How to get from A to B (without going via Z)

In just about any industrial sector, low productivity is directly related to poor decision making. Arnold Kransdorff explains how to beef up this critical management skill with a technique that overcomes the limitations of existing methodologies.

Both private and public sector organisations are facing a productivity challenge. The escalating pace of modern industry and heightened political pressures to deliver better-value public services have increased the requirement on managers to become better decision makers.

No organisation is immune from poor decision making, the measure of which is easily gauged by relative productivity. Using a simple labour/output computation of turnover divided by employee headcount, the quality of decision making is open to improvement if the calculation comes out below one’s competitors.

Organisations in the UK, for example, are generally around 44 per cent less productive than their equivalents in the US, 22 per cent lower than in France and around 16 per cent worse than in Germany.[1] Also significantly less productive than many other EC and OECD competitors, their inferior output means lower or more expensive material output (or a combination of the two). Either way, the cost of achieving the same yield is proportionately greater than in those organisations where productivity is higher. Set against the value of investments in both the public and the private quarters, the wastage of resources is astronomical at this level of productivity.

Given the importance of this critical management skill to corporate profitability and – ultimately – to personal and national wealth, it is mystifying, then, why teaching the craft of decision making is not a dedicated discipline in either the education system (even business schools) or in organisations themselves. Conventionally, its instruction is theoretical in nature, unstructured, informal and anecdotally subsumed into wider specialities such as marketing, strategy and leadership. Ordinarily, managers are then left to their intuition, anything they can learn arbitrarily from their own and others’ experience, and their ability to cope with corporate politics. On the basis of historical performance, it is an approach that reflects poorly on existing business educational processes.

At a non-theoretical level – ie, approaches that use actual experience as the learning medium – its application is confined to random, unstructured methods by individuals (‘I list my mistakes and try not to repeat them’) and two little-used techniques of a more formal nature. Post-project reviews are usually used only to investigate large failures, while action learning is an approach that generally uses a skilled facilitator to impose a discipline of self-reflection and analysis on team members of individual projects. With the quality of decision making inextricably bound up with the ability to recall information accurately[2], little or no account is usually taken of the problems of imprecise recall contiguous with short and selective memory recall, defensive reasoning and the ‘lost’ knowledge from departed employees that comes with today’s highly flexible labour market. The indefinite evidence that springs from whichever of these factors automatically flaws any potential learning.

So, how does one teach this most difficult of subjects in a way that overcomes the limitations of existing methodologies?

One specially devised approach is experience-based management (EBM)[3], which prescribes the process of reflective thinking in business through a formalised, six-stage circular sequence adapted from the models created by Kurt Lewin[4] and David Kolb[5] in their non-business disciplines. Covering how to choose the experiences from which to learn, how to implement strategies that will help overcome deficient memory in formats that are also user-friendly for learning, and how to construct the process of reflection to improve decision making, the methodology gives IT and KM a role beyond sophisticated data collection and distribution. While IT is usually skilfully used to identify problem areas, EBM’s role is designed to help service the solutions. Its intent is to familiarise managers with the mutable character of decision making and the range of decision-making options. Suitably adapted, it can be used as both a teaching tool in business schools and as a management-development tool in organisations.

Figure 1 – the EBM teaching/learning loop

Stage one: choosing the experiences from which to learn

To learn from prior events, it is axiomatic that organisations have first to select the experiences from which they can learn. A set of broad principles with which organisations should pre-select the experiences should include both perceived successes and failures. Also, priority should be given to work areas that have a high rate of staff turnover.

Stage two: ensuring accurate recall

The early theorists of experiential learning[6] recognised that learning was inextricably bound up with the ability to recall information. This was later[7] refined to include tacit knowledge, much of which is implicit and ambiguous, and acquired largely by experience that is personal, functional and employer-specific. Hard to formalise and communicate – and rarely documented – it includes the detail of job-related events and the knowledge of tried and tested usage as it applies to the organisation’s own market circumstances and special environment, ie, all the routines and processes (formal or otherwise) that make an organisation tick. Better decisions are always made using both explicit and tacit knowledge.[8]

While most organisations can retrieve archival evidence such as internal and external memos, discussion documents and reports, the written word is invariably lacking in detail as well as the tacit content essential to good decision making. The ‘how’ of know-how can be captured through two knowledge-management tools that, when implemented professionally, are arguably the most efficient way of netting experience accurately. Both are widely under-utilised and under-skilled.

Oral Debriefing[9] is a technique that depends on expert questioning of individuals to extract crucial knowledge. Formal debriefing programmes can be applied either at regular intervals during an employee’s tenure, when employees retire or leave to join another company or immediately after key projects. It is principally relevant to short and medium-term experiences, and operational issues. The other medium is the traditional corporate history, when done as a learning tool rather than public relations. As the most portable repository of an organisation’s past, it is applicable to mainly long-term experiences and strategy and culture.

