the errors could have been avoided.

  The book that you are holding in your hands will challenge your current beliefs about decision-making and possibly change some of them forever. In this single volume I attempt to examine the most prevalent weak spots in decision-making processes, not only in business but in life in general; during crises and in calmer times; in both individual and group decisions. I try to answer the question of how to make decisions that are simultaneously rational, effective, and wise.

  Chapter 1 contains a description of some of the startling changes that have occurred in the last couple of decades, as well as their influence on decision-making. The technological and information revolution taking place before our eyes, the new trends in consumer behavior, backed by the boom in social media, crowdsourcing mechanisms, open innovation, and the sharing economy, as well as ongoing globalization, have radically altered the factors behind success. Previously tried and trusted methods often fail nowadays, leading even competent, experienced people into spectacular failure. Chapters 2 and 3 are devoted to this paradox and analyze the traps set by our own minds, which are conditioned to accommodate somewhat different realities than those presented in our dynamically changing world. In these chapters I also examine a highly dangerous paradox in which today’s success sows the seeds of tomorrow’s failure. Chapter 4 looks at decision-making as a process, discussing three modes we can apply to it. A deeper understanding of these three approaches is essential for perfecting the way we make choices. This is the subject of Chapter 5—enriching the story with improvement tools developed in operational management. Chapters 6 and 7 look at the Kaizen approach to decision-making in the context of organizational culture, developing a truly fascinating perspective: the one on the role of leaders. Chapter 8 focuses on the world of neuroscience and social psychology and on the power of emotion and illusion, all of which affect even the greatest leaders and decision-makers. I also discuss some practical tools that can offer at least a degree of protection from these traps. The final chapter romps into the future, outlining the most important trends that are likely to shape decision-making in the years to come.

  This is not a theoretical work. I drew on my first-hand experience of numerous case studies that I have encountered in over twenty years of working as a CEO, a business consultant, collaborating with Harvard Business Review Polska, and leading coaching projects, training sessions, or workshops for company owners and senior managers. I learned from the world’s foremost thought leaders, as in 2016, I was selected to join the first cohort of the 100 Coaches project, launched by Dr. Marshall Goldsmith. I also drew on source materials documenting the events I reference in which the decision-making process had played a central role—either positively or negatively. In doing so, I discovered that it is not only the business world that can teach us how to make good decisions (although there’s no shortage of such cases); interesting lessons can also be learned from such disparate worlds as high-altitude mountaineering, space travel, military operations, and... organized crime syndicates. I hope that this tour of decision-making in very different realities will be both inspirational and practical.

  Thanking everyone without whom this work would never have been created is my mission impossible. Everyone around me, in both a professional and personal capacity, has contributed in some way to this book. I would like to thank them all.

  1

  Koyaanisqatsi

  One of the most colorful, yet little-known figures in world cinema is director Godfrey Reggio. Born in 1940, he has had a varied life, to say the least. At age fourteen he became a monk in an enclosed monastery. When he left the monastery twelve years later, he became involved with various community organizations in New Mexico, where his work ranged from helping disaffected youths in street gangs to promoting civil liberties. He drew on his experiences and what he’d learned from them when he moved into movies, and, in 1982, he directed Koyaanisqatsi, an experimental film lauded for its innovative use of images and music to highlight the clash between the urban and natural worlds.

  “Koyaanisqatsi” is a Hopi word that tra
nslates as “life out of balance.” The word is more than just an ideal title for Godfrey Reggio’s work, it also sums up the reality of modern life. We really do live in a world where everything is out of whack and everything we thought we knew is being called into question.

  Alvin Toffler’s third wave phenomenon was like a powerful uppercut, albeit delivered in a velvet glove. Most of us probably regard the current ongoing technological changes and accompanying information and communications revolutions as progressing gradually. We might feel that although we’re living faster than ever before, evolution is still progressing in a linear, predictable fashion. However, a mere glance at a handful of figures is enough to confirm that a large proportion of the processes we’re living through are happening violently and exponentially. Take, for example, Moore’s Law, which states that the economically viable number of transistors in a dense integrated circuit will double approximately every eighteen months (and thus will grow exponentially and not linearly). A similar phenomenon is occurring with the volume of information surrounding us. Between the dawn of history and the end of 2003, humanity generated a total of 5 exabytes of data (5 × 1,018 bytes). While that figure might seem dizzying, it doesn’t compare with the fact that in 2012 we generated that same 5 exabytes of information... in barely forty-eight hours. While seemingly incredible, the phenomenon is fairly easy to explain. The dramatic increase is down to the three major revolutions taking place before our very eyes: technological (enabling us to gather, store, and process ever-greater quantities of data), social media (creating new communications platforms and multiplying the amount of information available), and mobile (guaranteeing access to the other two revolutions from practically anywhere on the planet, 24/7). The result? According to various estimates, the digital world today contains from 2.7 to 4.4 zettabytes of data. Facebook alone is used by over 2 billion people (of whom half access it exclusively via mobile devices), bombarding our senses by generating fresh information every millisecond. In 2017, it was estimated that 50 percent of the world’s population had Internet access, a previously unimaginable figure; and it is widely expected that by 2024–25, it will be 100 percent. This apparent gift to humanity has a darker side, though: it’s getting harder and harder to sift out the relevant information needed to make a decision from all the back-ground noise.

