People must be taught how to think, not what to think.

—MARGARET MEAD

Judgment is the ability to consistently make the right decision at the right time in the right way. Good judgment looks like magic to those who do not have it. When a leader takes an unusual and brilliant action that is wildly successful, others wonder where the decision came from. Examples of bad judgment are readily visible because everyone sees their consequences. Good judgment, in contrast, often goes unnoticed because it seems routine. Leaders make decisions every day. Some are easy, but the strategically important ones require judgment and are often complex and risky.

For example, well before the dot-com boom, a government executive challenged his staff: “Let’s start a skunkworks to see how we can use that Web stuff.” Because building prototype computer systems was not in his budget, he shaved money from other areas to fund the effort. He pushed his people to explore new possibilities, build capabilities incrementally, enroll users in testing, and—most important—not to be afraid to try something that might fail. Two years later during an international crisis, the fledgling system was put to the test, and it passed with flying colors. Easily accessible, it became a trusted source of information for leaders throughout the agency. After another year of prototyping, the executive transferred responsibility for the system to the IT division. How did this executive know that the Internet would become a core resource? Why was he willing to venture beyond his budget to invest in a risky project? Because this executive had spent years developing his judgment gene. You should too.

Five Realms of Judgment

The decisions that leaders make are more strategic than those made by managers. They define where the organization is going, its mission and vision, its strategic partnerships, and the services and products it will offer. The decisions that managers make determine how well and how fast things get done. Both leaders and managers exercise judgment across five realms when they make decisions:

• Strategy realm: What will happen tomorrow? In which direction should I lead my organization? Which actions should have the highest priority?
• People realm: Whom should I hire or promote? Whom should I assign to a key role? How should I handle personality differences and conflicts?
• Resources realm: Where should I assign my best people? How should I allocate my financial assets? Where should I invest my time?
• Decisive moments realm: How will a given change or new technology affect my organization’s future? How can I exploit this opportunity?
• Crisis realm: How should I resolve this crisis and minimize its adverse impact? How can I transform this problem into an opportunity?

One key use of your judgment gene is to build a team that makes good decisions, so involve your high potentials in decision-making conversations often. As a manager, you may have hired people primarily based on their skills and experience; but as a leader, you will place more weight on their attitudes and their judgment. Judgment depends more on the experiences that people have had and what they learned from them, and less on how many birthdays they have celebrated.

Leaders who have fine-tuned their judgment gene make a high percentage of sound decisions that can be executed effectively. It is not that a great leader never makes a bad decision. Rather, great leaders quickly realize when a decision is wrong. Encourage people to challenge your judgments, and be willing to explain your decisions in terms of the criteria, inputs, information, and experience you used to make them. If subsequent events or new information show that you made a bad decision, you need to admit it, learn from it, and move on. The conversations that occur during the process of making, implementing, and examining the results of decisions will enable you to institutionalize decision-making discipline and develop the judgment gene in your people.

Leadership gurus agree that judgment is learnable, but the lineage of judgment and experience is a hotly contested chicken-and-egg debate. Experience without judgment has little value, but good judgment without experience is still good judgment. At the same time, a person with little experience is unlikely to have good judgment, as experience provides feedback that sharpens judgment. Some people have had long experience but have gained little judgment. They have endured the same one-year experience ten times rather than learning from ten years of progressive experience. Good judgment is born in experience, rooted in emotional intelligence, sharpened by mentoring and coaching, and embedded in the culture of an organization.

Judgment Is a Process, Not an Event

Great leaders evaluate scenarios and prepare strategies long before it is time to act. Your business plan probably considers the events you expect in the future and is a guide for what you will do in those situations. But when reality throws curve balls at you, as it often does, will you and your people freeze, or will you regain alignment quickly? The judgments you and your people make in decisive moments and crisis situations turn out better when they are supported by planning. Leaders who plan thoroughly are consistent winners in the market, whereas those who do not are left to limp from crisis to crisis.

