How come managers take different decisions for their organization than for themselves?

This post continues the previous post on “A decision is required – a management story with a lesson.

Prof. Herbert Simon, the Noble prize winner, claimed that people are NOT OPTIMIZERS – they do not search for the ultimate optimal choice. Simon called the way people, like you and me, make decisions “satisficers” – looking for a satisfying choice by placing certain criteria and choosing the first one that satisfy all the criteria. This is quite similar to what we call in TOC “good-enough solution.”

My point is that while people are satisficers, once they make decisions on behalf of their organization they are forced to demonstrate that they actively look for the optimal decision. However, there is too much complexity and too much uncertainty on top of it to truly reach optimum decisions. This situation makes the search for optimal decisions, based on “books” written by other academics than Prof. Simon, looks pathetic. Too many of those decisions are wrong and leading to inferior results.

A common cause for this different behaviour is:

Managers are afraid from after-the-fact criticism, which they consider unfair, because it does not consider the conditions when the decision has been made.

Hands pointing towards businessman holding head in hands concept

The key frightening aspect is the possible impact of uncertainty. After-the-fact the decision can be easily seen either as “right” or “wrong”. Admitting to have made a mistake causes two different undesired effects:

  1. Being punished because of the “mistake”, like being fired or just not being promoted.
  2. Losing the feeling of creating value and being appreciated. This is of very significant meaning to executives and highly professional people.

The fear of unjust criticism forces managers to look for two means of protections:

  1. Being super conservative.
  2. Following the “book” when there is a book.

As Mr. Preston Sumner, in his very interesting comment to the story has noted, some CEOs are influenced to do the exact opposite: take larger risks than what they would allow for themselves. This tendency is initiated by the way some large organizations compensate the c-level executives. When a CEO is pushed to show great results by hefty bonuses, while the opposite is not true, the derived greed pushes them to take high risks. Is this really what the stockholders want?

There is critical mistake in looking to “motivate” a person, a CEO or even just a regular salesperson, by linking the actual financial results to payments to the person. Money is always a necessary condition – but it is far from being sufficient to ensure good intentions to look for the interests of the organization.

Dr. Goldratt said that organizations force certainty on uncertain situation. Ignoring uncertainty make people believe that they can judge any decision according to its actual result. If we recognize the need to live with significant uncertainty we need to learn how to judge decisions in a way that would reasonably assess what might happen – the potential damage as well as the potential gain.

This is just the beginning. I claim that failing to openly and visibly dealing with uncertainty is the core problem of most organizations! I’ll certainly come back to this topic highlighting more undesired effects resulting from the core problem.

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Published by

Eli Schragenheim

My love for challenges makes my life interesting. I'm concerned when I see organizations ignore uncertainty and I cannot understand people blindly following their leader.

7 thoughts on “How come managers take different decisions for their organization than for themselves?”

  1. I’ll be the 10th man here.

    You wrote, “I claim that failing to openly and visibly deal with uncertainty is the core problem of most organizations!” Is it? A recent outcome of a full TP analysis of one of my companies unveiled the notion that the core problem is the conflict between acting efficiently vs. acting effectively. Could we be saying the same thing but differently? Is it because of uncertainty that that people seek to behave efficiently? They don’t know what to do to be effective, so they tidy up in some area or another to make that area better?

    The only way to behave efficiently, in a holistic sense, is to eliminate waste – expending OE that produces less T, now and in the future. But, everybody has been looking for that for years, to the point that there isn’t much waste left to live on. In fact, most “waste” that remains is non-constraint protective capacity. So, reducing it makes our companies more fragile.

    I’m afraid that the problem is not that managers are uncertain but that they are wrong. The way to get efficiency is to observe it as a byproduct of being effective. They believe it is something they can force. I think they are certain about it. And, they are wrong. Only the enlightened manager has the luxury of worrying about uncertainty.

    Push back on me, please.

