Essay

A closer examination of the forgotten gift

- Intuitive versus Rational Strategic Decision making -

Author: Gaston Plantaz

Name:

Gaston P.A.A. Plantaz

The intuitive mind is a sacred gift and the rational mind is a faithful servant. We have created a society that honours the servant and has forgotten the gift. - Albert Einstein -

Introduction While modern literature defends both sides of the paradox of rational versus intuitional strategic decision making, Albert Einstein saw the deeper meaning of this paradox. Rational decision making is inextricably connected with the intuitive mind. But the possibilities of the subconscious mind are still a mystery. With all modern research done within the fields of neurosciences and psychology we have only discovered a little part of our subconscious brain. Therefore the effective use of our intuition is assumed to be very limited. The use of the full capacity of our brain would probably offer huge potentials in the field of strategic decision making. Especially in the modern business environment, which can be characterized by; rapid change, crisis and unstable environments. The effective use of intuition provides organizations with huge benefits for their decision making in the future. However with the existing knowledge it is no wonder why currently most emphasis is placed on rational decision making. We simply cannot play a game from which the rules are unknown. Organizations can do nothing but wonder what opportunities lay within the unconscious mind of its employees. I will give attention to both sides of this story and try to start a new discussion about intuitive decision making. Therefore we will discuss the following statement:

Intuition is essential in optimizing strategic decision making.

This essay will start by explaining what intuition means. After that it will give more insights in the existing perspectives about intuitive versus rational decision making, what also was referred to as the head vs. formula controversy (Kleinmuntz, 1990). It will address the main arguments for why and when strategic decisions should incorporate the intuition of the decision maker. In the end the conclusion will show that the provided arguments strongly support the statement of this essay.

What is intuition? This is a difficult question. Existing research about intuition takes place mainly within the fields of philosophy, psychology and neurosciences. In the field of management sciences the subject has been ignored for a long time but intuitive strategic decision making is becoming more and more a trend. These different disciplines all give a different definition of intuition. However this topic is very interesting for modern organizations it is not well represented in the existing literature within the Strategic Decision Making 1 G. Plantaz

field of business administration. One of the main reasons is that the intuition is hard to define. Because intuition lies behind our consciousness it is very hard to grasp what it actually means and how to draw the boundaries for quantitative and qualitative research. Although good research has been conducted and these processes were meticulously documented, their generalization and application to management practice seem to be limited at best (Sinclair & Ashkanasay, 2005). Boucouvalas (1997) and Shirley & Langan-Fox (1996) note that most definitions fall into two broad categories. In the first category, researchers view intuition as an experience-based phenomenon that draws on tacit knowledge accumulated through experience and retrieved through pattern recognition (e.g., Behling & Eckel, 1991; Brockman & Anthony, 1998; Isenberg, 1984; Klein, 1998; Simon, 1987). The second category is represented by research that stresses the importance of sensory and affective elements in the intuitive process (e.g., Bastick, 1982; Epstein, 1998; Parikh et al., 1994; Petitmengin-Peugeot, 1999). So it is clear that there are different perspectives which define intuition in different linguistic and conceptual ways. However most of the literature agrees upon some aspects of intuition. Most researchers acknowledge that (1) intuitive events originate beyond consciousness, (2) information is processed holistically, and (3) intuitive perceptions are frequently accompanied by emotion (Shapiro and Spence, 1997). These communalities are also the essence of the difference with rational decision making, which is a conscious process, where information and different alternatives are closely examined and decisions are guided by models who try to exclude emotional influence. Rational decision making has two components: a behavioural component, namely selecting a best alternative and a latent component, namely preference.1 To make this essay more clear I will use the following definition for intuition. Intuition is a non-sequential information processing mode, which comprises both cognitive and affective elements and results in direct knowing without any use of conscious reasoning (Sinclair & Ashkanasy, 2005; Epstein et al.,1996; Shapiro and Spence, 1997; Simon, 1987). Intuition is not the opposite of quantitative analysis, nor is it an attempt to eliminate quantitative analysis. The need to understand and use intuition exists because of strategic business decisions have the benefit of complete, accurate, and timely information (Khatri & Alvin Ng, 2000). However we can say that intuition and deliberate reasoning should be combined in further research. Kahneman (2003) mentioned in one of his papers: judgments and intentions are normally intuitive in this sense and that they can be modied or overridden in a more deliberate mode of operation. So the combination of these two concepts should be the topic of future multidisciplinary research. When more research is done on the integration of these two concepts, the opportunities of these new models can be tested and hopefully will lead to a better understanding of their interplay.

Derived from sheets of Prof. dr. A. van Deemen. Course on Strategic Decision Making 2011

Strategic Decision Making

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Bounded rationality Supporters of these rational decision making models state that decisions influenced by emotions are biased. This infers that decisions based on intuition are also biased. The fact however is that we all are subject of bounded rationality. That is also the reason why rational decision making also suffers from biases. Strategic decisions are about uncertain future states in fast changing and complex environments and so bounded rationality can lead to bad decision making. We therefore could state that if intuitive synthesis suffers from biases or errors so does rational analysis (Seebo, 1993; Harung 1993). This is so because quantitative or rational- analytical reasoning too is based upon assumptions that are not necessarily accurate and correct. (Seebo, 1993). That is why we can say that the argument of biases is invalid for placing rational decision making above the use of intuition.