For example, years before Hurricane Katrina struck in 2005, the Department of Homeland Security issued a four-hundred-page National Response Plan that supposedly scripted the government’s response to man-made and natural disasters. But when Katrina struck, rescue volunteers and victims were frustrated by the endless planning meetings that were held in the middle of flood zones because the plan did not provide decision-making criteria or describe what actions would be taken by whom. It is dangerous to begin identifying and analyzing potential alternatives in the middle of an emerging crisis.

Most people think good judgment occurs in the instant a decision is made, but it is actually a process that unfolds over time. Good judgment is developed in four steps:

In using this process, hold preparation conversations often in order to prepare everyone for making decisions. During preparation, it is more important to discuss possibilities than to forge the perfect plan. Notice that assessments are really part of preparing to make the next decision; this produces a seamless decision-making process. Highly effective organizations use a process like this to develop high potentials who will make smart decisions and implement them effectively with little hesitation—even in a crisis.

Keystone Judgments

The effectiveness of decisions that executives make depends as much on the issues they judge to be important as on their ability to address them. Operating in a management mindset, executives sometimes jump into action to solve a problem or exploit an opportunity, whereas experienced leaders consider five keystone judgments before making a decision:

Make these keystone judgments part of your judgment gene so that you and your high potentials will make the right decisions at the right time in the right way—and avoid seeing your name in the news for a bad decision.

How Decisions Are Made

How you make decisions is as important to your success as the decisions themselves. Decision-making conversations add to the potential effectiveness of the organization by

• Enhancing relationships by saying yes to an employee’s innovative idea
• Developing others by validating employees’ ideas and tapping into their potential
• Creating a sense of ownership for the success of a decision
• Aligning everyone behind the decision and the actions it requires

Leaders unleash enormous energy by using decision-making conversations to help people commit to success. By exploring ideas thoroughly and saying yes, a leader validates his team’s value and increases their confidence and commitment.

Making effective decisions is the heart of leadership—it is what leaders are paid to do. Yet business periodicals regularly feature articles about executives who made incredibly poor decisions. Those articles raise the question, “How can an executive with decades of experience and a large support staff make such poor decisions?” It often is because the executives made a decision too fast, too soon, or without using a structured approach. They may have skipped some steps in the decision-making process or not truly listened to the inputs provided by others. In our experience, few organizations have an abundance of effective decision-makers—yours probably does not either. Leaders who consistently make good decisions—in the organizations that make the news because of superior results—teach their people to use a structured and repeatable process to make decisions.

Leaders in those organizations do six things every time—and do them well. Figure 16.1 lists six decision-making elements and describes the viewpoint first-line managers, managers of managers, executive leaders, and CXO leaders generally bring to each element. Ensure that your decision-making conversations cover these six elements.

FIGURE 16.1. Structured Decision Making.

Leaders rarely have enough time or data to evaluate all alternatives, but they still follow a structured decision-making process.

Problem Solving Versus Decision Making

It is easy to confuse problem solving and decision making—but both are essential. Problem solving is part of the management mindset. In solving problems, the manager evaluates current results against standards and generally sees any adverse deviation as a problem. The problem is solved when root causes that explain all facets of the problem are unambiguously identified. In contrast, decision making is a facet of the leadership mindset. Properly defined objectives are the bridge between the management and leadership mindsets with respect to problem solving and decision making.

Leaders identify and analyze alternative courses of action relative to the time and resources they consume and the risks they entail. One effective approach is to assess the problem and potential solutions in a conversation. Ask your people to challenge the problem definition and assumptions behind that definition because, if you identify the wrong problem, the solution you pick is not likely to succeed. Evaluating alternatives often requires input from multiple sources, such as peer executives, accountants, forecasters, and customer focus groups. For example, finding a solution to declining sales might require you to obtain feedback from the sales force, product performance data, a market analysis, and customer satisfaction surveys. After you have defined potential solutions and collected information about each alternative, you are ready to evaluate the pros and cons.

Quantitative and intuition-based approaches each have a place in the evaluation of pros and cons. Quantitative evaluations look toward the future using new data, whereas intuition is rooted in past experiences. In evaluating alternatives, encourage dissention to ensure that people do not tell you what you want to hear instead of their real thoughts. Do not hesitate to challenge an expert’s opinion to confirm how well she understands the problem. Ask other executives to provide input about how your decision might affect their operations. Remember that so-called rules of thumb are often unreliable or irrelevant; and forecasts, though useful at times, may not be accurate.