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  2. Henry, how come that efficiency, meaning trying to fill all the available capacity, is such an important factor? After all once you understand that uncertainty exists you know you cannot afford to be fully loaded.
    Take for example a gas station. I assume every pump is a relatively expensive resource. But, those pumps are very inefficient. So, why should a gas station have 6 pumps? One would be enough.
    In a service that needs to serve very fast spoiled clients that do not want to wait in a queue for 30 minutes, there is the awareness that the uncertainty in the flow of potential customers forces them to be effective rather than efficient.

    Yes, I claim that the fear of uncertainty causing a fear of the image of me being percieved as inefficient even though I’m simply effective, using my capacity in the best way for the organization, is the lower level core problem.

    And I did not talk about managers being uncertain. Living in uncertainty and being aware of it means that confident as you are you cannot reliably predict the results of every action you make. Managers are afraid that once the results are known, and when the results are not too good, they will be condemn for their “mistakes”.

    Managers can be wrong, but we need to fully understand the cause of being wrong, because many of those managers are not stupid.

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    1. Hi Eli – I hope this is applicable to your theme. It embeds uncertainty.
      When teaching the simulators (Production the TOC Way) I pose a provocative question:

      Why are managers schizophrenic? (it’s purpose to expose the contradictory duality between private and business lives of the same individual)

      I play with this question to cause an enquiry and challenge (in fun way, but at the same time all seriousness) into the cost world paradigm to reinforce the message from the simulators.

      I think this is pertinent to your above assertion, to which I agree.

      Here is how it usually goes. Usually just before we start with the TOC DBR solution:

      After asking the above question and getting puzzled looks I simply ask – how many of you own a car? Nearly everyone says yes. And if you own a car do you carry a spare wheel? Majority say of course yes. And why, I ask?

      Well, they say, to keep you on your journey to get to your destination (goal) in case of a flat tyre. Simply replace with the spare and you are on your way.

      And so I ask what is the purpose of the spare tyre? Protection! Insurance.. against .. a flat tyre which is a disguise for uncertainty!

      So, to drive the point home (pun intended) I continue. Does it bother you that you are paying for roughly 25% of the rubber and hope you don’t need to use it? No! is the response. We know we can get a flat tyre someday but never sure when. So you are not maximising your ROI! But you are allowing for and paying for uncertainty. That’s because your are living in your private world, not business world.

      To bring the discussion to the level of ridiculous (because my original question demands some insanity) I ask and when you drive your car do you fret that you have empty seats? Do you stop and offer pedestrians a lift so you maximise your ROI? Do you invite the neighbours around to watch your large flat screen TV and fill all available seats on the sofa to maximise your ROI and efficiency/utilisation? Less on uncertainty more on efficiency.

      No, of course that is ridiculous! Exactly. We don’t want to been seen as ridiculous.
      So why do we behave this way at work????

      Is it true that we must squeeze every last cent out of our investment in labour and capital. To be efficient and be seen to be efficient even in the face of uncertainty. After all we are measured that way. Is that not true? To deal with uncertainty we set aside contingency (extra cost like overtime or priority freight and a bigger baseball bat). Any idle machine or worker is put to work in an instant or quickly disposed. And from what we now know from the simulators what is the effect: more and more inventory, longer lead times, reduced throughput and more stress, all in a vain attempt to achieve the goal. And why? (I don’t answer this question).

      So in private we accept and embrace protection (capacity) to deal with uncertainty and in business we cut it to the bone?

      Are we schizophrenic or what?

      Same person, same head on the shoulders with different and disconnected thought patterns and behaviours depending on which environment we are in – the world must be mad – we must be mad! Therapy anyone!

      Let’s regain our sanity….Boy Scout / Chain Analogy ..

      It seems to work.

      Best regards to you and also Henry
      Andrew

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      1. Andrew, your examples are excellent! It does show the schizophrenia of managers. The point is that the individual behavior is more effective than the organizational. The absurdity is even more noted when the tendency of most decisions is for the ultra-conservatism, but when buffers are required then the tendency is to ignore them. It is caused by the same fear of unjust criticism: if eventually the buffer is NOT used (idle capacity stays idle) then people treat it as waste. So, ignoring uncertainty brings us to ridiculous policies that expose us to higher level of vulnerability.

