Why Strategic Decision
Making Goes Wrong
in companies & government
Peter Cochrane
COCHRANE
a s s o c i a t e s
cochrane.or...
* An incomplete understanding
* Dynamic data/information
* Unappreciated complexity
* Unintended consequences
* Changing e...
C O M P A N I E S A R E
AWASH WITH DATA
Monday, 26 August 13
C O M P A N I E S A R E
AWASH WITH DATA
...thas is
stored..
...and may be
examined
Monday, 26 August 13
...and
specific
features
extracted
Monday, 26 August 13
...to be discussed
at length
Monday, 26 August 13
...and identifiable
parameters
classified
Monday, 26 August 13
. . . t o c re a t e
reasonable
& sensible
options
Monday, 26 August 13
...and by far the most
popular method
or technique
for choosing ?
I n t u i t i o n !
Monday, 26 August 13
...This often seems to work well
in the short term, but then turns
into a long term failure - often
with dire consequences...
And worse, the impact
then spreads across
the entire
company !
Monday, 26 August 13
C O M P A N I E S A R E
AWASH WITH DATA
How
come
Monday, 26 August 13
...and ancient
m a n a g e m e n t
m e t h o d s n o
longer work
Everything and everyone
is now connected
The world is no ...
In a non-linear and
chaotic world a minor
error can result in a
very big outcome....
So what is needed and
what should we ...
An effective
model of the
company and
market is a
m i n i m u m
requirement
Monday, 26 August 13
F I N D I N G T H E
RIGHT DATA
IS VITAL
Monday, 26 August 13
Take into account the stochastic nature of
business and the rate of informational change
Monday, 26 August 13
Build a computer
model - conduct
Monte Carlo
simulations for
all scenarios
many many
times to
reduce the
variance &
the ov...
...thereby reducing
risk and chance
even further
Monday, 26 August 13
W A R G A M E
Every aspect and area of
doubt around the core
values identified by the
computer model.....
.test and check.....
Press GO and then
mitigate the risk in real
time by feeding actuality
back into the model as
decisions are enacted...
...t...
GO
Starting
Conditions
Output/
Change
Continuous
output/change
feedback to
m o d i f y t h e
initial/starting
conditions o...
Complexity dictates that
we ‘navigate’ our way
through a rapidly changing
environment....
...continual mid
course correcti...
As of today this is the best the
military and business can do!
Monday, 26 August 13
The
future
will be
different
ca-global.biz
cochrane.org.uk
COCHRANE
a s s o c i a t e s
Our machine
dependence
will grow a...
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Why Strategic Decision Making Goes Wrong

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The decision making processes of business and government have changed little over the past 200 years, but technology has advanced, the world got connected, businesses are now networked, and everything is moving faster. Making decisions in a ‘slow environment’ is far easier and far simple than a fast one, and today the ‘starting conditions’ and assumptions are highly unlikely to be fixed or stable for long.

It is no longer sufficient to identify the 3 most important parameters to work as a close approximation to the truth. It is also insufficient to rely on past experience and intuition. We have moved into the non-linear domain with 10s or even 100s of variables to consider. Not only do the old way and methods not work, they are downright dangerous, and often with disastrous consequences.

No military commander would plan a battle without attention to detail, comprehensive modeling, and gaming the situation to assess risk. But in government and business managers do just that, they still rely upon the knee jerk reaction, intuition, and past experiences!

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Transcript of "Why Strategic Decision Making Goes Wrong"

  1. 1. Why Strategic Decision Making Goes Wrong in companies & government Peter Cochrane COCHRANE a s s o c i a t e s cochrane.org.uk ca-global.biz Monday, 26 August 13
  2. 2. * An incomplete understanding * Dynamic data/information * Unappreciated complexity * Unintended consequences * Changing environment * Misplaced motivation * Management hubris * Personal reward * The unexpected * Novel situation * Short termism * Inexperience * Short termism * + + + + + + + + + Monday, 26 August 13
  3. 3. C O M P A N I E S A R E AWASH WITH DATA Monday, 26 August 13
  4. 4. C O M P A N I E S A R E AWASH WITH DATA ...thas is stored.. ...and may be examined Monday, 26 August 13
  5. 5. ...and specific features extracted Monday, 26 August 13
  6. 6. ...to be discussed at length Monday, 26 August 13
  7. 7. ...and identifiable parameters classified Monday, 26 August 13
  8. 8. . . . t o c re a t e reasonable & sensible options Monday, 26 August 13
  9. 9. ...and by far the most popular method or technique for choosing ? I n t u i t i o n ! Monday, 26 August 13
  10. 10. ...This often seems to work well in the short term, but then turns into a long term failure - often with dire consequences! Monday, 26 August 13
  11. 11. And worse, the impact then spreads across the entire company ! Monday, 26 August 13
  12. 12. C O M P A N I E S A R E AWASH WITH DATA How come Monday, 26 August 13
  13. 13. ...and ancient m a n a g e m e n t m e t h o d s n o longer work Everything and everyone is now connected The world is no longer a simple, linear, well b e h av e d a n d w e l l understood place It all got complex, dynamic and non-linear ! Monday, 26 August 13
  14. 14. In a non-linear and chaotic world a minor error can result in a very big outcome.... So what is needed and what should we be doing ? Monday, 26 August 13
  15. 15. An effective model of the company and market is a m i n i m u m requirement Monday, 26 August 13
  16. 16. F I N D I N G T H E RIGHT DATA IS VITAL Monday, 26 August 13
  17. 17. Take into account the stochastic nature of business and the rate of informational change Monday, 26 August 13
  18. 18. Build a computer model - conduct Monte Carlo simulations for all scenarios many many times to reduce the variance & the overall risk to some level of acceptability σ Monday, 26 August 13
  19. 19. ...thereby reducing risk and chance even further Monday, 26 August 13
  20. 20. W A R G A M E Every aspect and area of doubt around the core values identified by the computer model..... .test and check... ..test and check... ...test and check... Monday, 26 August 13
  21. 21. Press GO and then mitigate the risk in real time by feeding actuality back into the model as decisions are enacted... ...the change you invoke will change the environment and the optima of the model.....which will dynamically move in near real time... Monday, 26 August 13
  22. 22. GO Starting Conditions Output/ Change Continuous output/change feedback to m o d i f y t h e initial/starting conditions of the model Monday, 26 August 13
  23. 23. Complexity dictates that we ‘navigate’ our way through a rapidly changing environment.... ...continual mid course corrections are the new norm Monday, 26 August 13
  24. 24. As of today this is the best the military and business can do! Monday, 26 August 13
  25. 25. The future will be different ca-global.biz cochrane.org.uk COCHRANE a s s o c i a t e s Our machine dependence will grow as our intuition increasingly fails to account for complexity... Monday, 26 August 13
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