  It also means that the information world is awash with black swan events—unpleasant surprises and events that we cannot predict from prior experience. The black swan theory was the creation of Nassim Nicholas Taleb, who expanded on it in his book, The Black Swan: The Impact of the Highly Improbable, in which he draws on a true story from many years ago that created shock waves through the ornithological community. Ornithologists had long believed that swans had only white feathers. In the world of birds, this was really quite an anomaly, and it attracted considerable interest from scientists. Much research was conducted, academic articles and reports were written, and the phenomenon of white swans was increasingly better documented and explained, until one day... a black swan was spotted in Australia. The astonished ornithologists couldn’t believe it. In a fraction of a second, all the knowledge amassed about the color of swans’ feathers, all the concepts and explanations developed through thousands of hours of work were relegated to the garbage pile.

  The crazy new reality surrounding us is replete with just such “black swans,” events that take us totally by surprise and for which we were not only unprepared but also unable to prepare. A classic example of a black swan is the attack on the World Trade Center in New York, carried out by al-Qaeda in 2001. Had this been a business transaction, it would have been lauded as a breakthrough innovation, as no other terrorist organization had ever launched—or, as far as we know, even considered—such an attack. There’s no disputing that it took the North American Aerospace Defense Command (NORAD) totally by surprise. They had been perfectly well-prepared for any conventional air-to-land attack, and had also prepared and practiced procedures for how to behave in the event of a passenger plane hijacking over US territory. They hadn’t predicted, though, that a hijacked plane could be used as a weapon to carry out an air-to-land attack with both terrorists and passengers still on board. In the face of just such a black swan, NORAD was helpless. Its commanders were not only unable to decide whether or not to shoot the hijacked planes down, they couldn’t even decide who had the authority to make such a decision. For over ninety minutes virtually no effective action was taken.

  It has been noted that black swans like this, events that challenge our hitherto adequate knowledge and solutions, are on the increase. One reason for this is the information overload (and the associated ever-increasing risk of our missing vital information) noted above; another is globalization. We are more connected than ever, literally and figuratively. A disruptive event in one place can cause problems in another place entirely.

  In March 2011, a powerful earthquake in Japan generated a tsunami and caused the deaths of more than fifteen thousand people. In addition to the human toll, there was an economic one, one that extended beyond Japan: global car production was impacted. In many cases, this came as a complete surprise. How could a natural disaster in one corner of the world affect people on the other side of the world? It turns out that, in the era of globalization and extended supply chains, the concept of “other side of the world” has changed. On March 11, 2011, it wasn’t only Japan’s auto sector that was shaken—the entire auto sector suffered from the aftershocks. With hindsight, it’s not quite so surprising: 60 percent of the world market for motor vehicle airflow sensors was held by Hitachi, and its Japanese plants had to severely limit production. Leading car producers, battling to increase efficiency over many years, had enthusiastically adopted the Japanese just-in-time inventory management system. This allowed them to maintain the lowest-possible stock levels—but it also narrowed their safety margins. Due to the multitude of components and co-producers involved, they couldn’t build alternative supply chains, especially as in some cases suppliers’ suppliers were affected. One prime example of this concerned the pigment Xirallic, produced by the German company Merck K GaA, which is a crucial component in the metallic paints used on many automobiles. The tsunami destroyed a factory belonging to the company in Onahama, which led to a break in the supply chain of one of the ingredients of the pigment. Barely two weeks later, car producers around the world were facing a serious problem: they couldn’t deliver cars in the most popular colors to their customers. And so a black swan emerged: in this case, a seemingly geographically remote event that suddenly disrupted the functioning of businesses around the world.

  However, black swans can also be a positive force, especially when we create them deliberately, as with disruptive innovation. Where there’s a loser, there’s also a winner somewhere. Every breakthrough innovation that takes a rival unawares gives the innovator the upper hand.

  Toward the end of the twentieth century, Google demolished its rivals when it introduced the PageRank algorithm developed by Larry Page and Sergey Brin. PageRank was a breakthrough in indexing and ranking search results; in a departure from the prevailing use of keywords, it used the number and quality of links to a given page in its algorithm. This mechanism gave higher-quality and more accurate search results, which Google’s rivals simply couldn’t match. In a little over a year, the world of Internet search engines was turned on its head. The former market leader—AltaVista—began to dramatically lose market share, and second-placed Yahoo! fared little better. Google’s search engine became stronger and stronger, and Google consequently became one of the biggest companies in the world.

  Black swans can appear in any of five areas.

  The rarest are those with a worldwide influence, although global crises, technological breakthroughs, and catastrophic events (such as pandemics) do occasionally surprise us. Global black swans affect everyone, or almost everyone, both directly and indirectly, regardless of sex, age, location, education, race, sexual orient
ation, or business sector. An example of a global black swan could be the financial crisis of 2008, the scale of which no one foresaw, and which affected almost every single country and the entire business world.

  Next, we have sectoral black swans, which affect only a certain group of people or companies. An obvious example of this would be the imposition of new rules by an industry regulator. This type of sectoral swan can be illustrated nicely by the sudden, and wholly unexpected, ban on taking more than 3.4 ounces of fluids on board a plane. This exclusively affected airline passengers, and in particular those who didn’t read about the change in the rules and didn’t adapt their packing accordingly. Being sectoral, of course, doesn’t diminish the level of pain inflicted by a black swan. With deep regret and sadness, I bade farewell to a bottle of excellent wine at Frankfurt Airport, which I’d placed in my hand baggage only a day before the ban came into effect.