- Dr. Andy Schell, DBA (Ph.D.), MSML, MBA, CPA/CFF, CMB
Creating Leaders - Step 4: Critical Decision Theory
By Dr. Andy Schell,
The skills of a successful Leader are known based on decades of research.
Great leaders have a common set of skills that include:
comprehensive knowledge of the dynamics within a specific business process
proficiency creating and implementing a business plan
self-awareness with a high emotional intelligence quotient (EIQ) to avoid self-deception
proficiency in critical thinking and decision theory (Double Reflective Thought)
the ability to interact authentically with people based on personality traits (Big 5)
knowledge of how to match leadership style to organizational design (vertical/ horizontal)
a keen awareness of the relationship between Leader/Manager and Coach
Decision Making as a Leader
Decision-making is an often-underestimated component of leadership, and yet, it is likely one of the most critical functions.
Decisions related to hiring impact operational efficiency and culture. Decisions about purchasing equipment may improve throughput but consume cash. To make decisions, a leader relies on their critical thinking capability, which leverages history, data, and alignment with the strategic plan to support the decision. Several decision support tools are presented here, including the double movement of reflective thought and design thinking, both of which enhance critical thinking.
It is essential to point out that emotional decision-making or relying on a "manager's intuition" is not applying critical thinking.
Decisions must rely on empirical data, not feelings or emotions, to the extent possible. There are times when a leader must decide with incomplete data, in which case, reliance on the following decision tools may help support decision-making.
When a leader develops an awareness of inductive reasoning's potential fallacy, the ability to avoid emotional decision-making is enhanced. Inductive reasoning is discussed next.
Double Movement of Reflective Thought
In 1910, John Dewey observed the double movement of reflective thought as decision-making moves from inductive to deductive processes to examine a circumstance or phenomena, repeatedly exploring all variants to identify the best solution. Dewey observed the validity of combining inductive and deductive reasoning to explore the best option in business decision-making. He denoted the movement from induction to deduction and back as the double movement of reflective thought.
This double movement of reflective thought involves a cyclical and iterative process of induction and deduction and is used to define the basis from which managers are able to explore the relationships between and among multiple business variables. The intent from the double movement is to expose meaning and bring definition between the movement from technical to practical and conceptual levels of thinking about options and outcomes.
Between the two methods, the reasoning process occurs in opposite directions: specific to general vs general to specific. In deductive reasoning, the conclusion is certain because it flows from a valid general and minor premise, provided the general and minor premise are both true. In contrast to inductive reasoning, which flows from a series of random observations to reach a generalization, deductive reasoning flows from a valid general and minor premise.
An inductive argument may be called possible, probable, reasonable, or likely, but never certain. When using inductive reasoning, there is no premise from which certainty is found. Uncertainty is the enemy of business decision-making. Achieving decision certainty requires statistical Causation. Causation results from deductive reasoning that is dependable and reliable. Inductive reasoning results in Correlation, which reflects similarity but not a certainty.
Inductive reasoning uses a minor premise with a minor premise to reach a conclusion that is frequently false.
· Aristotle had arms, monkeys have arms, therefore Aristotle was a monkey.
· My wife’s name is Ann, Ann is a woman, therefore all women are named Ann.
· Branch A grew 10%, branch B grew 10%, therefore all branches grew 10%.
These examples of invalid syllogisms do not always mean inductive reasoning is bad, provided it is used properly to explore ideas or to make generalizations.
The common pitfall is when leaders try to extrapolate with too little information that results in flawed decisions that could have been avoided had deductive reasoning been applied.
Proper deductive logic results from a valid general premise that includes the minor premise. Think of a circle within a circle.
· Men in the NBA are tall, Kobe was in the NBA, therefore Kobe was tall
· All IMBs can make loans, ABC is an IMB, therefore ABC can make loans
Inductive reasoning may sound reasonable, but if there are two minor premises upon which the argument lies, the logic remains faulty.
As an example of inductive logic:
· ABC mortgage closes loans in 10 days (small circle)
· My firm is a mortgage lender (small circle)
· Therefore, my firm should close loans in 10 days. (invalid)
This may seem reasonable, but this is flaunty inductive reasoning because two minor premises are used to form the logic. Remember the circle within a circle. Even if we think it should be true, just because two firms are in the same market does not mean they have the same proficiency.
Here is the same argument as deductive reasoning:
· All mortgage companies close loans in 10 days (big circle)
· My firm is a mortgage lender (small circle within a big circle)
· Therefore, my firm should close in 10 days. (valid)
While the potential for decision error using inductive reasoning is high, the value of inductive reasoning is to explore possibilities and then use the iterative double movement of reflective thought to test all variables. The process of implementing reflective inductive and deductive reasoning processes is likely to enhance the decision-making process and lead to effective business decisions.
