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One of the first things I teach executives in decision making is to clearly define your objectives before you start formulating alternatives and solutions. The healthcare bill that Congress is struggling with provides us with a good case study of how not to go about making a decision. They never agreed on their objectives, and as a result the pending legislation is a mess, trying to achieve many different objectives. The bill is so complex because there are provisions for everyone’s different objectives. If only they had taken the time to agree on the objectives up front instead of jumping immediately into the solutions, we would probably have at least something in place now.

In my book Business Decisions I discuss the how to define the objectives when making group decisions. You need to have clear and specific objectives for a decision. If you try to achieve too many objectives (as Congress is doing), you inevitably get tied up into a decisions mess without consensus (as is the case now) because you lost sight of what it was you were trying to do in the first place. Let’s say that Congress agreed that reducing the cost of healthcare was the objective. The benefits of this would be obvious: lowering the premiums for everyone, reducing the cost of Medicare and Medicaid, and then making it more affordable to expand healthcare coverage as the next objective. After agreeing to the objective, they then could put the alternatives for achieving this objective on the table and discuss how these best achieve the objective of lowering healthcare costs. I believe that they then would have extensive bi-partisan agreement because the bill would be fact-based, instead of being based on everyone’s individual and differing objectives.

The failure of healthcare reform is not based on political differences. It’s a failure of the competency of our leaders to know how to make important decisions.

What are the objectives of the healthcare bill anyway?

One interesting aspect of Toyota’s botched crisis decision making is how the Japanese culture may have influenced its decisions. In studying decision making globally, I’ve found that business decisions are shaped by both corporate culture and national culture. Culture biases decisions. One company’s inclination and tendencies in decisions is different from others. Companies rooted in one national culture have decision inclinations and biases different from others. In my book Business Decisions I discuss how corporate culture influences business decisions. Let’s use the Toyota example to see how national cultures influence business decisions.

First, Japanese companies do not make good product recall crisis decisions. Historically, they tend to overlook product recall problems, even though they are good at quality. There have been several examples of this in the last decade. They generally respond very slowly and tend to minimize the concern of product risks on customers. Either a cause or effect of this is Japan’s product liability law, which limits damages in cases where customers are injured. In the Japanese culture the shame of product problems can loom large, so there is a tendency to hope it will go away. Second, there is more respect for higher authorities in Japanese companies. Workers don’t dare to speak out and challenge superiors. So in cases like this, even though some of the engineering and support people may have known about the sudden acceleration and braking problems, it was not in their culture to speak out. Finally, decisions in the Japanese culture are slow and deliberate. They study an issue like this extensively and build a consensus within the company before deciding what to do. Crisis decisions require a quick response from leaders. Toyota seems to have been studying these problems while customers continued to be killed or injured by the problems they were studying.

The way the Japanese culture influenced Toyota’s response may be an explanation, but it is not an excuse. Global companies must make decisions based on global expectations, not national culture. Otherwise Japanese companies which are now known for high quality because of the way they make decisions will also be known for risky products because of the way they make crisis decisions.

Toyota’s recall January 21^st of millions of cars because of dangerous sudden acceleration problem provides a case study in how crisis decisions can suddenly accelerate (pun intended). Chapter 18 of my book Business Decisions I discuss dealing with crisis decisions and point out that how a company makes a crisis decision can mean survival or failure. It illustrates examples of how a crisis decision should be handled, and how it can be a catastrophe if not handled appropriately. Toyota should have read my book. The way it handled this crisis decision is appalling, and it is only just beginning to see the impact of this blunder.

The keys to handling a crisis decision are to identify it early, take it seriously, move quickly, and over react instead of under react. A business needs to make sure that any issue that could become a crisis filters quickly to the top, and executive management needs to be very responsive to these types of issues. This was Toyota’s first big mistake. Toyota first identified accelerator pedal problems with its Tundra early 2007. This should have filtered up to be a potential crisis decision: could this really be a problem and how many vehicles could have the same problem. Toyota should have investigated and tested this extremely thoroughly and changed the pedals in all vehicles, just to be cautious. Being overly cautious (over reacting) is the way a crisis decision should be made. Companies that over react to potential problems like this build a reputation of being trusted; those like Toyota won’t be trusted again for more than a decade. Early in 2009, a Toyota spokesman blamed customers for this sudden acceleration problem, saying that drivers were under a lot of pressure and had many distractions; were busy with the kids, boyfriends and girlfriends; and distracted by pagers and cell phones. Later that year in August, a California Highway Patrolman and his family were killed in a sudden acceleration accident. Toyota kept its focus on floor mats (either they didn’t really evaluate the problem or thought floor mats were a better explanation) and vehicles were recalled to replace/fix floor mats, sometimes they were just tied down.