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  3. Hi Eli I would like to have a different response to the problem. My first observation was to clarify which managers you are talking about? Is it the CEO or all managers in the company? I assume at the moment that you refer to all managers of the company.
    Lets look at where the process started and we may have a better understanding of the problem. When we start a company we(the individual) are doing all the functions in the organisation and I have found that very few small businesses makes the traditional mistakes? Why? This is because I am in control of all the functions. In very few cases did I find that the small business would not be flexible for eg. to get the job if the demand is less than his capacity. Allocated costs is not in his mind and he very much lives in the paradigm and understanding that once time is lost he has lost the opportunity to generate TP In my mind it all has to do with the division of labor. In order to get more TP we need to increase the volume through the company and in order to do that there is a drive for more division of labor until all functions (Because specialization brings more volume) has been assigned to resources and only now we start to increase the volume of similar skills to increase the TP of the company.
    By now what has been done by one person needs a lot of synchronization between multiple individuals that belongs to different departments and who are all held accountable at the top level. This forces them to make decisions based on local performance which will impact flow and drive local protection. The only person that has the ability to correct that is the CEO but he does not have the time and capacity to deal with it. Maybe he does not have the detail knowledge of what is happening at the ground level. So it is not done. For any manager at the next level to try and fulfill that function is either seen as a threat to the next CEO job or a risk when he fails he will be fired or people will see his efforts as taking the CEO’s job and they might not co-operate because if successful they will jeopardize there chances for the CEO position and if successful they will promote his chances for the job . Currently the understanding of the flow of goods and services is not clear for most people in a medium or large organisation which forces them to be more local focused. So making a global decision becomes even more difficult.
    However back to one of the response if I know that my objective is to get home safely then making a local decision regarding a tire is easy (especially if someone does not give me the option to choose) Lets for the moment consider the option for the person who buys a new car to decide whether he wants the optional extra of a spare tire. I am quite certain that a lot of people will not take the tire because in there mind they have other options ie phone a fried or family when it happens (my wife phones me when she has a flat tire) so I could bring my car’s tire and fit it to her vehicle so if we know that to be the case we would probably risk the event not include the “optional extra”, where as if I was in a foreign country and has no friends to rely on I will take the spare tire. So it is all in line with the risk and end result and in my mind that rests with the CEO. IF he understand the problem more clearly then he could be the person who would “ok” protective capacity in the right place but still drive the sub ordination to the constraint. It is in the understanding of protective capacity and sub ordination with the right amount of protective capacity and the alignment of people’s actions where I believe the problem lies and to convey that is difficult if you are not interested in the detail and nobody is interested in the whole. Ray Immelman briefly referred to the solution by speaking of a flow manager. This in my mind is one of the solutions to break the conflict where he acts a referee to do what’s good for the system as a whole where as the other managers ensure that they do not become to fat. Have some thoughts but lets see what people think

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    1. Albert, you are right that in small organizations people behave according to their own intuition and norms. I think it is mainly because every one knows well everybody else and the element of fear of uncertainty and unjust criticism does not exist. Certain risks are taken and people understand the reasons and what might happen.

      When the organization grows this element of being exposed to after-the-fact criticism becomes major. formal measurements are based on hard numbers, which are the result of combination of various actions, dependencies and uncertainty. Thus, managing to ensure those numbers are good is a constant issue, but it hurts the performance of the organization.

      Are CEOs under threats from rising stars within the organization? It is a known effect in politics, where the heads of the parties can be easily replaced. In business organizations I see the fear of unust criticism, but less fear of being replaced because someone else, in the lower level, looks better. There is, though, an open competition between several managers of the same rank for an openning in the higher level. In such a competition one cannot allow that an incidental loss, as a result of a worthy uncertain decision would mess his/her chances to go up the ladder.

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