Thinking fast and slow about strategy and decision making

I have been applying Daniel Kahnemans’ work to thinking fast and slow about strategy and decision making in organisations. If you are involved with strategy in any way, I strongly recommend that you read book by the Nobel prize winning Psychologist, Daniel Kahneman.  If 430 pages of research from a Psychologist is too much, then I’ll be summarising aspects and their implications in these articles.

In his introduction, Kahneman explains how he hopes that his book will “enrich the vocabulary that people use when they talk about the judgements and the choices of others.”   I admit I have difficulty reading this book without continuously thinking about the executive teams I have met, and how they have talked about, thought about and made decisions about, their strategy. The book forces me to stop and think more slowly about things.

Enriching the vocabulary when talking about judgement and choice.

‘Thinking, fast and slow’ is actually about how individuals think.  More importantly it is about when our mechanisms for thinking let us down and how we can become more aware of what decisions we are making, how we are making them and the quality of those decisions.

Two metaphors for thinking fast and slow about strategy

In the book, Daniel Kahneman sets up two metaphors for how we think and make decisions.  He describes these two systems for decision making as being like two characters in a novel.  He calls these characters “System 1” and “System 2”. Both characters inform how we are thinking fast and slow about strategy in our organisations.

Thinking fast: System 1

System 1 thinks Fast.  It uses judgement and is intuitive. System 2 thinks slow. It requires time and attention.  System 1 can often fail and distort decisions made by system 2.

System 1 operates automatically and quickly.  It thinks fast. It is really good at making judgements and being intuitive.  Your system 1 reacts when you see a person’s face, when you landed on this website and when you answer simple questions like “What is 3 + 3”?  It was working when you drove home from work without thinking about how you got there, it is working as you read the individual words of this article.  It will be working as you sit and talk to your colleagues in a meeting.  It is intuitive and natural.  System 1 runs almost without consciousness or awareness.

Thinking slow: System 2

System 2 is quite different.  It takes time.  It thinks slowly.  It is very diverse and it requires attention.   So when you are focusing on a person’s voice in a noisy room, assessing the characteristics of a market, or searching for a discrepancy in the logic of an argument, System 2 is operating.  System 2 requires you to pay attention.  Moreover, it gets disrupted when its attention is diverted.  System 2 requires effort and energy.

System 2 requires you to pay attention.  It requires effort and energy.  It takes time. It is easily distracted and disrupted.

The book explains how these two systems work, and provides many examples as you read the book.  Interestingly, much of the book is about how the intuitive reactions we have in System 1 fail in their own right, and also act to distort our decision making in System  2.  It creates short cuts (heuristics) to answer questions and solve problems.  Sometimes this is useful. Sometimes it is dangerous. Often it is not obvious.  Kahneman’s work of how we make decisions helps us to understand these shortcuts (heuristics),  makes them explicit and helps us to understand the consequences.

Bear in mind that Kahneman’s Thinking fast and slow is over 400 pages long, and is full of references to experiments in psychology and their implications for how we make decisions.  It is extremely rich about how these two systems affect our thinking, judgement and decision making.  I am summarising the core idea here.

The implications of thinking fast and slow about strategy and decision making?

Now even this limited description had me thinking about how we formulate strategy in organisations and how we make decisions about strategy and make strategic decisions.

Right from the start it had me thinking about two aspects of how we formulate and manage strategy and make decisions in general.

The first was that, even in an organisation, let alone as an individual, we clearly must engage our system 2 as well as system 1, when we are thinking about our strategy.

When thinking about our strategy, as an organisation, let alone as an individual, we must engage our system 2 as well as system 1.

In fact we go further: we create a process in our organisations where we get the organisation to engage in a more systematic, attention seeking, we force our organisations.  We create a process for our people to run through designed, I suspect, to create a system 2 environment that develop our strategy as a good, well thought through and correct decision.  We call this “Doing strategy” in its many forms.

This connection between individual thinking fast and slow, and thinking fast and slow about strategy set me thinking.  It set me thinking (slowly) about the various ways in which we do this.  It made me start to wonder whether we are actually creating the right environments and processes that support effective decision making about strategy.  The book explains  many of the intuitive failings of system 1 and how system 2 gets fooled by the way system 1 thinks.  How system 2 interacts with system 1, and as a consequence gets fooled.  It made me think how our strategic management processes can also be fooled.

Just as system 1 fools us, could our management systems and strategic management processes be fooled, and fool us as well?  Are they acting like system 1 or system 2?

The second insight was that we formulate strategy as a team.  It is (usually) a collaborative process, rather than within the head of a single individual as Kahneman is dealing with.  I think this means we need to pay even greater attention to ensure everyone does system 2 thinking. Otherwise…..

Kahneman’s insights apply to teams discussing strategy just as they apply to our individual thinking.  It implies we have to ensure the whole team engage in system 2 thinking, together.

So, I wondered, how do Kanhneman’s insights about how, individually, we come to judgement and intuition when faced with information illuminate joint decision making.  Do the well-researched insights that Kahneman has about individual decision making also apply to how we develop strategy as a team in an organisation?

Implications for how we talk about our strategy processes

What was clear to me is that there were plenty of opportunities to be fooled, distracted or simply revert to system 1.  I will talk about these and how they are illuminated by Kahneman’s work in other articles.

What is important is where he starts.  He points out that a role for the book is to create for us a richer language about how we think and make decisions: a language that allows us to talk about how we, and others are making decisions.

I am convinced that a richer language about how we make judgements and choices, will help us with the quality of conversation about our decision making.

If there is one thing that has stuck out from my work helping organisations with strategy over the last twenty years,  it is the importance of the quality of the conversation and quality of thinking.  One aspect of that, that has recurred and come up in my own research, is how important it is for a team to be able to talk about how they are working as well as what they are working on.  They need to be able to talk about how they are thinking fast and slow about their strategy, and their strategy process.

In this regard, Kahneman’s work is very important.  It helps us, as executives and managers, create a much richer language about how we are making decisions, rather than simply about the content of the decision.

The more we can improve the quality of our conversation about strategy and decision making, the better our decision making, and our decisions, will become.