Stage three: reflection

Experiential learning’s main theorists[10] agree that erudition is about making sense of information, extracting meaning and relating information to everyday life, specifically understanding the world through reinterpreting knowledge.

Armed with rigorous experience, learners next evaluate how prior experience can be applied beneficially to ongoing decision-making processes by reviewing the chosen experience from as many perspectives as possible. The objective is to put the experience into some sort of overview, the purpose being to make sense of events and, from that, extract meaning in an organisation, job and person-specific context. This part of the process is best conducted orally and in groups.

Stage four: lessons audit

Learners then draw up a written list of lessons specific to the chosen experience – a so-called lessons audit – the objective being to have a hit list of dos and don’ts for consideration next time an experience of a similar nature arises.

Stage five: reprocess

Learners then orally ‘test’ the lessons on a variety of separate scenarios.

Stage six: evaluation

When an event of a similar nature to the chosen experience arises, learners then apply the devised lessons in stage four. After the outcome becomes measurable, they use the loop again to assess whether revised practice can be turned into even better practice. This stage supports the universal paradigm of progress being incremental and learning being continuous.

In addition to using prior experience as a tool to assess the variants of decision making, the logic of the EBM teaching/learning loop is to make continual incremental improvements to real business situations. The more often reflection is undertaken, the more often the opportunity arises to modify and refine decision making to better effect.

The EBM teaching/learning loop can be undertaken either during or immediately after the experience. In the case of the former, it gives an opportunity for improvements to be made concurrently. If one waits until after a task is completed, there is no opportunity to refine it until a similar task arises.

Also, the sequence can be applied either as self-learning, where an individual is trained to informally undertake the six stages on his own, or with the help of a facilitator, who orchestrates the process in a more formal way. In the case of in-house development, the facilitator can be a peer or someone independent of the organisation, but nevertheless trained to be analytic, objective and, importantly, incisively provocative to encourage creative thinking.

In the world of business, experience is like paid-for stock – money in the bank. Experiential learning based on an unambiguous awareness of those experiences can put it to work with enormous added value. It is not a cure-all, but structured formally, it is a practical and powerful educational means to better professionalise the teaching and practice of business.

It takes no genius to calculate the potential benefit of reducing even fractionally the number of repeated mistakes, reinvented wheels and other unlearnt lessons that industry and commerce bear. Until industry and education recognise this logic – and the enormous cost of ignoring it – organisations will have to keep on depending on informal and indiscriminate means to learn from its own and each others’ business experiences.

Is it not time for decision making to be elevated to a branch of teaching/learning in its own right?

Arnold Kransdorff is a specialist in experiential learning. He can be contacted at: ak@corporate-amnesia.com

Textbox 1: Examples of poor decision making

If unlearnt lessons are just one example of poor decision making, there is no shortage of real-life evidence. The examples below – from a large industrial economy, a smaller developed country and a newly industrialised nation – illustrate poor decision making’s pervasive and indiscriminate attendance.

UK

· In a British Airports Authority (BAA) market test[11] to compare building costs in another country where labour and material costs were similar to those in Britain, US contractors were asked to tender for an office block identical to a development already underway at Heathrow for British Airways. Built to US designs and specifications, the American building came out 32 per cent cheaper, thanks to the US architects and engineers spending less time reinventing wheels. Overall in the public sector in 2001, the UK government’s National Audit Office found that slightly less than 75 per cent of all building projects were either over budget or overdue;

· The finance sector is especially rich in examples, in particular in banking, where the record of failures has left a decent trail of evidence that successive generations of bankers continually forget. A graphic instance, which illustrates both the magnitude of the phenomenon and its pervasive nature, can be seen in the banking crisis of the 1980s and 1990s. In the early 1980s the UK banking community was badly mauled by bad debts in South America. Less than ten years later it was again overwhelmed, this time from loan defaults elsewhere in the third world. Speaking in 1991, the head of one of the UK’s largest banks[12] admitted there were plenty of historical precedents on Latin American lending that “should have put the red light up for everyone”. He added, “We have got to ensure that the lessons of the recent past are not forgotten by the rising generation of bankers.” As he was talking the banks were once again making similar errors of judgement, this time at home, with high-street lenders having to chalk up further provisions collectively totalling almost £4bn in their 1992 accounts. This prompted one City analyst to comment that, “The biggest worry is that banks do not seem to be capable of learning from their mistakes”, a warning echoed in 1994 by a banking industry think-tank that analysed the massive write-offs;

· There have been continuous safety and punctuality issues on the railways under both public and private ownership;

· Repeated problems with computer projects at the Passport Office, the Immigration and Nationality Directorate, Air Traffic Control and the London Ambulance Service. Just a few months ago, a project to keep track of, and process, asylum seekers was suddenly axed. Also in the Home Office, a computerised database of dangerous offenders, which has had seven programme directors in seven years, is 70 per cent over budget, costing £118m to date;

· The UK’s National Health Service’s non-learning problems are no less relentless. It now ranks eighteenth in the world performance league behind countries like Italy, Spain, Austria, Norway, Portugal, Greece, Japan and Holland;

