Pharma IQ Members

How To Make Gut Decisions In Business

Contributor: William Cohen, Ph.D.
Posted: October 19, 2017

data 3

Although Peter F. Drucker was aware of many innovative methodologies for analyzing business solutions, he rarely used them. 

One would think that the founder of modern management was a fan of lengthy and complex analytical reports. But believe it or not, he was a fan of following your gut. How can a manager make decisions that honor both the gut and the brain? This anomaly was one of the most difficult aspects of being a Drucker client. 

I heard once that the style in which he provided his consulting was the most difficult thing about being a Drucker client. One Drucker client expressed it this way:

“We had been accustomed to hiring consultants to whom we told what we wanted done or asked them to solve a specified problem. They then went off and returned after some time with mounds of data and reports. We were told exactly with what we were to do. And if we didn’t understand it, they were happy to explain themselves in more detail and to answer our questions. 

Drucker did none of that. 

He would begin by asking questions, which we were expected to answer. If the engagement was an all-day event, he might lecture on various topics, which seemed to have nothing to do with our problem. We had to think through logically to get to solutions ourselves which we would have otherwise completely overlooked.”

He never taught “portfolio analysis” with their famous quadrants of cash cows, shooting stars, problem children, or dogs, as developed by the Boston Consulting Group (BCG). Nor did he utilize the GE/McKinsey nine-cell version. 

Drucker was one of the first to point out that the main inputs in the BCG matrix would encourage organizations to grow by acquisition without any regard to whether the acquired entity adds any value to the acquirer.  

At the same time, many corporations were growing and were extremely profitable by concentrating their resources in products or businesses where they could grow in profit even while their size remained relatively small. Eventually, many of the rapidly growing conglomerates based on acquisition failed, and Drucker was proven correct. Not that Drucker opposed acquisition or bigness per se. He was all for acquisition but only if the transaction created value.

Feelings over numbers in decision-making

Drucker insisted on tracking performance for just about everything but the results were to be considered primarily informational. He discouraged managers from relying solely on software programs for answers. 

Drucker maintained that letting mounds of instant data steer your company was still inferior to using your brain, thinking through everything and making your own decision based on your experience and knowledge of your own personnel and organization. 

He noted that your knowledge or instinct of one vital factor might well be decisive and that the computer would never pick it up. He reminded his students and his clients that though a certain program might give accurate outcome results of 92.5 per cent for that time, for the other 7.5 per cent of the time the results were 100% inaccurate. 

In other words, if failure or success was the outcome you sought to predict, if the end result was part of that 7.5 percentage area, your answer was 100 per cent in error. 

He recommended managerial gut decisions after considering all the information that could be obtained. Drucker told his clients to make “gut” decisions, but these gut decisions were to be made with the brain. The brain was a better device than a computer and is associated software by itself for decision-making. In this way, Drucker believed that better decisions were made by practicing management as a liberal art. 

*Adapted from the book Peter Drucker on Consulting: How to Apply Drucker’s Principles for Business Success by William  Cohen (LID, 2016), also titled Consulting Drucker: Principles and Lessons from the World’s Leading Management Consultant (LID, 2017) and syndicated elsewhere.