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05/22 2011

CEO Decision-Making: Use Data or Your Gut Instinct?

Should CEO’s use facts and data — or their gut instincts — when making key decisions?   The answer is both, according to recent research conducted by Modesto Maidique of Florida International University’s Center for Leadership.

In a series of interviews conducted with top CEO’s, Maidique found that “following my gut instinct”  frequently played a major role  in CEO decision-making.  Not surprisingly, decisions made from the gut were found to be much more successful when the CEO had great experience, knowledge, or insight in the industry or area where the decision was being made.   For example, a CEO in the cruise line industry used his decades of experience before using his “gut” to make a final decision on a $4.5 billion acquisition of another cruise line.   The decision has been deemed a major success.

However, upon further analysis, it appears that successful decisions based on gut instinct require more than just in-depth subject matter knowledge.  Instead, as Maidique points-out, such in-depth knowledge must also be combined with a sense of “deep introspection” — in sum, a CEO needs to take time and reflect on their own biases, emotions, and other factors that can impact their decision-making, and must take steps to ensure that these factors are considered before making a decision based on intuition or judgment.

Maidique summarizes his findings by saying that great leaders need to “know their business”, but also need to “know themselves”.   It is common for leaders at all levels to have blind spots in terms of how they analyze information, make key judgments, and eventually make a decision.  Knowing such biases or blind spots may help ensure that an executive reconsiders key information — or seeks out additional input from others — that they might naturally be inclined to gloss-over or ignore completely.    Incorporating this type of information can, of course, help a leader make a more effective decision.

 Self-awareness exercises (such as assessment tests) can be used to highlight the biases that each leader brings to the decision-making process.   Understanding such biases will allow a leader to become a much more well-informed — and therefore a much more effective — overall decision-maker.

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