The day after Christmas last year, four people were killed near Dallas in a Toyota Avalon because of sudden acceleration – and their floor mats were in the trunk. [Note: A commercial for the Toyota Prius just came on TV. We were going to buy one – but not now.] January 21st Toyota recalled 2.1 vehicles in the US, but kept selling them. Now it is required to stop selling them. For Toyota, this crisis is now accelerating and it needs to make better crisis decisions.

So far, Toyota has made all the crisis crisis decision mistakes. It dismissed indications of these problems without taking them seriously enough. Who made that decision? Most likely nobody; it was just ignored. When owners of Lexus sedans began reporting harrowing crashes involving stuck accelerator pedals in early 2007, Toyota told U.S. safety regulators there was no safety problem with its floor mats — but it would send owners an orange warning sticker just to be sure. Maybe Toyota has problems both with floor mats and the accelerator pedal; maybe the floor mats were just more easily blamed. Toyota is still making poor crisis decisions. It needs to really understand the underlying problem, come clean with its mistakes, cease selling vehicles until it overly fixes the problem, apologize for those who were killed or injured and pay restitution, and make it up to all owners of vehicles that are recalled by giving them free loaner cars and big rebates to purchase new Toyotas to offset their losses on the resale value of their cars. This will cost a lot of money, but its reputation for safety and maybe its survival are at stake here and now.

Today Apple announced its new iPad. Again this provides a lesson in decision making. With every Apple decision over the last decade, it will be criticized by many. The iPod was criticized because it would be just another music player. iTunes was criticized because it was just another music store. The iPhone was criticized by many because Apple could not compete in the cell phone business. Apple apps were criticized because their value was not understood. The iPad is just a big iPod – that will be the criticism – too expensive, limited in media available, etc. But Steve Jobs, and Apple, can teach everyone valuable lessons in decision making.

These decisions were single decisions; they were a decision to go down a new path. Each of these was the launch of a new product line in a new market space, not just a product. There are two decision lessons here for businesses. The first is to look at strategic decisions like this as creating a new path, not just a single decision. A new path creates opportunities along the way – opportunities to launch new versions of the product and keep improving it. Apple kept improving the iPod, iTunes Store, and iPhone along the way, creating $12 billion in additional revenue. Businesses should approach strategic decisions as starting a journey on a new path and consider the opportunities it creates.

The other lesson is bold move decisions. Each of these new product lines was a bold move decision. Apple has grown because of bold moves decisions. Too many businesses fail to even consider bold move decisions, let alone have the courage to make them. To be successful in the future, businesses need to make bold move decisions!

These are decision lessons that can also be used in personal decisions. Decide to create an entirely new path for your life, instead of just making individual decisions. Make bold move decisions that can reshape your life.

So look at the Apple iPad not just as a new product but as decision-making lesson as well. Over its history, Apple also provided decision lessons in bad decision making, such as with the Newton. Steve Jobs learned from his good and bad strategic decisions and now is putting that experience to work. We can all learn from him too.

For more insight and guidance with improving decision-making skills, visit DecideBetter.com.

    As an expert in decision making, I pride myself on identifying examples of good and bad decisions. When NBC fist announced its decision to bring Jay Leno to prime time, I saw it as a terrific bold move decision. The television industry was facing declining viewership and advertising revenue and increasing production costs. Reality TV shows were one way to manage costs and increase profits. With one bold move, NBC created a new business model by putting Jay Leno into five prime time hours a week. The economics were beautiful. NBC reduced costs from about $3M per hour to produce a drama to about $300K. This lowered costs by almost $10M per week. Even if viewership was low, this was good economically. Jay Leno claimed that even if NBC got only 1.5% of the viewers it could make $300M a year. This bold move also kept Jay Leno with NBC instead of defecting to another network. This strategy worked reasonable well for NBC.

