Have you ever assessed your decision making process? What are the factors you take into consideration? Too often, we neglect parameters and this is a mistake. Parameters must be included in our decision making in order to improve results.
What do I mean by this? Well, understanding risk, rewards, and the importance of various issues can help guide your decision. This includes both analytical and social issues. The realities and changes in parameters like populations, the economy, political environment, and social values should all be reviewed and considered regularly. The most important thing to keep in mind is that many variables are changing faster and more often than ever before. So, not only do you need to understand parameters, you need to keep up with the latest ones!
And while that may sound daunting, it’s the way it’s always been—change is inevitable and we must embrace it. So, don’t allow fear, uncertainty, or tradition to prevent you from trying something new.
For example, here are three different well-known approaches to decision-making. Which one are you and is it working for you?
Nike’s advice: JUST DO IT!
Steve Jobs: “Because the people who are crazy enough to think they can change the world are the ones who do.”
Traditional ideology: “We have always done it that way.
Now, here are some considerations to help improve our understanding of parameters and inform how we approach decision making to get better results:
Not making a decision is a decision. If you see the right choice and fail to act on it, that’s a mistake. For example, lots of people think about quitting their jobs, but few actually do. Similarly, we talk a lot about things like health, weight loss, reducing stress, saving money, and being more supportive, but seldom do we take action.
We assume cause and effect when the relationship can be spurious. One of the oldest questions on cause and effect is the proverbial chicken and egg issue. Statistics and other details make it very easy to assume that a relationship among factors is a straight line. However, most relationships involve a variety of factors, as shown in the chart below:
Analytics can produce better results, but intuition, risk, and low probabilities can be effective. We all know the lottery is a bad bet, but some people do win. Similarly, many billionaires like Gates, Bezos, and Jobs have achieved fame by pursuing high risk and out of the box alternatives. It is the outliers that create much of the innovation, excitement, and change in our society.
Forecasting parameters can improve decision making and identify great alternatives. What are you forecasting and how will it affect your actions? For example, the pandemic has altered time perspectives in developing and analyzing forecasts. 2019, 2020, 2021, 2022, and 2023 all have different parameters and need to be considered as such.
The biggest problem with parameters can be bias. Most bias, especially in small businesses, is simply human. Your assumptions, analysis, and data can all unknowingly affect assumptions. Analysis of different age groups like millennials and baby boomers can vary simply by using different starting and ending birth years.
One crucial aspect of parameters is risk and outcome, which are greatly affected by probability and information. Predicting results where there are significant and consistent historical data can be fairly simple; however, predicting results for new programs or with little or inconsistent data requires developing educated estimates.
Beware of confirmation bias. Don’t we want to believe that our ideas are terrific, and thus, focus more on their potential for success? Of course, we do. The challenges associated with the ideas are sometimes given a smaller amount of our attention; it’s just human nature. We bias our analysis towards successes and tend to ignore negatives. One business that has benefited greatly from this concept is the casino business.
Organizations need to be open to measurement and feedback. Observing, understanding, and sharing financials, operations reports, and sales reports are the first step. A management style such as “walking around” and checking in with employees can be priceless.
At the end of the day, you can improve assumptions, results, effort, and process by simply knowing your parameters and understanding the use of analytics and intuition in your decision processes. As the saying goes, “A chain is only as strong as its weakest link.” Make sure to figure out where your weak links are as well as your strengths.
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Dr. Bert Shlensky, President of StartupConnection.net, has an MBA and PhD from the Sloan School of Management at M.I.T. He served as the President of WestPoint Pepperell’s apparel fabrics business & President and CEO of Sure Fit Products. More than 2,000 clients have benefitted from his business acumen over the course of his long career. He now focuses on working with select startups and small businesses. Please visit our website: StartupConnection.net for more information.
If someone offered you a million dollars, would you accept it? Some of us might be quick to answer yes, when in reality, we should be asking, “What are the conditions?” You need to know the parameters in order to make sound decisions and understand variables or analysis. Parameters describe specific characteristics of our population, market, and environment. They are critical because we frequently ignore aspects of a situation that are critical to our analysis.
For example, details of the 2020 census were just published and there are some clear trends that need to be considered. Most importantly: Diversity is not just some political issue. The growth of minority groups, urban population, the south, and the decline of the white population are actually critical factors in understanding marketing and analytical challenges.
