One of my favourite books is ‘Thinking, Fast and Slow’ by Professor Daniel Kahneman. The book has won numerous awards and discusses how decisions are made and bring to head the debate over System One or System Two thinking. It is a book that every time you read, you can get something from it, and recently I started to think about how it could be applied to an organisation and the strategy process.
I think that understanding how an organisation and its leaders think is critical, for both an organisation and the creation of its strategy. I also think if you don’t know how your organisation thinks and makes decisions, you will find a history of poor strategic decisions and a strategy that does not deliver.
What are System One and System Two decisions?
Think about how you would decide what drink to buy, what television show to watch or even whether you should mow the lawns. These are all simple decisions which you make unconsciously with very little information. You don’t need to think too hard about it- it just happens. This is known as System One thinking, described as an “automatic, fast and often unconscious way of thinking. It is autonomous and efficient, requiring little energy or attention, but is prone to biases and systematic errors”.
On the other hand, System Two thinking is an “effortful, slow and controlled way of thinking. It requires energy and can’t work without attention but, once engaged, it has the ability to filter the instincts of System One”. Now think about decisions such as house to buy, what career to choose or even what university to go to. These decisions require attention, thoughtful responses, and care. While you may have feelings about what house, career, or university to attend, you have to put some serious thought into it.
How does this work in an organisation?
It has been argued that today’s leaders will be bending their minds to the business of winning with a greater intensity than we’ve seen for generations thanks to technology, data and a greater understanding of the world. But the simple truth is that whatever resources they might have at their disposal, the only factor that will allow their deliberations to be more meaningful and insightful than competitors and previous leadership- is the speed and accuracy of their problem solving and decision making — in short, their ability to think.
Thus, it follows that given an organisation is made up of people, it makes sense that decisions can be made which are either System One or System Two. It then becomes plausible to imagine that most leaders and managers will use ‘System One’ thinking wherever possible to minimise effort and to make decisions quickly. As we know, ‘effort’ is hard work and typically in short supply and in the fast-paced business world, decisions need to be made quickly.
This would be of little concern if we could trust our System One thinking to have the consistency, purpose, and reliability required for high-quality problem solving and decision making but as Kahneman argues, such trust would be misplaced. Here is the scary part, we cannot tell when our System One responses are based on sound judgment or when our System One is simply making things up.
On the surface, it might seem that the answer is simply to engage in more controlled, effortful, analytical System Two thinking as individuals and as an organisation. Well no, and it’s not that easy. The notion of everyone constantly questioning their own thinking would be tedious, to say the least- assuming you had the time.
In reality, our System Two minds are much too slow to act as a substitute for System One in routine decision making and anyway, as our thinking, whether System One or Two, is largely invisible, how can we be certain System Two thinking is completed with the right degree of rigor?
Each of us will have developed our own idiosyncratic approach to System Two ‘analysis’ and some of us will have developed better approaches than others. So, to optimise an organisation’s thinking, leaders and managers will need to know how to use their System Two minds, when to use them and, crucially, when to use them together. It might be as simple as providing guidelines and procedures for gathering, sorting, sharing and using the information needed to feed their System Two minds and together, produce the highest possible quality solutions.
What does this mean for strategy?
All leaders know that strategy is important, and most find it scary, because it forces them to confront a future, that they can only guess. Worse, choosing a strategic pathway is scary for an organisation as it requires decisions, that by their very nature requires possibilities and options, to be cut off. And of course, any leader will fear wrecking their career, if they get the decisions wrong.
I think it is easy to assume, that you must take a System Two approach in solving strategic problems or creating a strategy. Surely it has to be like this, where the strategic thinking is thoughtful, considered and careful. After all, a company strategy should not be made by intuition.
When a strategic problem presents itself, the natural reaction is to make the challenge less daunting by turning it into a problem that can be solved by taking an approach with tried and tested tools. You can imagine how it goes with leaders, the odd consultant, a financial analyst all working together to deliver a strategic recommendation. A strategy is formed, a plan is created supported by detailed spreadsheets that highlight costs and revenue and instant success. Everyone feels a lot less scared, and are confident in their organisations future.
But I think what happens, is leaders mistake a long drawn out process, with a beautiful PowerPoint deck as a System Two strategy. When in fact, it will be delivered using System One thinking with a strategy process, that is not solving the strategic problem, but acting as a safety blanket for those key decision makers.
Examples of this could include:
- Not making sure you get the strategic question right, by rushing into strategy creation.
- A key leader in an organisation saying ‘fluff’ statements such as we will have the largest market share; our brand will target the Millennials and let’s go digital. All good strategic statements, but they are based on intuition, that may not work.
- Strategic options being discounted because they have not worked in the past. The problem is sometimes good strategic options don’t work, because of poor implementation, not because it was a poor idea. Often, this mindset prevails, and it was driven from leaders who have been in an organisation for a long time.
- A strategy relying on a customer view, that matches the views of the leadership team or relies on outdated customer research. I have never understood how a strategy is developed without understanding the customer- it is an absolute basic.
Having a system two strategy, driven out of system one thinking, is a truly terrible way to make a strategy. Sure, it might provide some comfort, and even inspire an organization but in essence, it may very well fail. I think it happens because strategy often needs to be created to a time frame, and this can mean conversations are hurried and not thoughtful. It might happen because the strategy is left to the strategy department, and not the domain of an organisation’s leaders. It might happen because it is an excellent and natural way of removing the fear of the unknown and replaces that fear with a comfortable PowerPoint blanky!
Sure, this may be a great way to cope with the the fear of the unknown, but fear and discomfort are an essential part of strategy making. In fact, if you are entirely comfortable with your strategy, there’s a strong chance it isn’t very good. You need to be uncomfortable and apprehensive: True strategy is about placing bets and making hard choices. The objective is not to eliminate risk but to increase the odds of success.