Place of Intuition in Executive Decision Making – Asrar Qureshi’s Blog Post #935

Place of Intuition in Executive Decision Making – Asrar Qureshi’s Blog Post #935

Dear Colleagues! This is Asrar Qureshi’s Blog Post #935 for Pharma Veterans. Pharma Veterans Blogs are published by Asrar Qureshi on its dedicated site https://pharmaveterans.com. Please email to aq.pharmaveterans@gmail.com for publishing your contributions here.

Daniel Kahneman

Credit: Emma Keshavarz

Gary Klein

Credit: Kamaji Ogino

Corporate Executives, as they become more senior, tend to rely more on their intuition, or gut feeling. Mr. Nasir Mahmood (late) was a legendary marketing head who grew Abbott Labs Pakistan from a small company to one of the fastest growing companies in 1980s, and 1990s. He once asked in a meeting of managers (I was a relatively new manager among the group), “how do you hire? You go by your gut feeling. That is what I do, and it never fails me”. He was not the only senior executive doing it, many others also did it. And it was not just about hiring, for all important decisions, they would tend to tilt towards intuition rather than cold analysis. As I became a senior executive, I also used intuition in decision making on several occasions.

Question is, is it wrong to rely on intuition? If not, how much reliance should be put on intuition? Or should it be ignored altogether? In this blog post, we look at these questions with reference to work of psychologists such as Nobel Laureate Daniel Kahneman, author of the best-selling book ‘Thinking – Fast and Slow’, and Gary Klein, the author of books including “The Power of Intuition’ and ‘Intuition at Work’. In certain ways, both stalwarts differ significantly on the subject; Kahneman favors slow, deliberate thinking, and Klein favors intuition, though with certain conditions.  

Intuition, often referred to as "gut feeling" or "instinct," plays a significant role in executive decision-making processes, alongside analytical reasoning, and data-driven approaches.

Pros of Intuition in Decision Making

Intuition allows executives to make decisions quickly, especially in high-pressure or time-sensitive situations where immediate action is required. Rather than getting bogged down in lengthy analysis, intuitive decisions can expedite the decision-making process, enabling organizations to respond promptly to changing circumstances. Senior executives spend more than eighty percent of their time in decision making, and many a times, there are situations where immediate action is required due to urgency of the situation. 

Intuition relies on pattern recognition, drawing on past experiences, tacit knowledge, and subconscious cues to identify familiar patterns and make connections. Executives with extensive experience in their respective fields often develop finely tuned intuition, enabling them to recognize subtle signals and anticipate outcomes intuitively. For example, if an executive has done hundreds of interviews, she/he may be able to pick up subtle signs which less experienced ones miss out. 

Intuition can trigger creativity and innovation by encouraging executives to think outside the box and explore unconventional solutions. Intuitive leaps may lead to breakthrough ideas and novel approaches that may not have emerged through traditional analytical methods alone. This is what appears on the surface, with a deeper look, we may find repetition of previous patterns at work. 

Cons of Intuition in Decision Making

Intuition is susceptible to cognitive biases and heuristics that can lead to flawed decision-making. Psychologists such as Daniel Kahneman have identified numerous cognitive biases, such as confirmation bias and availability heuristic, which can distort intuitive judgments and lead to suboptimal outcomes. Cognitive bias is a systematic error in thinking that occurs when people are processing and interpreting information in their own particular way, rather than the logical way. Confirmation bias is a type of cognitive bias in which the decision maker only looks for arguments/evidence to support her/his own view of the situation.

Intuitive decisions may be prone to overconfidence, where executives place unwarranted trust in their instincts without sufficiently verifying or validating their assumptions. Overconfidence can lead to complacency and increase the risk of errors or miscalculations in decision-making. Corporates are rife with intuitive decision making that went horribly wrong.

Intuitive decisions are often difficult to explain or justify, lacking the transparency and accountability associated with data-driven decision-making processes. Without clear rationale or evidence to support intuitive judgments, executives may face challenges in defending their decisions and gaining buy-in from stakeholders.

Insights from Psychologists

Daniel Kahneman, in his groundbreaking work "Thinking, Fast and Slow," distinguishes between two systems of thinking: System 1, which operates intuitively and automatically based on heuristics and biases, and System 2, which engages in deliberate, analytical reasoning. Kahneman highlights the pervasive influence of cognitive biases on intuitive decision-making and emphasizes the importance of critical thinking and skepticism in mitigating their effects.

Gary Klein, on the other hand, explores the concept of "naturalistic decision-making" and the role of intuition in expert decision-making contexts. Klein's research suggests that intuition can be a valuable asset in complex, uncertain environments, where executives draw on tacit knowledge and experiential learning to make rapid, effective decisions. He advocates for the development of "recognition-primed decision-making" skills, which leverage intuitive cues and pattern recognition to guide decision-making under time constraints. He argues that gut feeling should be taken as an important data point, but then should be consciously and deliberately evaluated to see if it makes sense in that context. In essence, you need strategies to ‘rule out’, rather than ‘confirming’ the gut feeling.

Klein identifies two situations in which intuition may be relied upon. One, where there is a certain structure to a situation, a certain predictability that allows to have a basis for the intuition. Two, when the decision makers have a chance to get feedback on their judgments, so that they can strengthen them and gain expertise. If those criteria are not met, then intuitions may not be trustworthy. He says that most corporate decisions are not going to meet the test of high validity. But they may still be above the low-validity situations we would worry about. 

Kahneman differs and argues that he would be wary of experts’ opinions, except when they deal with something that they have dealt with a lot in the past. One problem with expertise in that people have it in some domains and not in others. So, experts don’t know exactly where the boundaries of their expertise are

Sum Up

Intuition plays a multifaceted role in executive decision-making, offering both advantages and drawbacks. While intuition can expedite decision-making, facilitate pattern recognition, and stimulate creativity, it is also prone to cognitive biases, overconfidence, and limited transparency. By integrating intuition with analytical reasoning, executives can harness its strengths while mitigating its pitfalls, thereby making more informed and effective decisions in today's complex and dynamic business environment.

Concluded.

Disclaimers: Pictures in these blogs are taken from free resources at Pexels, Pixabay, Unsplash, and Google. Credit is given where available. If a copyright claim is lodged, we shall remove the picture with appropriate regrets.

For most blogs, I research from several sources which are open to public. Their links are mentioned under references. There is no intention to infringe upon anyone’s copyrights. If, however, it happens unintentionally, I offer my sincere regrets.

References:

https://www.mckinsey.com/capabilities/strategy-and-corporate-finance/our-insights/strategic-decisions-when-can-you-trust-your-gut?stcr=2D0832EE6DAA451DB8F2128C0D746A36&cid=other-eml-alt-mip-mck&hlkid=556be6af213f4f808505be2294573cbb&hctky=2208791&hdpid=98e5492e-b5be-41dc-b148-6defec80c5a5