The Case for Managerial Intuition

In the absence of a formal or an informal system that outlines the relationships among the choices made and the series of interrelated possible outcomes that might result, managers tend to rely on their belief systems or commonly accepted models of how actions relate to effect. As they apply these models repeatedly and are even partially successful, their initial beliefs become self-fulfilling, and managers become even more confident in the applicability of these models. Ultimately, the models entrench themselves in the decision-making process, and managers become risk averse to deviating from the principles they initially believed in and found some evidence for.

Therefore, one can make a case for sticking to a few basic principles that simplify complex problems and lend them some level of tractability. It might often be preferable to get a solution that is approximate and somewhat correct than to invest in trying to find an almost correct solution but never getting close. And of course, if the decision domain is relatively simple, and the consequences of actions can be determined with a high level of accuracy, there is a stronger case that can be made for relying on straight and simple principles and following one’s intuition.

To that extent, strategic intuition perhaps does bring certain efficiency to the decision-making process by helping eliminate obviously unviable alternatives or short-listing those that are clearly viable. For example, the management at one retail bank had the strategic intuition to continue to monitor the levels of satisfaction among its top 1% wealthiest customers. In the past, some managers at this firm had raised questions regarding the resources invested into such measurement, and their challenge was perhaps well founded. Despite sincere efforts to work on the recommendations of such research in the past few years, the organization had seen very little improvement in the satisfaction scores of these wealthy customers. This encouraged the skeptics to challenge the continued investment in an effort that was apparently not bearing fruit. The proponents however stood by their strategic intuition that it was critical to understand and work on issues that were important to who they believed was a very important set of customers.

Over time, the data supported the unwavering intuition of the proponents. When we linked customer loyalty data to the financial activity data of these customers, we found that even small increments in satisfaction scores, such as those observed in the past, led to substantial financial windfall for the bank. These were one of the wealthiest sets of customers and therefore cognizant of the level of service they could and should get from their bank. Therefore, even if the bank did everything that it thought it needed to do to please these customers, these individuals, on average, were not elated. However, even if the satisfaction-enhancing initiatives were able to favorably affect a few of these individuals, the amount of incremental business generated for the bank was significant. Had these senior executives ignored their strategic intuition and acceded to the calls for dropping the measurement program, the bank could have seriously jeopardized the amount of business it was able to generate from its high-value customers.

Further, from an organizational perspective, following commonly accepted principles does bring a coherence to the strategy team if its members share the same mental models of what makes the business work or how the strategic choices relate to consequences. In work within support environments, for example, we have found strong agreement among executives for positive and significant linkages between measures of employee engagement, process effectiveness, and customer experience. The data almost always support their beliefs. We do find empirical evidence that higher levels of employee engagement lead to a greater ability of such employees to fix problems the first time and on time. Together, more effective problem resolution coupled with the behaviors associated with more engaged employees, such as greater professionalism and product knowledge, lead to superior customer experiences. Having verified such linkages, these organizations can easily assess the impact of key operational metrics on customer experience. Subsequently, strategic questions, such as evaluating the impact that a 5% improvement in employee engagement levels has on the level of customer experience, become meaningful and relevant. The level of impact can then be compared with other alternative initiatives, such as a 5% improvement in the first-time-fix rate to allow management to take actions that optimize returns on invested resources.

Overall, there is perhaps nothing wrong in making higher order strategic choices based on managerial intuition. In most cases, these intuitive choices evolve from some form of due diligence or historical experience. The due diligence covers marketing, operational, and financial realities using processes that capture the dynamics of the sector or the industry, the unique characteristics of the firm, or the specific decision domain. The historical experience takes advantage of applying previous learning from dealing with similar problems to newer problems.

However, our experience suggests that a majority of managers are hard-pressed to convincingly plot the causal chains from any of these choices to long-term firm profitability. They might be able to provide the logic for these choices and provide supporting evidence that is directionally consistent with it, but in most cases, they are unable to lay out the sequence of events or outcomes that will connect their actions with the ultimate desired outcomes. For example, they often point to evidence that strong brands tend to have greater market share or that social networks provide insights into customers’ thinking and help build deeper customer relationships. But they are hard-pressed to link these pieces of intuition to an actual sequence of events, or to tie them to a series of specific metrics that point to superior business performance.

This no longer comes to us as a surprise because the discovery and establishment of connections between the actions taken by an organization and the sequence of outcomes produced by them requires a considerable investment of resources. It also requires a strategic vision on the part of top management and a desire to see how different sets of measures inform each other. It needs mental tenacity because the findings often fly in the face of established organizational beliefs but can provide some very valuable actionable information to the organization. For example, in an engagement with a call center operation, we attempted to establish linkages between two key performance metrics—on-time fix (OTF) and first-time fix (FTF)—and downstream performance. The data provided strong evidence of linkages between the FTF measure and customer perceptions of their transaction. In other words, customers who had their problems fixed the first time were more likely to report favorable evaluations of the call center support transaction. What intrigued us however was the lack of support for a similar relationship between OTF and customer perceptions. We found that customers who had their problems solved “on-time” reported unfavorable evaluations of their support transaction.

The analysis prompted further investigation that revealed the reason for this discrepancy. OTF, as coded in the internal databases of the organization, referred to the organization’s ability to resolve the issue as per its own internal benchmarks. These benchmarks, established years ago, had never been revised, despite the more recent advent of competitors who were very likely to fix problems much sooner. Customer expectations had therefore evolved, and the organization’s internal standards and the reality of the marketplace were no longer aligned. As a result, even though the organization continued to laud its OTF performance, it did nothing to enhance the quality of the customer experience. Since the discovery of the linkages between these metrics and customer impression, the organization has revised its OTF definition and has aligned it with the updated customer expectations.