It turns out that intuition is not really intuition at all.
Just like the invisible, inseparable quarks that underlie the protons and neutrons in the nucleus, rules of thumb (ROTs) are the fundamental, sometimes invisible, particles of CEO decision-making. They are the building blocks that underlie what CEOs describe as “intuition” or “gut feel.”
Ask an experienced CEO how she/he made a major decision and their typical response is “intuition” or “gut feel.” Yes, analysis also plays a role, but intuition was found to be a major or determining factor in 85% of thirty-six major CEO decisions that we studied.
Some were good decisions, some were not, but regardless, intuition seemed to always rule the roost.
But what is it?
After persistent and deft questioning, CEO’s will identify, sometimes to their surprise, judgmental heuristics — ROTs — that go a long way towards explaining their major decisions. It is these building blocks that we must examine in order to discriminate between “good” and “bad” intuition.
After CEOs identify a few ROTs, a torrent of supplementary ones often follows. Some CEOs argued, however, that they use values for guidance, not ROTs. But values alone don’t provide clear guidelines. Only when they are operationalized into ROTs do they serve as decision-making tools.
At Odebrecht S.A., a large ($22B) Brazilian conglomerate, the CEO and founder’s grandson, Marcelo Odebrecht and the rest of the company’s leadership are dedicated to upholding the company’s core values: trust and partnership. But when it came down to actual decision-making it became clear, after considerable probing, that the company operated with four basic ROTs derived from these overarching values and passed down from generation to generation of Odebrechts:
1. Decentralize operations
2. Decentralize strategy
3. Promote only from within
4. Partner with your customer
These ROTs guided CEO Marcelo Odebrecht when, despite serious misgivings, he decided to support his Brazil Director’s call to take over the construction of the Pan American Games facilities in Rio de Janeiro from another contractor. Marcelo did not interfere in his Director’s decision because of his commitment to his ROTs (#1 and #2) and because the director was a long-term employee who had “drank the Odebrecht Kool Aid” (ROT #3).
Business leaders ignore their intuition at their own peril. When Gustavo Cisneros, the CEO of the Cisneros Group, was considering a 50/50 partnership with AOL to establish AOL Latin America, his board, his family and his management team were united in endorsing the deal.
On the other hand, Cisneros had a gnawing feeling that Latin Americans were different from U.S. customers, and they would not pay a subscription fee to use the internet. But because everyone, including AOL’s intense and charismatic leaders — Steve Case and Bob Pitman — saw it as a great deal, Gustavo sublimated his intuition. Five years later, after a bankruptcy filing and nearly a billion dollars in accumulated losses, Gustavo regrets not having paid more attention to his “intuition.” Now Gustavo has a new ROT: “Never make a deal if it doesn’t feel right with your intuition.”
Bill Amelio, former President and CEO of Lenovo, learned the same lesson, even though he’d deliberately produced his own set of personalized rules of thumb, after taking on the challenge of merging Legend Computer and the IBM PC division into what we now know as Lenovo.
Here’s Bill’s list (amended following the merger, as described below):
1. Identify and concentrate on the critical few decisions.
2. A call is better than no call.
3. Give your decisions a short leash. Quickly pull back in case of mistake.
4. Trust your intuition.
1. Communicate the critical few decisions effectively and repeatedly.
2. Don’t tolerate jerks.
3. Build a team of people you can trust and rely on.
4. Trust your intuition.
1. Get feedback early and often and act on this feedback.
2. Earn the trust and confidence of others.
3. Demonstrate vulnerability to gain credibility.
4. Play to your strengths.
5. Trust your intuition.
To build a new management team he could rely on (ROT — People #3), Amelio demoted a man who had contributed much to the development of Legend, someone the Chinese refer to as a “made man.” Bill went through the right process and got his Chinese Chairman to sign off. But he ignored his intuition and the body language of the Chairman when he responded cryptically that as CEO he had “full authority to decide.”
The result was a major debacle in which Bill was faulted for ignoring the values of Chinese culture and caused a significant loss of trust. Amelio consequently added “Trust your intuition” (ROT — Self #5) to his rules.
Discovering, and continuously updating, rules of thumb is an important task for every CEO. It is a fundamental element of self awareness. Yes, values and beliefs are important, but it is really ROTs that operationalize and bring down to earth what really guides CEO decision-making. These rules can then be identified, challenged and adapted as circumstances change.
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