    But, the economics for NBC were not the entire story. Its local affiliates rely heavily on their 11 PM news for most of their revenues, and the lower ratings for the Leno show significantly drove down their viewership. It seems that a lot of TV viewers simply stay on the same station when the local news comes on. This move was killing local affiliates, and they threatened to stop showing the Jay Leno show to protect themselves. The decision was reversed this week.

    So the question is: why was this impact on local affiliates overlooked in the original decision? Was it not considered much at all and became an unintended consequence? Was it an assumption that the impact on local affiliates would be negligible? Was the decision made by NBC in isolation, without any concern about the impact on local affiliates? No matter which of these it was; it was a faulty decision and expensive mistake that could have been avoided if the decision was made more thoroughly.

    The decision to bring Jay Leno to prime time provides a case study in decision making, but not the good decision example I originally thought it was. It provides an example of how important it is to think through decisions better than this.

I’ve taken some time to look through the Senate Health Care bill – maybe it was a waste of time. It’s more than 2,000 pages with a new 383 page amendment. It seems to include everything anyone could think of: an alternative dental health care providers demonstration project; geriatric education and training career awards; nationwide program for National and State background checks on direct patient access employees of long-term care facilities and providers; federal coordinating council for comparative effectiveness research – and much much more.

This led me to consider this bill in light of decision making and compare it to business decisions (Business Decisions). Why does it need to include so much? The political trick is to add special interests to major legislation so that these get carried along without discussion. The extension of company paid COBRA benefits in the Defense appropriations bill a few days ago was another example. This is really a poor way to make decisions. Each decision should stand on its own merits as is done in business decisions.

In making a decision on such historic legislation like this should senators read the bill in its entirety before voting on it? Yes. In business decisions, executives read major proposals and legal documents before deciding on them. CEOs and directors read 10Ks before approving them. But I doubt that many senators actually read the bill in its entirety before deciding on their vote. How can you vote in favor of something you haven’t read? It’s easy – it doesn’t matter what’s in the bill anyway because the vote is based on your political party: 60 to 40. Nevertheless, I think that senators should be required to read the bill before their vote. Maybe they should be required to take a test on it before they are qualified to vote. At least it would make voters feel that their representatives were actually doing the job we expect.

Recently I posed the question on whether the time it took for President Obama to make his Afghanistan decision was procrastination or deliberation. Now that the decision has been made and announced, we can examine the process itself, thanks in part to the comprehensive exposé by Peter Baker in the December 6, 2009 New York Times. Presidential decision making, particularly for difficult strategic decisions, is one of the most important qualities of a president. Only time will tell, or we may never know, whether this turns out to be the right decision, but it does illustrate the characteristics of a thorough and rigorous strategic decision process; one that can serve as a good case study for strategic business decisions.

Obama made everyone on his team work long and hard on the decision. The process was methodical and rigorous, taking three months of regular work to review and evaluate alternatives. He separated the critical parts of the decision process into steps: deeply understanding the problem, evaluating the alternatives, revising the alternatives, discarding alternatives, considering the implications of the final choice, and building support from his team before it was announced. He met 10 times with his national security team to understand the facts, frequently asking penetrating questions, asking for additional analysis, and suggesting new alternatives. During this process, the president gained a very deep understanding of the situation and the implications of the decision. In a decision this complex it would have been a mistake to shorten the process to a single meeting. Coming to a quick decision based on intuition or gut feel would have rendered a completely different decision and one that may not have been well considered.

The president spent a lot of personal time on the decision, not just listening to the opinions of his advisors but also shaping his own opinion. In too many cases in government and in business, the chief executive is too busy to get deeply involved in major strategic decisions. This is usually a mistake. The leader making the final decision needs to listen to advisors in major strategic decisions, but not let them make the decisions.

