The 40-70 rule of decision-making

Published: April 27, 2020 2:50:48 AM

Leaders should take a decision when they have 40-70% of the information required for taking that decision.

Colin Powell is credited with the 40-70 rule of decision-makingColin Powell is credited with the 40-70 rule of decision-making

By Vidya Hattangadi

Our ability to become great marketers, managers, leaders and entrepreneurs centres on the fact that we are able to make confident, well-informed decisions on a regular and consistent basis. Timely decisions are pivotal for a business, and from designing a new product to sorting out accounting issues, our day-to-day routine works are developed with decisions. We cannot envision successful leaders standing around appearing unclear and uncertain. Instead, we see them as people who are able to quickly arrive at decisions and communicate goals to others.

Tim Cook is the CEO of the most valuable company in the world, Apple. He took over Apple after the company’s founder, Steve Jobs, succumbed to cancer in 2011. Cook has helped navigate Apple through the transition after Jobs’s death as well as developing new product lines and opening Apple retail stores even in China. He has also led a very public battle against the FBI and their demand that Apple creates a backdoor for users’ iPhones. The iPhone was locked with a four-digit passcode that the FBI had been unable to crack. The FBI wanted Apple to create a special version of iOS (operating system used by Apple) that would accept an unlimited combination of passwords electronically, until the right one was found. The new iOS could be side-loaded onto the iPhone, leaving the data intact. Cook was convinced that a new unlocked version of iOS would be very dangerous. It could be misused, leaked or stolen, and in worst situation it could never be retrieved. It could potentially undermine the security of hundreds of millions of Apple users.

Research has shown that the best leaders are the ones who are able to take big decisions often, as well as taking those decisions with a resulting positive outcome. Anyone can make choices quickly, but to do so with efficacy is the key.

CEOs such as Cook don’t do a whole lot of the steady, hard labour. Instead, they’re the ones directing the flow of traffic. They take the big decisions, which then filter down to the rest of the staff. The results can have enormous impacts down the line, making it even more important that the decisions they take are correct and with good outcomes.

The 40-70 rule: Every decision that we take is determined by a variety of factors such as our confidence, our knowledge, our experience, and our willingness to call the shots. The threshold for all of these pieces coming together to help in the creation of a decision is where things can get blurry. The former head of US military forces and former secretary of state Colin Powell is credited with the 40-70 rule of decision-making. Powell is a well-known and respected strategist and leader. His leadership theories are a subject of study by many scholars and practised by many of his admirers in the military and in public and private sectors too.

His 40-70 rule says that leaders should be taking decisions when they have between 40-70% of the information required for taking a decision. According to him, when you take a decision with less than 40% information, then you are shooting from the hip, which literally means to speak or act quickly based on first impressions, without carefully studying the background information.

It is always better to wait until you have more than 70% of the information, and you have studied it deeply. When decisions are taken based on scanty information, they sound indecisive and overwhelmed, and you stand to risk the productivity of the entire organisation.

The 40-70 rule is a two-way approach to decision-making. First is analysing your percentage of accuracy. To get a better understanding of where you fall in the 40-70 range, Powell introduced the formula ‘P = 40 to 70’. Here, ‘P’ stands for the probability of success and the numbers indicate the percentage of information acquired. While this can be hard to judge, you will need to estimate where you think you fall in this range based on what information you have.

The second part is: trust your gut feeling. When you reach that sweet spot between 40% and 70%, then it’s up to your intuition to take the right decision. This is where most effective leaders are born, because it’s not just about the facts, it is also about the leader’s gut instinct. And those with an instinct pointing them in the right direction are the ones who will lead their organisation to success.

It is said that Henry Ford used to take intuitive decisions. When he faced falling demand for his cars and high worker turnover in 1914, he did something that probably made other barons of industry go pale: he doubled his employees’ wages. It appeared to be crazy. Well, within a year, turnover dropped by a factor of more than 20, while productivity nearly doubled, and demand for Ford cars boomed because Ford’s own workers could now afford the product they were making. Wasn’t that a smart decision?

The consequences of the 40-70 rule: Just as there are consequences for every action, there are also long-reaching consequences for business operation. In fact, this is what spurns the idea of the upper limits of the 40-70 rule. When you initiate a decision falling outside the parameters of 40-70%, it can result in taking a decision that may have been correct but that doesn’t fully address the situation because you simply didn’t think about the far-reaching consequences of your decision. Taking good decisions requires balancing the seemingly opposing forces of emotion and rationality.

The author is a management thinker and blogger

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