How to Make Better Business Decisions

In 1999, Michael Schrage wrote Serious Play: How the World's Best Companies Simulate to Innovate. More than a decade later, the trends he identified -- including the importance of using models, simulations, and prototypes to enhance business performance -- have only intensified. "The economics of playing with representations of ideas has been transformed," Schrage told me in a recent podcast interview. "Today, you can do these things far faster and far better." So how can you and your company take use "serious play" to improve your strategy, performance, and decision making? Here are three techniques to consider:

Learn from models -- not requirements on a sheet of paper. Why do "born digital" companies like Google do a better job embracing iteration and innovation? Says Schrage, "They don't have the legacy and analytical burden of 'what kind of requirements and specs should we build to?'" Instead of focusing on requirements, he urges a "lean and mean prototyping culture" where companies are willing to play with an interesting problem and say, "Let's not study it too much; let's study it just enough so we can build a useful and usable model and learn from that." The experience you gain in the process will be much more targeted and relevant than anything you can devise on paper.

Test your assumptions. Schrage has spoken about the problems inherent in "spreadsheet culture" -- the easy manipulation of numbers that can come from tweaking a few financial assumptions in Excel. But that doesn't mean he rejects the validity of modeling. Rather, he says, "When the assumptions of a model become an ideology, you run the risk of being screwed." Instead, he counsels organizations to evaluate their assumptions rigorously: "If you're not challenging and testing and beating the stuffing out of your assumptions, I think you're being dishonest," he says -- and that applies to models used by many banks leading up to the 2008 financial crisis. "Very, very, very few of the banking institutions, up to and including the Fed, really harshly tested their assumptions about the real estate market, about derivatives, etc.," says Schrage. "They had very forgiving assumptions -- and when you have forgiving assumptions, that leads to unforgivable results."

Face yourself honestly. The newspaper and magazine industry never considered Google or blogs to be their competition, says Schrage. Instead, they'd say, "That's not a newspaper, that's an aggregator. Or, blogs are some guy or girl in their pajamas, bloviating and posting on the web." The view, he says, was "We're not like that at all, so we're not going to build them into our models or incorporate them into our simulations. We don't consider that variable important." And in the space of that blindspot, an industry's dominance can be forever lost. Instead, Schrage advises, we should view models and simulations as mirrors that reflect back our true nature. "These are not just issues of cognition and intellect," he says. "These are issues of character and courage -- a willingness to look at possible truth. How introspective are we prepared to be? The technologies for introspection for individuals and organizations have been transformed -- but just because the technology has been transformed doesn't mean we're going to look in those mirrors."

Is your company using simulation or modeling to make better decisions? What strategies do you use to uncover and hedge against blindspots?

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Dorie Clark is a marketing strategist who teaches at Duke University's Fuqua School of Business. She is the author of Reinventing You and Stand Out, and you can receive her free Stand Out Self-Assessment Workbook.