Sometimes a complex decision process is too rigid: “here are the alternatives, pick one”. But this one demonstrated the importance of how complex decisions evolve. As this decision progressed, the objective was refined. It evolved from destroying the Taliban to diminishing Taliban insurgency and transferring authority to the Afghan security force. The objective as also expanded to include the timing of withdrawing troops more quickly. Refining the objective is a characteristic of complex strategic decisions. As the alternatives are better understood, objectives can be refined to better match the realistic restrictions of alternatives, as well as the additional possibilities alternatives may present. About half way through the process, the president discarded one alternative, withdrawal, because he believed it wasn’t viable. This enabled attention to focus on the remaining alternatives.

At the same time, it is important that alternatives also evolve and take shape. In a strong decision process, it is not just “pick from the alternatives presented”, the leader making the final decision shapes the alternatives. This is an integral part of this decision. President Obama wanted to consider an alternative for 30,000 troops not just 40,000, and this was called alternative 2A. When reviewing this alternative, he again expressed concern that it would take too long to deploy the troops. He wanted to “move the bell curve” to the left: deploy more troops faster and withdraw them earlier. The team also took time to validate some of the assumptions in the alternatives. For example, General Petraeus confirmed that the surge could be done in six months similar to what he did in Iraq. Afghan president Hamid Karzai confirmed that he was comfortable with taking over security responsibility faster.

On the day after Thanksgiving, the president presented to his team a revised alternative 2A with a different shape of the deployment and draw down bell curve. He continued that meeting from 10:30 AM to 9:15 PM, refining the plan until everyone was in agreement. He specifically asked all of his advisors if they were in agreement, and they all responded positively. Building agreement is another characteristic of a good strategic decision process. In some ways this is the opposite of a consensus. A consensus implies including the opinions that everyone came in with. Building agreement in this case came from participation in the process. Everyone went through the process, made their thoughts known, discussed the alternatives in depth, and reached a common understanding of the facts, assumptions and alternatives. A good strategic decision process builds agreement among those involved in the decision.

The president also used this final meeting to outline his announcement. The announcement of a strategic decision like this itself can refine some of the details of the plan. For example, care was taken to define and present this strategy as very different from the one in Vietnam. In addition, President Obama also established boundaries on the next review of this strategy, making it clear to the military that in December 2010 he would only consider flexibility in the draw down, not the draw down itself.

Whether you agree with the president’s decision or not, or how it turns out in the long run, it does provide a case study of the characteristics of a thorough and rigorous strategic decision process that can serve as a model for complex strategic decisions in business as well.

President Obama intends to announce his decision on plans for Afghanistan on Tuesday. He has taken months to make this decision and consulted with his war council at least nine times. This is a tough decision (see Business Decisions for more on Tough Decisions), and he has been thinking about it for some time. His decision process on Afghanistan has focused attention on the way presidential decisions should be made. Has the president been procrastinating on this decision or deliberating, taking the necessary time to make the right decision? Let’s look at the case for each.

The president has been procrastinating to delay the decision. The Afghanistan decision is a classic tough decision: no matter what he decides it will be unpopular and criticized. Many of his supporters and many from his own party will disagree with sending more troops. Additional funding for an increase will bring more criticism and require support from the Republican Party, as many Democrats will be against it. The chairman of the Appropriations Committee is calling for an additional income tax to fund an expansion of the war. This will make it even more unpopular. If the president decides not to support expansion of the Afghan war, he will be blamed for any subsequent failure of the war and for not having the courage to do what was needed. No matter what he decides, his critics will use it against him, and the division of the American people on the issue will help feed that criticism. Procrastination is common when someone is faced with a tough decision that will be criticized no matter what is decided. The president is procrastinating to postpone the anguish that will come from all the criticism, but in procrastinating, sometimes the situation gets worse, as it may have in Afghanistan.

The president has been deliberating to make the best decision. President Obama has a very different decision-making style than his predecessor, George Bush. President Bush was an instinctive, some say “jump too fast to a conclusion”, decision maker. President Obama’s decision style is the opposite. He doesn’t go with his gut feel; he takes time to think through the alternatives, seek advice, consider the outcomes, and then decide. This more deliberate decision process will usually lead to a better decision because it is more thorough. The decision takes shape over time, enabling a more complete decision that considers all critical factors and assumptions. More deliberate decision making, particularly with tough decisions, is an important characteristic that many Americans look for in a president. A gut-feel decision by the President of the United States scares a lot of people. President Obama’s deliberate decision process on Afghanistan will lead to the best decision because it was thorough, and he took the time to do it right.