This is a difficult concept, but all leaders must embrace, understand, and deploy data-driven and logic-based decisions to run a company effectively.
Design Thinking & Thinking Tools
Dr. Liedika examined the design thinking process to create thinking tools. Design thinking is similar to the double movement of reflective thought but with a more structured approach attributed to the movement process. Design thinking enhances the examination process by forming a temporary solution pending validity testing. In design thinking, the first step is to understand the problem, followed by examining a vast array of possible solutions. It is the pursuit of a variety of solutions that replaces the double movement iterative process. The next step in design thinking is to iterate extensively through prototyping and testing and then implement the solution through the standard deployment mechanisms while remaining cognizant of the change management protocol. How a project is implemented will impact its viability. The behavioral science researcher, Dr. Kurt Lewin, identified the human behavioral change process known as Unfreeze, Change, and Refreeze as a means to accomplish the reconstituted behavioral state.
The design thinking foundation extends from the premise that learning is enhanced when we separate our thinking from the familiar and accept the uncertainty that inevitably accompanies new experiences.
Innovative thinking requires moving into the realm of uncertainty. The following tools may help to pursue uncertainty to find a better solution to a problem. When running with a prototype idea, expect to make mistakes and fail, but learn from the experiment. With each iterative idea, test the reality of implementation and the risks associated with proceeding, and the best decision given the circumstance and data will surface.
Design Thinking Tools
Visualization is the process of imagining the decision through imagery that may include using charts and graphs. It is common to use metaphors and analogies to capture the ideas on a market board, note cards, or yellow sticky pads. The idea is to create a mind map of the ideas that solve the problem.
Structured collaboration extends the mind mapping to facilitate team‐based engagement of crafting imagery as the collaboration group attempts to find the path to a solution. Collaborative brainstorming, aka “ideation,” is a process to develop concepts and generate potential solutions, aka “hypotheses” around the possible solution. In these collaboration discussions, it is essential not to criticize or judge other ideas and avoid rising tension in an effort to free the mind to explore creativity and identify new thought solutions.
Prototyping techniques facilitate turning abstract ideas from ideation into tangible solutions that may solve the problem. Prototyping may include storyboarding, swim lanes, experience journeys, and business concept illustrations to bring definition to the idea.
Not long ago, in mortgage lending land, there was no pre-underwriting review. That’s right. Creating a pre-underwriting review step broke the long-standing workflow. This new design was a result of design thinking as leaders created the new from nothing.
All decision elements and tools discussed lead to critical thinking. Think about a solution, turn it upside down and right side out, and reconsider all variables. In critical thinking, the intent is to collect input from varied perspectives, gather as much data as possible, consider all possibilities collaboratively, and then decide the best course of action given the circumstance.
Critical thinking is not emotion or intuition. Critical thinking is clear-headed contemplation.
There may be a circumstance wherein there is very little input from others, there is no data available, and the design thinking tools are administered, in which case the leader’s judgment results in a decision. Still, this process is not a guess; this is an extension of critical thinking.
The leader’s skillset is complex and comprised of all of the elements discussed above.
The leader’s personality impacts leadership style but need not define the capability of the leader given the vast array of components that identify leadership success.
A leader must understand the dynamics of their behavior and how emotion can drive both action and decision. The exposure of these factors enables the process to pursue leadership development to expand the capability of all leaders.
If the leader assessment or development activity is beyond the scope of the firm’s HR department, then hire an executive coach to help create a leader capable of orchestrating the firm’s future success.
© Copyright by Dr. Andy Schell, 2020
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About Dr. Schell:
Dr. Andy Schell, DBA (Ph.D.), MSML, MBA, CPA/CFF, CMB
Dr. Schell is CEO, Managing Partner, and Co-Founder of Mortgage Banking Solutions and the Founder of MBS Financial Services ("MBS"), based in Austin, Texas. Dr. Schell is known for his ability to turn "vision into reality" and "chaos into order" as he finds creative solutions to the challenges his clients face addressing Revenue Stability, Technology Enhancement, Financial Management, and Workflow Efficiency.
He has 4 decades of experience as a strategist directing the activity of both small and large groups of employees including mortgage lending activity at Bank of America. His leadership knowledge extends from his hands-on experience and his academic training in his MBA, his master's degree in leadership, and his doctoral work to examine employee dynamics given leader stimulus.
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