Smart Versus Wise Styles of Decision Logic

Smart leaders tend to make decisions without adequate recourse to discernment or discrimination. Leaders in the blue zone are usually cautious decision makers. They rely heavily on their experiences, beliefs, and instincts when making decisions. They excel at making low-risk decisions that can be executed in a predictable manner, such as those focused on the short term and bottom line. Unaware of the larger context, they sometimes struggle with decisions that affect the long term or those that need to be made by integrating other perspectives, which entail bigger risk and need to be carried out in uncertain conditions. Although they are open to comments and suggestions when making decisions, they tend to mainly look for validation rather than an intuitive point of view. They have great instincts, which are the collective sum of their experiences, but they often rely too heavily on them. As a result, they might repeat poor decisions they made in the past. Rather than relying on personal ethics, they may look at external best practices to guide their decisions. Being risk averse in general, they tend to procrastinate when they confront tough decisions or they may spend a lot of time collecting data to back up their big decisions. Finally, they do not use their discernment capability often.

Leaders in the red zone tend to favor decisions that carry high risks and high rewards and could personally benefit them. Quick thinkers and emotionally driven, they are prone to rushing into decisions in order to grab a fleeting opportunity. Overly confident, they trust their own discrimination and don’t always consult others. In spite of having good discrimination, red zone leaders may sometimes decide against their own discernment and make decisions based on short-term benefits. As big picture thinkers, they may be perfectly aware of the larger context in which they make decisions, and yet their expeditious and somewhat self-centered approach to decision making could sometimes lead to ethical lapses that they might not have foreseen. Although they are great at helping others make important strategic decisions, they struggle to make important personal decisions due to their underdeveloped ethical clarity.

Wise leaders, by contrast, tend to make intuitive decisions based on both discernment and discrimination. They overcome the limitations of smart leaders and exhibit a number of characteristics that differentiate their decision logic. They often make decisions that seem to defy conventional wisdom and appear counterintuitive to others, even illogical or irrational. That’s because they rely on a decision logic that is shaped by their intuition, discernment, and discrimination capability that takes the larger context and personal values and ethics into account.

For example, Steve Jobs intuitively felt that Apple retail stores would be the right channel not to sell products (which is what stores are for) but to communicate the Apple brand values and create a superior customer experience. He thought that if employees at Apple Stores were to delight customers by providing them unforgettable experiences, sales would ensue automatically, But if the store employees were to act as pushy salespeople, the customer experience—and sales—would suffer.

Apple Stores have been phenomenally successful, and they have boosted not only Apple’s profits but also its brand reputation. Interestingly, in summer 2012, John Browett, the new head of Apple Stores, did not show the same discernment and discrimination capability and attempted to improve the bottom line—and increase the profitability—of Apple Stores through layoffs and salary cuts just before the holiday shopping season. The move backfired: leaner Apple Stores couldn’t keep up with escalating demand. Customer experience suffered, and Apple had to issue a press release apologizing for the “mistake” it made and in October 2012 fired Browett.¹⁹ This incident validated Jobs’s discernment: as long as Apple Stores focus on delivering superior customer service, the company’s profitability will keep improving—but the inverse just won’t happen.

Wise leaders also make decisions that exhibit both ethical clarity and pragmatism. They have a strong sense of ethical clarity that comes from their reliance on authentic and subjective ethics (swadharma in Sanskrit), not on objective ethics that does not take into account exceptions and the context. They are not driven solely by ideology but rather tend to be pragmatists who have a clear noble purpose and therefore a broader perspective on how to balance what the larger context demands with their inner values. Because they are context sensitive, wise leaders don’t have a black-or-white view of the world: they see shades of gray in every situation in which they have to make a decision. Steve Jobs, for instance, demonstrated both ethical clarity and pragmatism when he decided in 1997 to partner with his archrival Bill Gates, then CEO of Microsoft. He allowed Microsoft’s Internet Explorer Web browser to be shipped with every Apple computer; in return, Gates agreed to invest $150 million in Apple and support Microsoft’s Office suite for at least five years for the Macintosh platform.²⁰ Jobs’s intuitive decision to embrace Microsoft was predicated on his view that “[Apple] employees and users have to let go of the notion that for Apple to win, Microsoft has to lose.”²¹ Despite his reservations about Gates and Microsoft, Jobs made a practical and pragmatic decision that would help Apple in the long run.

In addition, wise leaders are level-headed when making decisions. They don’t rush into decisions driven by strong emotions such as fear or greed. When they face a crisis, they don’t try to outsmart the problem by devising a clever solution. They slow down their decision-making process and maintain their composure, exploring the best possible options before coming up with a simple and yet effective solution.