· Over budget and overdue were (and are) also characteristics in individual projects such as the Channel Tunnel and its rail link, the British Library, Concorde, the Limehouse Link road tunnel, the Cardiff Bay Barrage, the Luton Airport extension and the Scottish Parliament. The experience of several of London Transport’s projects over the ten-year period to 2000 is particularly striking. Against the background of managers’ insistence of long-time under-funding on the London Underground, the National Audit Office’s (NAO) conclusion that much of the £10bn investment on the Jubilee Line extension, the Docklands Light Railway and the wider tube system – equivalent to more than ten per cent of the entire public-sector investment during the period – was wasted because of a failure to integrate systems effectively. The conclusion by the NAO is that these performance failures will recur in future investment projects “because learning from one project was not easily transferred to the next”;

· At the turn of the year 2000, ten of the 27 planned millennial landmarks were similarly overdue or over budget, or both.[13] This excluded the national showpiece, the Millennium Dome, which went on to have its own recurring troubles.

New Zealand

· There has been a succession of expensive IT failures in New Zealand. A study concludes that projects seem destined to stumble and fail with predictable frequency despite expensive enquiries, expert reports and declarations that lessons have been learnt.[14] Projects for the police, Accident Compensation Commission, the National Library and the Justice Department all collapsed at an estimated cost to the taxpayer of more than NZ$130m. At least three other current projects are classified as high risk and are being monitored to make sure that anything up to another $300m is not wasted.

Israel

· For almost a decade, the emerging hi-tech industry has been running at a pace that has now outstripped the traditional agricultural sector, where marketing skills were always weak, especially in the global arena.[15] This weakness has carried over into the hi-tech sector, where large numbers of start-ups have not been able to survive the dotcom crash. Acknowledging this limitation, one of Israel’s leading technology investors is on record as saying, “It is painful to see a new generation of entrepreneurs in the Israeli high-technology sector repeating the mistakes of their predecessors. These mistakes may lead to either complete failure or the inability to leverage the technology advantage into global leadership.” In the two years to mid-2002, an estimated 15,000 hi-tech workers were laid off, most of them in start-ups and small companies[16];

· Poor decision making also extends to the construction industry. For more than 30 years Israel has continued to employ a low-paid, poorly trained work force, with the result that local contractors are finding it increasingly difficult to meet the high standards demanded by international developers.[17] After the Six Day War in 1967 and the capture of the West Bank and Gaza, it replaced its own workforce with unskilled and cheap Arab labour. After the 1987 intifada, Israel started to replace them with tens of thousands of workers from eastern Europe, Turkey, Africa, Asia and elsewhere without checking skills or previous experience. By the admission of one of its foremost consultants, building quality is “horrific”, with costs 25 per cent more than in the US and construction times three times longer.[18] Yet the Israel Ministry of Labour, which is in charge of worker training, prefers to focus on collecting fees by issuing permits to contractors to bring in more foreign workers. Though the construction unions enjoy influence in other sectors of Israel’s economy, the country also refuses to accept help from the US, which has offered to bring modern apprenticeship training programmes to Israel and integrate these into government-run craft training schools. The consultant, the head of a large engineering consultancy to many of the contractors working on the over-budget and overdue $500m expansion of Ben Gurion International Airport, reports that contractors simply accept the labour inefficiencies, telling project owners that slow work and poor quality are “just the way it is in Israel”. He says the situation will probably deteriorate further “and Israel’s addiction to cheap labour will continue to feed on itself”.

References

1. OECD, 1999
2. Saljo, R., ‘Learning in the learner’s perspective’, in Psychology: Theory and Application (University of Gothenberg, 1979)
3. ‘You’ve not had 30 years experience. You’ve had one year’s experience 30 times’. Paper for University of Nottingham Business School, November 2001
4. Lewin, K., Field Theory in Social Sciences (Harper & Row, 1951)
5. Kolb, D., Experiential Learning: Experience as the Source of Learning and Development (Prentice-Hall Inc, 1984)
6. Saljo, R. (1979)
7. Nonaka, I. & Tekeuchi, H., The Knowledge-Creating Company (Oxford University Press, 1995)
8. ‘Productivity – the new corporate imperative’. Paper for University of Nottingham Business School, 2002
9. ‘Managing organisational memory: the new competitive imperative’ in Organization Development Journal (Vol 18, No 1, Spring 2000)
10. Saljo, R. (1979)
11. BAA report (1993)
12. Lord Alexander, chairman of the National Westminster Bank
13. Daily Mail report (2000)
14. Davis, P., Failing To Learn From Failure – IT Failure and the New Zealand Public Service (Massey University Graduate School of Business, July 2001)
15. Kalish, S., ‘Ten commandments for the Israeli high technology entrepreneur’ in Jerusalem Post (2 February 2000)
16. HaEretz (30 July 2002)
17. Braverman, I., Israel High Tech & Investment Report (March 2001)
18. ibid