Income inequality, diversity, global events, and the environment (including the pandemic) are key factors affecting even small businesses. Here are some parameters to consider that may help improve effectiveness:
Population: In 1990, the white population represented over 80% of the population compared to 57% today, and it will continue to decline.
Social changes: Women and minorities are not always treated with dignity as employees and consumers. Andrew Cuomo’s recent explanation of his behavior reminded my wife that she still remembers going to buy a car and being ignored by dealers and being called “honey.” We need to consider proper behavior towards all participants.
The Internet of Things: The Internet and its usage, especially among younger people, will continue to explode. Nearly every consumer-based market is dominated by businesses that are capitalizing on the Internet of Things, like Amazon and Google. Similarly, sharing services like Uber, Airbnb, Amazon, and thousands of other businesses are disrupting their individual markets.
Analytics: Chances are that your competitors are already taking advantage of a myriad of advanced analytical tools. CRM systems are completely changing the game and giving businesses new opportunities to understand their customer base.
Wealth distribution is becoming increasingly more unequal. 10% of the population control 80% of the wealth in this country. The pandemic has only accelerated this trend.
Our physical and social environments continue to shift. Climate change, political unrest and polarization, as well as other disruptions around the world are causing increased instability. We need to be ready to adjust accordingly and, therefore, these areas require significant new analysis and strategies. Recent rapid changes in areas like COVID, New York State, and Afghanistan illustrate the need to recognize both the speed of change and the need for new solutions.
Income: The reality is that the top 1% of the population accounts for about 80% of income (and this number continues to increase) while the lower 20-40% continues to struggle. Marketing to struggling service workers requires far different strategies than marketing to Silicon Valley millennials. We need to recognize the presence of the K-economy (one for the rich and one for the poor) and develop differentiated solutions.
The pandemic: Data from 2020 and 2021 needs to be carefully considered. For example, productivity is currently running 3-4% compared to a historic 2-3%. Is that permanent, a trend, or just a temporary result? There are presumably about 10 million unfilled jobs and there are 9 million people looking for work. How will that evolve? What are the permanent social impacts in areas like work from home, business travel, virtual education, entertainment, health care, etc.?
As you consider parameters, here are some suggestions to help you adjust:
Embrace diversity. We need to be aware of our environment and recognize where there is inequality. And then, work to create equitable change.
Improve measurement and understanding. Improved analytics gives us the capabilities to better understand populations and responses. For example, Hispanics represent 18% of the population and Asians 8%, while blacks represent an almost constant 12%. These segments are more concentrated in certain geographic regions, but need more attention in every focus. Hispanics also represent 17% of the under 18 population and only 4% of the over 70 population.
Remember that interacting parameters have as much impact as individual. Bias change, potential, etc. all affect decisions and outcomes. For example, analytics advises us to pursue the most likely outcomes. However, intuition, passion, and effort underscore most venture capital successes.
Manage changes in parameters. The best example is in finance where the economy has experienced low interest rates and inflation for the last several years. One outcome is that stocks have returned 10-15% while bonds only 2-5% over the last 10 years. However, financial advisors have been slow to change and investors have received lower returns.
Don’t ignore tools to understand parameters. While factors that may show relationships, don’t misunderstand cause and effect. Many algorithms assume linear distributions while information is frequently more complex. In particular, intuition and outside outcomes are more likely than we think. Probability and risk should always be considered in analysis.
Parameters need to be managed to improve decisions. Understanding the risk, the rewards, and the importance of issues can improve outcomes. Don’t allow fear, uncertainty, or tradition to lower your potential and prevent you from trying something new. This includes both analytical and social issues. The realities and changes in parameters like populations, the economy, political environment, and social values should all be reviewed and considered regularly. The most important thing to keep in mind is that many variables are changing faster and more often than ever before. So, not only do you need to understand parameters, you need to keep up with the latest ones!
Dr. Shlensky is a graduate of Sloan School of Management at M.I.T. He served as the president of WestPoint Pepperell’s apparel fabrics business & President and CEO of Sure Fit Products before starting StartupConnection. Having provided counseling to over 2,000 clients, he now focuses on working with select startups and small businesses.
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