Opportunities of the brain Besides the reason that intuition is hard to define and therefore hard to examine, there are researchers and practitioners who perceive this concept as mystical or even supernatural. That is why organizations are sceptic about the use of it. However with the current existing knowledge about how our brain functions we can state that the use of our bio computer provides huge opportunities for individuals and organizations. Research about this topic has made huge steps in the last decade. To quote dr. Weston Agor2 from an interview In the last decade we learned more about the brain than in the history of men, and we know less about how the brain functions then about going to the moon. This new knowledge was not available in the time that rationality gained its place in the field of decision making. Also in modern business the importance of the employees for the performance of a firm is more recognized. The use of intuition can help organizations to gain from the potential of the brain of each individual. To make the potential of a human brain more clear a quote of philosopher Julian Jaynes (1976) is used: Consciousness is a much smaller part of our mental life than we are conscious of, because we cannot be conscious of what we are not conscious of. How simple is that to say; how difficult to appreciate! It is like asking a flashlight in a dark room to search around for something that does not have any light shining upon it. The flashlight, since there is light in whatever direction it turns, would have to conclude that there is light everywhere. And so consciousness can seem to pervade all mentality when actually is not. With this knowledge we definitely can say that with the current knowledge about our brain new doors are opened.

http://www.youtube.com/watch?v=o_Qkc2qZNco

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Intuition in history But why did intuition stayed in the dark for such a long time? When we look at the history of thinking we can see that intuition was recognized by great thinkers like Plotinus, Augustinus, Thomas van Aquino, Shakespeare & Leonardo da Vinci. Enough great men who advocated the possibilities of intuition you would say. But Ren Descartes changed this all, by stating that there is no unconscious mind. With his ideas he could be seen as the godfather of our rational focused society, which still has its effects on the way we train our decision makers. Our Western society thinking, our teaching & the way we do business are all very influenced by his theory, while the views of the others about intuition did not. With this wide range of genius people who advocate the unconscious mind, it is very strange that they did not had a comparable influence on Western thinking.

Different perspectives As already mentioned there are different perspectives about how strategic decisions should be made. Some argue in favour of rational decision making models and theories as Decision trees and Expected Utility Theory, while others trust on the intuition of the decision makers. Others like Albert Einstein state that their always has to be an interplay between these two ways. When we take a resource based view as perspective for determining how the strategic decisions should be made we find the following. Taking the assumptions mentioned before into account we can say that the use of an appropriate way of decision making should be based on a firms resources. When there are resources available for an extensive examination of options within the available time a rational decision making tool might very appropriate. As we have read before, intuition is strongly connected with experience. So when the decision maker lacks experience the use of intuition will be more biased. In that case a more rational approach is suitable. But these rational models should always in some way integrate important parts of intuition like individual knowledge and experience. However when resources for rational decision making are lacking and decisions have to be made within a short time span intuition offers much more chances for an optimal solution than an incomplete and quick analysis. Dijksterhuis (2007) describes three different types of making a decision: a 1) quick choice 2) unconscious choice 3) conscious choice. What most people believe is that the conscious choice is the best one, which proves that the strength of the unconscious mind is underestimated. In a couple of experiments he found that unconscious thinkers make better decisions than conscious thinkers. So from a resource based view we can state that depending on the firms resources a choice has to be made, but it is clear that intuition plays an important role in all good decisions. From an environmental perspective we could argue that good decision making depends on the contingencies in the environment of the firm. The research of Kathri & Alvin Ng (2000) found that using intuition in an unstable environment is positively linked with performance, while using rational approaches suits Strategic Decision Making 4 G. Plantaz

better with stable environments. Contingencies in the environment make decision making very complex. Information is everywhere, and it is very costly and time consuming to analyse this massive pile of information. In contrast to the findings of Kathri & Alvin Ng (2000) it seems that organizations do the exact opposite. For less complex situations, in stable environments managers tend to use their intuition more frequently, while in fast changing environments with complex information they do not rely on their gut feeling but use rational decision making tools. Dijksterhuis (2007) suggests that a subconscious mind can process up to more than 200.000 times as much than our conscious mind. But this is not a new thought. Sigmund Freud already mentioned: When making a decision of minor importance, I have always found it advantageous to consider all the pros and cons. In vital matters however . . . the decision should come from the unconscious, from somewhere within ourselves.

Creativity and innovation Now we arrive at the point of creativity and innovation. In the last decade we have found that it was the creative thinker, the innovator who made companies successful. To quote former Apple CEO Steve Jobs: "Intuition is a very powerful thing, more powerful than intellect, in my opinion. That's had a big impact on my work." Another great manager Jack Welch, former CEO of GE, stated that: Sometimes making a decision is hard not because it is unpopular, but because it comes from the gut and defies a technical rationale. Much has been written about the mystery of gut, but its really just pattern recognition, isnt it. Youve seen something so many times you just know whats going on this time. The facts may be incomplete or the data limited, but the situation feels very, very familiar to you. Of course by rational thinking we gain knowledge and get inspired. But true creativity comes out of our subconscious brain. A well know expression is: see the light, which refers that suddenly a good idea comes up, instead of it being a result of a long term analysis. We now can say that intuition plays an important role in creativity and creativity is important for making right strategic decisions.

