Have Good Judgement
Fortune truly helps those who are of good judgment -Euripides
Opening Case Study:
Good Judgment: Warren Buffet
Known as the ‘Miracle of Omaha’, Warren Buffet is the chairman and chief executive officer of Berkshire Hathaway. He is one of the wealthiest people of the world and a highly successful investor of the twentieth century with keen sense of judgment. In 2008 Buffet was ranked as the world’s richest person and third richest in 2011. Listed in Time magazine’s ‘most influential people of the world’, Buffet has made a mark for himself due to his exceptional judgment skills. When children of his age were busy playing he was busy making money. He sold various items door-to-door and also worked at a grocery store owned by his grandfather. Even when he was in high school, he managed to make quite a lot of money by selling stamps, golf balls and delivering newspapers. In 1945, which was his sophomore year in high school, Buffet bought a pinball machine for 25 dollars and placed it at a barber shop. In a few months’ time he owned several other pinball machines. Buffet’s interest in stock exchange grew and he bought his first shares at the age of 11. Warren, like many other hugely-successful entrepreneurs, was something of a genius as a child. Buffett’s forté was figures, and he was capable of adding up numerous columns of numbers right in his head. Onlookers often thought that he was a mathematical wizard. His father was a stockbroker, and this permitted Buffett to learn the inner workings of the stock market, which he embraced wholeheartedly. His father allowed him to write the stock prices on the blackboard at work, and by the time Buffett was only eleven years old, he started trading.
Take any Fortune 500 CEO into consideration. Chances are that you remember them for their best or worst judgment. Amongst CEOs, Coca-Cola’s Roberto Goizueta will eternally be associated to his devastating decision to launch New Coke. Carly Fiorina was a trend-setter in the race of female executives, but she’ll be recalled for destroying Hewlett-Packard’s culture. In contrast, Andy Grove and Gordon Moore made the right decision of calling off the memory chip business and steering Intel to become the powerhouse in microprocessors that it is today. In a nutshell, people who make good judgment calls are hailed as successful entrepreneurs. People who exercise poor judgment are considered failures. It’s that simple.
All through the life of the entrepreneur, he makes thousands of judgment calls. Some are trivial, such as deciding the color of the office walls. Others are critical, such as whom to appoint as board of directors and what domains to pursue in business. The measure of success in the life of an entrepreneur is the sum of all these judgment calls. It matters to ask, did one make good calls about the things that really mattered?
The ability to exercise good judgment determines the quality of an entrepreneur’s life. And, as he climbs up to positions of leadership, the significance and cost of his judgment calls are magnified exponentially by their rising impact on the lives of others. Put basically, entrepreneur’s judgment calls decide the success or failure of their organizations.
However what really makes a difference is not simply how many good judgment calls an entrepreneur makes. Rather, it is how many of the important ones he gets right. First-rate entrepreneurs not only make better calls, but they are capable to differentiate the truly essential ones and get a higher proportion of them right. They are better at a whole course of action that runs from observing the need for a call, to forming issues, to comprehending what is critical, to mobilizing and energizing employees.
How do we define judgment? It is an informed decision-making process that encompasses three areas:
- Judgment regarding people
- Judgment pertaining to strategy
- Judgment in time of crisis
Within each area, entrepreneurial judgment follows a three-phase process:
- Homework or what happens before the entrepreneur makes the decision.
- The Call or what the entrepreneur does while making the decision to be right.
- Implementation or what the entrepreneur oversees to make sure the call generates right results.
Good entrepreneurial judgment is assisted by knowledge of one’s self, network, organization, and circumstance.
Let’s understand the three phases of the judgment process in further detail and examine them from the viewpoint of the three domains of people, strategy, and crisis.
The Homework stage starts with discerning and identifying the need for a judgment call. In a people judgment call, the question is when an employee needs to be replaced. The judgment call involves letting go of the employees who shouldn’t be around. Many entrepreneurs fall short in making the right judgment call about firing an employee because they fail to see the need.
There have been many instances in the history of entrepreneurship, where entrepreneurs did not make out the need for strategic judgment calls. The best of strategic judgment calls involved the transition from telegraphs to telephones, railroads to automobiles, or IBM hardware to Microsoft software.
In the third domain of crisis judgments, it’s mostly straightforward to sense and make out the need for a judgment call. A lot of them appear with such urgency that it is not possible to ignore them. But others are more subtle. They should be handled with due care.
