“You have to know what kind of decision you’re making in order to make it well.”

The past few decades have generated a treasure trove of research on decision-making. However, business leaders seem to be impervious to the lessons they teach. Neither are they in denial about their propensity for error, nor are they indisposed to making sound decisions. It emerges that all advancements in our understanding of decision-making have not really been matched by improvements in practice. Essentially, the most difficult business decisions, strategic decisions directly linked with organizational performance, call for a unique, perhaps a totally different approach.

From making a choice of one’s preferred brand in an entire aisle of breakfast cereals in a supermarket, to finalizing which college to attend at the end of high school, to which stock to buy over others all call for critical decision-making. In reality, people are required to make up their minds in diverse situations and in a variety of circumstances of varying magnitudes of importance – and the same word ‘decision’ is used to describe them all. Yet again, when an organization faces an opportunity – entering a new market, launching a new product, closing down a service, acquiring another firm – a ‘decision’ is required of its management. Thus the same term is applied mindlessly to routine affairs and complex deliberations, small- stake bets as well as high-stakes enterprises, minor exploratory moves and irreversible ventures. The danger lies in that the insights gained from one kind of circumstance might not shed much light on decisions in another, while the findings accrued from one decision- making may be misleading in case of others.

Primarily, decisions vary along two dimensions – the first considers whether the decision- maker can influence the terms and the outcome, while the second addresses whether the aim is to do well or to do better than the others. The first raises the question if we are choosing among options, if we can shape those options and whether we have some control over those options once a decision is taken and things play out. The second asks, is performance absolute or relative? There are other questions that beg for answers – whether a decision is made by a person as an individual or in the capacity of a leader, if it is one-off or part of a sequence, with possibilities of rectifying or improving the next. To get our act right, it is crucial to recognize the various types of ‘decision-making’ – ranging from where we have no control over outcomes, we aren’t competing with anyone, our performance is absolute (such as consumer choices and personal investment decisions) to where we can influence outcomes and need to outperform rivals (usually various strategic decisions that are challenging for managers). If control and performance be the operative words, then combining them we arrive at four critical fields of decisions along with where they apply:

1. Making routine choices and judgements: When we pick products from the shelves of astore, we have no ability to improve them. Here our control is low. Our choice is guided by what we see and what suits us best, regardless of what anyone else is buying. Performance is absolute. The same holds for most personal investment decisions, where we decide which company’s shares to buy, but have no role in controlling or improving their performance  While the goal is to do well and we want high returns, we aren’t necessarily trying to do better than others. Cognitive psychologists and behavioral economists demonstrate that people’s decisions agree little with tenets of economic rationality. Rather, they exhibit systematic biases. The way options are framed and presented shape our purchasing decisions. For many first-field decisions, research cautions us to be wary of and try minimizing these common biases.
2. Influencing outcomes: Many decisions involve more than selecting among options. If thetask at hand is to determine how long we will need to complete a project – it is a judgement we can control and influence. Optimism can be important where we have the ability to impact  We can even improve performance by believing we can do well and “holding a level of confidence that is by some definition a bit excessive.” Adopting an approach called‘deliberative practice’ can lead to expert performance, which simply requires one to shift one’s mind-set back and forth by thinking deliberately and objectively before an act, plunging head on with full commitment and high positivity, and finally returning to dispassionate analysis after the event (after-action review). This is especially true for repeated tasks that consistently demand superior performance – from sales to sports.
3. Placing competitive bets: A competitive dimension is the hallmark of the third field. Nolonger a matter of absolute performance, success here depends on how well one ‘decides’ in comparison to others. The best decisions must anticipate a rival’s moves, and more. This is also the essence of strategic thinking, which Princeton professor Avinash Dixit and Yale professor Barry Nalebuff describe as “the art of outdoing an adversary, knowing that the adversary is trying to do the same to you.” Guidance in this field can come from the branch of economics that studies competitive dynamics, game theory. But game theory has its own limitations – players cannot alter the terms of the game, the possible moves are specified, and gains and costs cannot be changed. In his Nobel Lecture, Herbert Simon had commented that for all its sophistication, game theory does not provide “satisfactory descriptions of actual human behavior”. So, an integral aspect of critical judgments goes missing.
4. Managing strategic success: Whether to acquire a company or launch a new product -most of the decision-making that executives face are ones in which they have the powers to influence  Yet, the choices are successful only if they are better than the competition’s. With organizations in fierce competition, doing better than rivals is vital. This is where strategy comes in. The fourth field includes some of the most consequential and complex decisions of all. It helps understanding the right mindset for this. When we are to influence outcomes and outperform rivals, elevated levels of self-belief are not just useful but essential. “In tough competitive situations where positive thinking can influence outcomes, only those who are willing to go beyond what seems reasonable will succeed.” When facing decisions in the fourth field, executives need both talent for careful and dispassionate analysis, which we call left-brain thinking, and a willingness to push boundaries, which is essentially a right brain activity.

Business leaders face a range of challenging situations in their daily lives. To do justice to their role, they must not discern the nature of each decision-making at hand, ascribing it to its appropriate (above) field, but also develop the versatility to respond to situations with the cutting-edge style of an astute baseball manager “part tactician, part psychologist, part riverboat gambler”. An executive who drives the fortunes of his organization needs more than an ability to avoid common errors. He must remember to ‘decide’ with the crucial blend of clear-eyed analysis and timely bold action.