Wise leaders are likely to look at the big picture to reframe the situation. Then they gather all the information that is already available, explore different processes to make decisions, evaluate risks, and identify alternative scenarios instead of a single right decision. They bring ethical considerations and values to the table. Finally, they turn to their own instincts as well as intuition to think through trade-offs, risks, and execution issues. While all this may seem a time-consuming process, we have observed that wise leaders make these decisions quickly and many times unconsciously—as evidenced in the case of Captain Chesley “Sully” Sullenberger.

On January 15, 2009, shortly after taking off from New York’s La Guardia airport, US Airways Flight 1549 was hit by a flock of birds. Both engines were disabled, and the plane began losing altitude at an alarming pace as it drifted over the densely populated city and its tall buildings. In the cockpit, Captain Sullenberger and his first officer were using all their skills to quickly figure out what to do. Sullenberger asked the first officer to focus on restarting the engines, while he focused on finding a way to land the plane safely. In that context, the logical option would have been to fly back to La Guardia, but there were issues with timing, distance, and traffic; other local airports, Kennedy and Newark, were also ruled out. The only option left was unorthodox: setting the plane down in the frigid waters of the Hudson River. Sullenberger later explained that his intuition told him that he could “improve chances of recovery” by landing in the river close to ferries and other maritime rescue services. And that’s exactly what the level-headed Sullenberger did, saving the lives of all passengers and crew on board. It was the first time in fifty years of commercial flight that a jetliner landed safely on water in an emergency situation, the Wall Street Journal later reported.²²

On that day, Sullenberger brought all his experience and intelligence to bear and made a wise decision by deciding to land his plane in the river. A smart decision would have been to try to get to any nearby airport at any cost, because that would have seemed a safer bet, but it potentially could have been fatal for all the passengers and crew on board.

In our research and experience, we also find that wise leaders decide with a view toward the long term. According to the Great Law of the Iroquois Confederacy, members of that Native American nation are trained to think seven generations ahead to ensure that the decisions they are making today will benefit their descendants seven generations into the future.²³ Business leaders today, making decisions in a fast-moving environment, don’t think that they have the luxury of thinking seven generations ahead. Leaders making wise decisions differentiate themselves by displaying the courage to make choices that might not yield immediate gains but will reap long-term benefits for their organization as well as for society.

At the height of the dot-com bust in 2002, IBM’s CEO at the time, Sam Palmisano, made two bold decisions: he acquired the consulting arm of the accounting firm PricewaterhouseCoopers and stepped up investments in R&D.²⁴ Investors weren’t enthusiastic about Palmisano’s decisions when most IBM competitors were slashing their costs to stay afloat. But Palmisano was focused on the company’s prospects for long-term growth. He knew that when the recession was over, clients would be demanding innovative solutions.

Palmisano’s strategy proved correct. By 2012 IBM had established itself as a leading business and technology consulting services provider and is now successfully commercializing solutions that are built on technologies—such as wireless sensors—that result from R&D projects IBM initiated in the early 2000s.²⁵ “A long-term view teaches you that your biggest challenge may not be surviving your failures, but your successes,” Palmisano says.²⁶

Wise leaders also tap into their discernment intuitively when they making decisions, especially critical ones. They know when to shape a decision and when to let a decision emerge. When they shape a decision, they use the data from the past to direct the outcome, whereas when they let the decision emerge, intuition plays a bigger role than logic, as Steve Jobs’s decision making often demonstrated.

Finally, wise leaders strive to be open-minded when making decisions. They listen to the people around them, even those who challenge their assumptions and decisions. They believe that this inclusive process, which is known as dialectical decision making (or the Socratic method), generates creative tension that can lead to more robust decisions.

That’s why leaders at Google and the pharmaceutical company Eli Lilly encourage the use of prediction markets, a way of forecasting the viability of a strategy based on input from frontline employees.²⁷ These employees can weigh in on strategic decisions that senior management is proposing and provide suggestions for improving them. Wise leaders are also willing to delegate decision-making power to people on the front line when appropriate. They practice a leadership style that INSEAD professor Herminia Ibarra refers to as “command and collaborate,” which is the ability to both command or collaborate based on the necessity.²⁸

Peter Grauer, the chairman of Bloomberg, is a wise leader who not only practices command and collaborate himself but is promoting this inclusive leadership style across his entire organization. Commenting on an internal Bloomberg study that sought to identify the most valued leadership competencies in his organization, Grauer noted that the top-performing executives at Bloomberg boasted contradictory attributes: “They had future vision but were tactically strong; they provided strong guidance but were open to challenge; they relied on extensive networks but were also capable of moving fast (i.e., unilaterally); they were hands-on but also empowering.”²⁹ Bloomberg seems to be cultivating wise leaders capable of making decisions in a firm and yet inclusive manner.