In today’s knowledge-based economy and challenging financial environment, making good business decisions has never been more important.
However, when does having more information lead to better decision-making?
And what kind of information helps people make better decisions?
Three main sources of information
The main sources of information or knowledge that people can draw on can be categorised into three basic domains:
Personal — which draws from thinking about one’s own prior experiences;
Social — which is accessed through interaction (whether by talking, texting or e-mailing) with others; and
Documentary — which is taken from reading reference materials, such as books and Internet search engines.
Three fundamental processes
These three sources also correspond to three fundamental processes, which I call:
Using a carefully designed set of experiments, better decisions were made when there was relevant knowledge from personal and social sources, with social sources providing the greatest benefit.
Thinking through on one’s own and talking to others help in decision-making.
Although sometimes people complain about long arduous meetings, such meetings offer social interaction and exchange of ideas that may be beneficial in drawing insights which a person, on his own, may not otherwise have drawn.
Hence, both contemplation and communication make for better business decision-making, with communication having the stronger positive effect.
Interestingly, as decision-making became more complex, contemplation and communication were observed to become even more valuable.
Documentary sources also contribute to performance but only when personal knowledge and social knowledge are lacking.
Thus, referencing only enhances decision-making when contemplation and communication are lacking.
This implies that perusing reference materials can be useful, but only when the two other means of gaining knowledge are unavailable.
The value of referencing also does not increase with complex decision-making.
Finally, while having multiple sources of knowledge improves performance, it is not necessarily in a synergistic manner.
The value of meetings
What then are the implications for executives?
While we can relate to complaints about overly long business meetings, the opportunity for social interaction and idea exchange provided by such meetings can enable individuals to develop insights that otherwise may have been missed.
Also, communication with knowledgeable co-workers can benefit an executive in two distinct ways — namely, by bringing totally new knowledge to an executive, and by helping that executive generate greater sophistication and nuance in understanding his own prior knowledge base.
Given these benefits, companies are recommended to use both formal and informal approaches to encourage healthy social interactions in the workplace.
Formally, activities such as corporate retreats, focused committees and even sabbaticals will allow co-workers to interact and trade ideas to generate more enlightened decisions.
Informally, employees in senior positions should more frequently accept the role of championing the sharing of information as a corporate goal, perhaps through joint lunches.
A mentoring system would also enhance the social exchange of information.
These socially derived sources of knowledge can be lost due to employee turnover.
As such, the establishment of a company memory is recommended.
This can be facilitated through incentives for interpersonal information-sharing among employees, effectively turning an individual’s unique information into shared information available to multiple employees.
This enables companies to retain information even when faced with the departures of key individual employees.
With respect to the process of referencing documentary knowledge, my study found that referencing can help those decision-makers who are relatively less knowledgeable than their peers, which may have arisen due to their lack of deep knowledge of a business issue and/or the absence of a network of social contacts.
For the benefit of such employees, companies are recommended to continue to invest in documentary sources, particularly if those sources utilise advanced technology that enables employees to access relevant available information more efficiently and effectively.
New employees, especially, will benefit from a company providing such access to formal archives of relevant information, as it can serve as a stepping stone to help such employees make better decisions while they are still developing their own knowledge and/or social networks.
Given that contemplation, communication and referencing can all be valuable under specific circumstances, the logical question that arises is: Why not try to do all three?
My work suggests that when there is significant time pressure involved in a decision-making process, accessing multiple sources of knowledge can actually be counter-productive.
Executives should be mindful to regulate the quality, rather than the quantity or diversity of their source of knowledge.
In conclusion, while there is no simple rule for making better decisions, my research suggests that there is value for companies to ensure sufficient time and resources to enhance both communication and contemplation in organisations.
So, think about it, and pass it on.