In this decision, President Obama will be judged as much on his decision process as the decision itself. After all, since we don’t have the benefit of the information he had in reaching a decision, our confidence in the decision is based on our judgment of the process. So, what is your conclusion: procrastinating or deliberating?

With all the recent attention on Healthcare Reform, it may be appropriate to consider the worst healthcare problem the country faces and think about unanticipated consequences. Medicare will surely bankrupt the American economy! Just like the Ponzi scheme reinvented by Bernie Madoff, Medicare makes promises for future returns on today’s “investments” that it can’t possibly keep. “By paying the Medicare tax today to support the medical costs of today’s retirees, your medical costs will be covered when you retire.” This is eerily similar to Bernie Madoff’s promise that new investors would get the same returns in the future as previous investors, while all the time he was using the new investors’ money to pay the returns to previous investors. The Medicare system is different since it uses the money from those paying taxes today to pay the benefits of those who paid in the past, with the promise that those paying today will get their benefits in the future — oh actually this is the same. The only difference between the two is the size: Madoff had a $50 billion Ponzi scheme while the Medicare scheme is at least $80 trillion!

While the Medicare proposition sounds compelling, here is the problem: the current Medicare liability is more than $80 trillion and the entire US economy is only $15 trillion. The Medicare liability is five times more than the entire US economy! There is no reasonable amount of future Medicare tax that will pay for this liability. Some experts estimate that it might require a Medicare payroll tax of 30% in the future on top of income taxes, bringing the average income tax to more than 50%. Medicare will surely bankrupt the American economy. Those paying Medicare taxes today will be stiffed, just like Madoff’s investors, and will not have the healthcare coverage they were promised.

So a few recommendations. First, legislators should consider the future consequences of health care reform decisions. Second, even though the Medicare problem is messy maybe it should be addressed. Or it could be ignored, just like Madoff’s scheme was until it crashed. Madoff went to prison for his Ponzi scheme, will anyone go to prison for perpetuating the Medicare Ponzi scheme? Third, maybe Bernie Madoff’s sentence should be to run Medicare, since he has the experience to keep it going as long as possible.

In my upcoming book, Business Decisions (October 2009), I discuss how businesses sometimes need to make tough decisions. I define a tough decision as a decision where none of the alternatives are attractive, but the decision still needs to be made. The recent and upcoming decisions to reduce the number of auto dealers are an example of tough decisions that needed to be made. Chrysler announced that it will close 789 dealerships, and GM today announced that it will close 1,100 dealerships with more than 1,000 more expected to be affected when GM phases out or sells Pontiac, Hummer, Saturn, and Saab. Many people are obviously unhappy with these decisions. It will put many people out of jobs and have a devastating effect on many communities, yet it was unfortunately a necessary tough decision.

The US auto manufacturers had too many dealerships for the current and expected volume of sales. This overcapacity caused most of the dealers to struggle and be unprofitable. Their dealerships were forced to aggressively compete with each other on price, reducing everyone’s profits to unsustainable levels. At the same time, Toyota and other foreign auto manufacturers have far fewer dealers, giving their dealers the advantage of selling more cars, sustaining profits, and investing more. In court filings, Chrysler disclosed that it sold 303 vehicles per dealer while Toyota sold 1,292 and sold 1,030.

This problem has been brewing for a long time, as the US auto manufacturers’ market share steadily declined while the number of dealers stayed too high. Why did the US auto manufacturers wait so long to make this tough decision? In part, because it is always difficult to face up to tough decisions. In part, because decisions on slowly eroding problems seem to always be put off. But now with Chrysler and GM facing bankruptcy, they can legally void their dealer contracts without added financial burdens. When GM closed its Oldsmobile line, it paid an estimated $2 billion to dealers.

Tough decisions are sometimes necessary even though unpopular. These decisions were tough decisions.