You may be tempted to jump on the first option that meets an objective. But refrain from shortcutting the process; people need time to form ideas and find the courage to voice them. Make a decision only after its full consequences are considered. If you jump too quickly to a decision, you may cause unintended consequences that force you to repeat the entire decision-making process. Part of your job as a leader is to get others to open up about their concerns and, after the decision is made, to focus their energy on implementing rather than questioning the decision.

Make Decisions Decisively

Making leadership decisions is like driving in a NASCAR race. When should you take the lead, and when should you maintain your position? If you move into the passing lane too soon, you could waste gas and find yourself further behind. But hesitate too long, and you could miss a golden opportunity to take the lead. So how can you make the right decision at the right time?

Effective decision-makers share three characteristics: experience, confidence, and decisiveness. NASCAR drivers do not have those traits the first time they sit behind the wheel. They develop them over time, often in races they lose. Few fans appreciate the hours that drivers spend practicing and the number of times they have spun out. Winning drivers are confident because they know the limits of their skill and the capabilities of their cars from practice runs and previous races. Similarly, effective leaders have confidence in their decisions once they understand the skills and capacity of people in their organizations, as well as their own limitations.

Decisiveness is different from confidence, however. Decisiveness is the willingness to accept the results of your decisions no matter what they may be. Questioning a decision after you make it can adversely affect results. Many times, initiating action even though you are unsure of its outcome is less risky than not making a decision. But once you make a decision, move on with confidence.

If you feel that making decisions in your organization is as risky as driving in a NASCAR race, you are not alone. Few executives have the experience, confidence, and decisiveness needed to make great decisions on their first day in a new position. However, if you make decisions after appropriate conversations, avoid second-guessing yourself, and learn from your successes and failures, you will soon be winning the races in your industry.

Growing the Judgment Gene in High Potentials

When we meet with senior executives, they often ask how to grow the judgment gene in their high potentials. We respond that the best way to cultivate judgment is to have conversations about recognizing new patterns from just a few pieces of data. Leaders who possess that skill usually are ahead of everyone else in exploiting opportunities. Their decisions meet with uncanny success because they use judgment that is rooted in a curious mind, thorough planning, past experiences (both good and bad), and criteria that differentiate minor risk from major risk.

Data are illuminating for some and mind-numbing for others, depending on how they look at numbers. For example, Pam, a high-potential sales manager, always seemed to recognize emerging trends and make great decisions well before others became aware of a change. When we asked Pam to explain her secret, she responded, “Most people look at numbers to confirm their beliefs, and discount any surprise as an aberration or one-time event. It’s as if the numbers are wrong if people don’t like them. Even when a problem is obvious, they ignore it and wait for the next month’s numbers before making a decision. That gives me an automatic thirty-day head start!”

That made sense, we thought, and asked her what unique techniques and mindset she uses to examine data. Pam reflected for a moment and replied:

The failure to recognize trends—or refusal to acknowledge and act on them—can undermine the largest organizations. The financial industry is still deluged with ideas to curb the high-risk judgments that were blamed for the near-collapse of the global financial system in 2008–2010. In those years, the world watched respected leaders like the CEO of Lehman Brothers (which declared bankruptcy in September 2008) slide down the slippery slope of bad judgment and destroy organizations and careers. In congressional testimony after the bankruptcy, the Lehman Brothers’ CEO maintained that he had exhibited good judgment under the circumstances.

Many executives use that defense when things go wrong; they credit success to their skill and knowledge, yet they attribute failure to factors beyond their control and misjudge the trends. Many employees do not speak up because they assume that the boss has better judgment than anyone else—which is not categorically true. You may have better judgment than your boss in a particular matter, or one or more of your people may exhibit better judgment than you. If this is the case, exercise the superiority of your judgment by having a conversation with your boss or by endorsing your people’s decision. It is not a matter of ego—it is about getting the best results.