“Checking the results of a decision against its expectations shows executives what their strengths are, where they need to improve, and where they lack knowledge or information.”
-----Peter Drucker
What are the results of your decisions? Regardless of the size of your business, or if you’re self-employed, you want to make wise decisions. In fact, your success depends on it.
Today’s pressures on businesses are great. In a recent interview published on HRTools.com, I discussed how knowledge management can help a business grow and gain a competitive advantage. In this Insight, I will introduce a complementary topic “decision theory,” which is important to employers whose growth and dollars are on the line.
If you haven’t yet read the knowledge management interview, you may wonder: How can it help my business compete? The answer lies partly in the value of sharing time-sensitive knowledge. Time is a valuable resource for any business. Knowledge management provides real-time information and automatically streamlines routine decisions; which, in turn, allows business executives time to focus on the uncertainties and manage inevitable changes. Ultimately what we’re talking about is managing uncertainties and risk, or at least effectively preparing for the unexpected.
Given that foundation, how should you proceed? The answer to that question can be found by learning more about decision theory. Decision theory is designed to help individuals make decisions that result in more successful outcomes.
Business leaders, executives and managers are in the business of making decisions every single day. As it takes considerable discipline to prepare for business or economic uncertainties, I think you will find that decision theory serves as a valuable tool. When decision theory is implemented with a sound knowledge-management action plan, you have two essential tools that can help you stay in the game and win.
So what is decision theory and how does it help business decision-makers?
As a tool, decision theory is primarily focused on helping people understand the following:
- the types of decision-making situations that they face;
- the possible outcomes of their decisions and
- the types of contingencies or situations that may arise—which will impact the outcome of their decisions.
So decision theory is essentially a mental model for helping people understand experiences acquired in the real business world. These experiences can then be “grounded,” so they can be converted and resourced when needed. In addition, there is “visualizing,” which is an approach for helping you picture outcomes to complex problems. Used as aids, grounding and visualizing allow you to communicate experiences to other people, because we are interested in what works and what does not.
What can be done about those customer waiting lines?
Decision theory is a tool that can also be used to understand principles for managing social designs, such as customer or patron arrival patterns and “queuing theory”—or the study of waiting lines.
For example, let’s say you own a restaurant. Patrons tend to come in waves and during certain times of the day. They do not arrive at exactly the same times of the day, and they generally come during certain time periods of the day. For instance, you may have a wave of people coming in between 5 p.m. and 7 p.m. and then it drops off. This knowledge helps you understand how to make staffing decisions: “OK, given this distribution, this is how I should staff the restaurant.”
Today organizations must be flexible in responding to customer and market demands. Not only that, competitive forces are underscoring the need for extraordinary decision-making abilities. Therefore, as I see it, a successful business owner’s toolkit should include two essentials: (1) knowledge management; and (2) an awareness of decision theory.
In future HRTools.com Insights, I will continue reviewing decision theory and how it applies to the business decision-maker’s world.