Once entrepreneurs identify the need for a judgment call in any of the domains, they must frame it and name it. There is great power in framing a concern and then giving it a name. When Jack Welch had the desire to get his business leaders to raise more services to counterbalance the pressures on product pricing in the 1990s, he framed and named the GE strategy as “We are a service company with competitive products, not a product company with services on the side.”
The Homework stage continues when the entrepreneur mobilizes and allies up the right people. It is essential to get the people who have something to contribute to your organization. The aligning part of the equation refers to getting on board only the people who can help you make a smart decision and execute it.
From the Homework stage, the leader must march towards the second stage: making the Judgment Call. As an entrepreneur who makes decisions affecting hundreds of thousands of people’s life, there is an added sense of responsibility and accountability on his shoulders.
The third phase is Implementation, or making it happen. Once a decision is made, then resources, people, capital, information, and technology must be mobilized to support it. If they aren’t, the decision doesn’t get carried out and any good preparation and decision making simply fails.
How is Sound Judgment related with Decision-Making?
Entrepreneurs who desire to build trust and rapport with their employees need to establish sound decision making skills that constantly produce fair and just judgments and evaluations.
Entrepreneurs who consistently make just and fair decisions and judgments will see their effectiveness and reliability enhance. Individual employees and customers will realize that they can depend on the entrepreneur to make a fair judgment and evaluation in spite of the fact that it may not be easy or popular.
When subordinates know they can rely on the equity of their entrepreneur’s judgments, trust is reinforced. The personal and professional standing of the entrepreneur thus enhanced, employees will rely on his judgment and be enthusiastic to work more closely with them.
Entrepreneurs must practice sound judgment in all of their decisions. Efficient decision-making plays a vital role in the improvement of good judgment skills. To begin with, entrepreneurs may require knowingly using a checklist of key points until they become well acquainted and habituated with it.
Increasing good judgment is based upon the entrepreneur’s talent to look at all sides of a problem or issue and to evaluate all of the options prior to reaching a final decision. Usually good judgments are:
Facts make the foundation of all sound judgments. Judgments must not be based upon individual opinions, suppositions and personal biases.
Before a judgment can be made, entrepreneurs must take ample time to confidently establish the truth of the matter and filter out any opinions, assumptions and biases. When at all possible, facts should be fully documented.
Sound judgment is based upon an objective evaluation of the facts. Managers must be careful to ensure their emotions, assumptions, expectations, opinions and personal biases do not affect their objectivity. Where possible, managers should step outside of the immediate situation to view the facts from the other person’s perspective and gain objective insights into potential solutions.
Fair and Balanced
Sound judgment requires that all sides and viewpoints be carefully weighed and considered by managers. One pitfall in sound decision making lies in only considering one side of the issue and thereby limiting objectivity with opinions, assumptions or personal biases. When this occurs, the decision is intentionally slanted toward one side of the issue without fully considering other viewpoints and insights.
When entrepreneurs are focusing on making ethical judgments, they must take into account all sides of the issue and make sure the input they are considering is balanced. When balanced facts and viewpoints are objectively evaluated, the entrepreneur is able to arrive at a fair judgment.
Made When Entrepreneur Are Emotionally Stable
Entrepreneurs must abstain from making determinations and judgments in an emotionally unstable state of mind. Decisions made when an entrepreneur is angry or hostile will be rash and subjective. Before effective and sound judgments can be made, entrepreneurs must assure that their emotions are in check.
Meeting the Needs of All Parties
Sound judgments and decisions incorporate the needs of all those associated with the organization and affected by them. The final judgment should be in the best interests of all parties. Even when tough decisions are to be made, the best interests of all involved must be considered. For instance, if a entrepreneur must fire an employee due to poor performance, that decision – when based on facts – must be in his or her best interest. The employee may need a wake-up call or just may not have the necessary skills to be successful in their job, in which case it is best they pursue another profession.
Carefully Considering All Options
Sound judgments calls for entrepreneurs to consider all possible options. When a problem or issue is first looked at, only one viable option may be apparent; however, effective entrepreneurs will discover and consider all possible options before a decision is to be made.
Once entrepreneurs have collected all the facts, viewpoints, insights and options, they need to take the time to thoroughly consider all aspects of the problem or issue before a final judgment is made.
Fully Assessing Risks
Effective entrepreneurs fully assess all the risks associated with their decisions and judgments. They are not risk-averse, but instead weigh all facts and make their decisions based upon the judgment yielding the lowest risk and biggest payoff.