Overcoming Analog Habits. Part 2: Moving beyond intuition in decision making

Although they shouldn’t be, information based decisions can be harder to accept than intuition or “experience” driven decisions (another of the analog habits that are hard for us to break).

In the fairly recent past, I worked as a part of the leadership team at a company that was built and run almost entirely on the intuition and instincts of the small group of founders. There was plenty of raw data and a good deal of relevant information around too, but when it came to the critical decisions around strategy, key customer relationships and managing enterprise risk, what the information told us generally took second place to the gut feelings of the core of senior leadership. Given that this approach had built a highly profitable public Fortune 1000 company from scratch in less than a decade, it was hard to argue with the approach – at least for as long as the founders were around, active and making effective decisions.

However, as the business continued to grow it was clearly going to be harder, and eventually impossible, for every key decision to be vetted by the core set of “intuitions” that had driven previous success. It was also increasingly difficult to keep regulators and the market (in the form of financial and industry analysts) happy that the business was being run on a sound footing. Even some of the largest customers began to question the seemingly ad hoc approach to using comprehensive, accurate and up to date business information to manage customer relationships.

Things came to a head when it was time for some of the founders to step aside. New management wanted information-based decisions, not gut feelings – which triggered a cultural upheaval in large part because the founders had generally hired people who operated pretty much the same way they did – on intuition and instinct. Even when they trusted the data, they often preferred not to use it.

As it turns out, I’d seen situations like this before.

Humans generally have good intuition about things that are similar to what they encounter every day and are able to make “instinctive” decisions that are generally correct. They have poor intuition about things that are unfamiliar and outside of their everyday experience and very poor intuition about things that are totally alien to everyone – things outside of all human experience. This is especially true when dealing with scale effects (very large or very small numbers for example), complexity or non-linear processes (such a riots or bank runs or “flash mobs”).

Even in business there have been examples where information guided intuition in meaningful ways. The “Information based strategy” (IBS) approach adopted by the Capital One Financial founders in the late 1980s is one of the best known. Other information (or at least data) based strategic approaches were adopted by companies such as GE (under Jack Welch) and it can be argued that many of the data-focused management tools of the past 50 years have been attempts to take the intuition and instinct out of routine business management processes and replace them with “facts”.

Of course, information-based approaches depend on access to comprehensive, accurate and up to date information that is actually relevant to the decisions being made. Both too little and too much information often derails these approaches, forcing executives and managers back to using intuition and instincts that may not have been well honed for the task.

So what should we be doing? What place does intuition play in a world awash in “big data” and ever more powerful “analytics” tools?

As is often the case, the best answer seems to be in striking an appropriate (if difficult and dynamic) balance. Just as our intuition is less than perfect, so in general is our information less than complete. We should certainly ask “what does the data tell us?” before forming a hypothesis or making a decision, but there will be instances where what the data tells us is ambiguous or confusing. That’s where reasoned judgement, experience and if necessary intuition step in. Using information (remember that it needs to be as complete as possible, accurate and up to date – none of which come free) to enhance and support our intuition should be the objective of every modern business.

The old adage that “you are entitled to your own opinion but not your own facts” applies even today. But with the right facts to back you up, your opinions are likely to be much more valuable.