But good decision making requires skills, and one way to learn these skills is by practice. Last year I got to take part in developing case study materials for CBS’s core strategy class, which gives students the chance to practice real-world decision making. It involved creating a video to record the decision-making process that a colleague and I participated in at GE in a way that allowed students to think about what they would do if faced with the same circumstances. Students got experience, and also got to see how a major corporation evaluates tradeoffs and makes decisions.
Another facet of good decision making is learning how to ask the right questions. I was just telling EMBA students in Donna Hitscherich’s M&A class that when we evaluate divisions at GE we don’t just ask, “How is this business unit performing?” but rather “How will this business be performing three, five or ten years from now?”
One recent example is the divestiture of our plastics business. GE Plastics was performing OK, but we decided it would be difficult for us to grow the business due to our inability to hedge the ever-increasing cost of benzene (an oil-based derivative and the primary ingredient for plastic pellets). GE Plastics had an excellent valuation, so we decided to monetize the business in favor of reinvesting the proceeds towards some of our faster growing, more profitable businesses.
The key point is that good decision making is a process, and learning how to analyze and interpret the tradeoffs among choices is a critical skill. Ultimately, the goal is to make good decisions that result in positive outcomes, but a robust decision-making process will also mitigate the risk of bad outcomes over time.
As CBS’s Michael Mauboussin quotes Robert Rubin in the book More Than You Know:
Individual decisions can be badly thought through, and yet be successful, or exceedingly well thought through, but be unsuccessful, because the recognized possibility of failure in fact occurs. But over time, more thoughtful decision-making will lead to better overall results, and more thoughtful decision-making can be encouraged by evaluating decisions on how well they were made rather than on outcome.