Rational decision making So far we have seen that there exist multiple misconceptions about intuition. However this essay is about strategic decision making and as we all know a strategic decision does not stand on its own. In todays organizations decision makers have to substantiate their decision with logical arguments in order to ensure correct execution. Strategic decisions are about huge numbers of cash and wrong decisions can lead to irreversible problems that effect employees, shareholders, partners etc. Because there are much stakes involved in strategic decision making, decision makers can hardly explain and gain support for decisions they came up with while brushing their teeth for example. The process of rational decision making provides decision makers with arguments, arguments and chances that are necessary for the essential support needed for a good execution. However the Strategic Decision Making 5 G. Plantaz

question remains, are these all good arguments? Dijksterhuis (2007) states: The arguments which the rational mind takes into consideration are often the ones that are easier to verbally express. The problem is that the verbalization makes these arguments more important than they actually are. Further we can mention the problem of indecision which was examined by Amos Tversky and Eldar Shafir. Summarizing their interesting research; the problem is that when people are faced with too much alternatives, they tend to delay a decision or even do not take one at all. This because a huge choice of alternatives make rational analysis hard and inefficient, besides that these alternatives are negatively influencing each other attractiveness (Dijksterhuis, 2007). Another argument for using rationality is the use of multiple models and theories that have been developed to encounter the problems of intuition like misconceptions of individuals, inexperience and the lack of problem solving talent. Besides that, emotion is an important part of our intuition and therefore also could lead to problems. Strategic decisions need commitment and focus of the decision maker. In cases where certain emotions hinder these requirements, problems will arise. A mathematical way of calculate chances and utilities could offer more stability in that case. Further the supporters of rational decision making argue that analysing all information and options provide the decision maker with more and new alternatives. A detailed examination of all options eventually leads to better decisions. But there is a flipped side of the coin. Dijksterhuis (2007) states: By rational thinking people tend to take arguments into consideration, which would be excluded by subconscious thinking, these arguments could be the reason for a poorer decision.

Conclusion This essay describes the overshadowed topic of intuition in strategic decision making. Although its relevance is recognized in different research fields, its use in modern businesses is limited. For a long time, decision makers tend to use rational decision making for complex strategic decisions. This essay has described that there are several factors which should be taken into consideration. First it is argued that the existing assumptions about why intuition has not played an important role in strategic decision making. These were the difficulties of linguistics and defining this concept for doing research. Besides that there are strong assumptions about biases of using intuition. It is shown that research has to be done to explore the possibilities of intuition and that the named biases can also be found with rational techniques. Therefore it is important that multidisciplinary research should be conducted. Another important fact why intuition did not gained the role it should have is the influence of pro-rational philosophers like Ren Descartes, who had a huge impact on modern Western thinking. Other important points are mentioned by the use of a resource based view and the environmental view. Here it is set out that intuition should be seen as a very valuable resource for businesses on individual and organizational level. Because organizations have to deal with Strategic Decision Making 6 G. Plantaz

complex and fast changing environments we could argue that intuition provides opportunities to deal with complex decisions that have to be taken in short amounts of time. The arguments in favour of intuition further state that the use of intuition stimulates creativity and innovation within companies, which has proven to be essential for organizational success. Of course we could also argue that the existing processes and complexity of modern organizations are designed in such a way, decisions should always be accompanied by arguments, which are derived from a rational, logical and often mathematical way. Also our existing knowledge about how intuition works is very limited, although the fields of neuroscience and psychology have made huge steps in this area the last decade. These aspects lead to uncertainties about the use of intuition. Therefore we could say that both ways of making strategic decisions have pros and cons. There is no winner. As at the beginning of this essay Einstein stated, that intuition is a gift and rational thinking is a servant, which suggests that they need each other. This perspective is also consistent with Eisenhardt and Zbaracki (1992, 1997) who stress the importance of a multidimensional approach to decision making encompassing bounded rationality, as well as heuristics, insight, and intuition. Therefore it is important for further research that these two concepts are more integrated, so we can profit from all opportunities and strengths they both have to offer. Rational analytic methods can seldom be used exclusively; by its very nature, prediction deals with the unknown, and we can calculate or measure only what is known At the very least, a forecaster has to use intuition in gathering and interpreting data and in deciding which unusual future events might influence the outcome. Hence in virtually every [decision] there is always some intuitive component (Goldberg, 1990) To conclude we can say that the statement of this essay: Intuition is essential in optimizing strategic decision making is correct. Only by a further integration of these different concepts in the future we can optimize strategic decisions. We end this essay with a quote from Steve Jobs: And most important, have the courage to follow your heart and intuition. They somehow already know what you truly want to become. Everything else is secondary.

Strategic Decision Making

G. Plantaz

References

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