On Effective Decision-Making Procedures in a Complex World

At the beginning of this month, in April, the President of the United States, Donald Trump, managed to plunge the global economy into a storm of unprecedented proportions – almost single-handedly.

The trade tariffs he announced sent shockwaves through governments, business leaders, entrepreneurs, investors and others around the world. On 3 and 4 April, US stock markets lost €6.6 trillion in value – the largest two-day drop in history.

Journalists searched high and low for economists and academics who could, with solid reasoning and expertise, support this decision.  

They found none.

How on earth does such a decision come about in the Trump administration?

It appears that several basic principles of sound decision-making were simply ignored...

Two key publications on decision-making were released less than two weeks before Trump announced the tariffs, which sent global stock markets into a tailspin.

On 17 March, Dan Davies argued in The Economist Show by the Financial Times that the world currently sits at level 8 or 9 on a 10-point chaos scale. In his book The Unaccountability Machine – Why Big Systems Make Terrible Decisions, and How the World Lost Its Mind, he suggests that in today’s extremely complex world – one many find too difficult to fully comprehend – populist leaders gain mass support by oversimplifying reality.  

He cites Jean Paul Getty as an example: within a single generation, the world has become so complex that it is now inconceivable for a major oil company – or any large corporation – to be run by a single individual. This evolution is beyond most people’s grasp.

Tim Koller of McKinsey, in his article dated 20 March, Biases in Decision-Making: A Guide for CFOs, draws on the insights of Nobel Prize winner Daniel Kahneman and outlines four techniques to improve decision-making processes:

1. On groupthink: encourage thorough, content-rich discussions with a range of perspectives.  

2. On confirmation bias: be aware of the tendency to seek information that supports pre-existing beliefs. Design procedures that challenge this.  

3. On resistance to change: “Only an infant enjoys a change!” – develop mechanisms that constantly question the status quo.  

4. On personal risk aversion: managers may avoid appropriate risks out of fear for their careers. Therefore, foster decision-making processes that allow such risks to be considered in a safe and constructive way – as Jeff Bezos advocates.

It is quite evident that Donald Trump did not take these insights to heart.

You’re warmly invited to exchange thoughts on how to foster an organisational culture that, even in a complex environment, is capable of making thoughtful and deliberate decisions. On how such a culture can be built, and how to identify and select leaders who recognise the opportunities effective decision-making brings to organisations.

Warm regards,  

Aegeus