Why reversible decisions are the key to innovation and transformation

Why reversible decisions are the key to innovation and transformation

No one wants to be wrong, especially when it comes to making strategic business decisions. But you can’t make the right choice if you never make a decision at all.

Good strategy and leadership start with being decisive and willing to take risks and innovate. One key to doing that is to make reversible decisions.

What Are Reversible Decisions?

Reversible decisions are what Jeff Bezos calls “two-way doors.” These are called Type 2 decisions. They’re decisions that are easy to reverse, such as introducing a new pricing scheme or offering a new service.

It’s a strategy Jeff Bezos has famously championed at Amazon, and it’s one that Bain & Company partners Darrel Rigby, Sarah Elk, and Steve Berez have endorsed in their recent book, Doing Agile Right: Transformation Without Chaos.

While these moves could have bad consequences if they don’t go well, they can be reversed with some time and effort. As Bezos wrote in a letter to Amazon shareholders, “You don’t have to live with the consequences for that long. You can reopen the door and go back through.”

Consequently, Bezos recommends that Type 2 reversible decisions be made quickly by high-judgment individuals or small groups. This type of thinking is perfect for organizations seeking business agility, particularly in today’s uncertain market economic climate. 

What’s the Difference between Reversible and Irreversible Decisions?

Type 1 decisions, in contrast, are irreversible decisions that are one-way doors that require much more careful consideration. As Bezos wrote, “some decisions are consequential and irreversible or nearly irreversible.” They must be made “methodically, carefully, slowly, with great deliberation and consultation.”

In these cases, “if you walk through the door and don’t like what you see on the other side, you can’t get back to where you were before.”

Making a Case for Reversible Decisions

The challenge for many companies and investors, especially when it comes to transformation and innovation, is that they tend to treat too many decisions like irreversible, one-way doors. They tend to be slow and risk averse, and fail to experiment sufficiently.

To encourage quicker transformation and accelerate innovation, all of which are hallmarks of agile organizations, companies and investors should learn to distinguish between reversible and irreversible decisions and treat them accordingly.

How to Decide Between Reversible Decisions and Irreversible Decisions

As Inc.com editor Jeff Haden has suggested, “every time you need to make a decision, make a more important decision first. Decide whether it’s a Type 1 or Type 2 decision.” If it’s a Type 2 reversible decision, make it and execute it quickly.

For example, when Amazon decided to launch its one-hour delivery service to customers who were willing to pay extra, the service launched in less than four months after the idea was developed. 

In 111 days, the team:

  • Developed a customer-facing app
  • Secured a warehouse
  • Determined which items to sell
  • Stocked the items
  • Recruited and onboarded new staff
  • Tested, iterated, and designed new internal software
  • Launched it all in time for the holidays

Amazon’s one-hour delivery proved successful, but if it hadn’t, the company could have discontinued the service, and the negative consequences would have been temporary.

It’s all part of the experimentation that’s needed to transform and innovate. And failure is okay. Sometimes reversible decisions will turn out to be wrong, but when that happens, you can figure out how to react and respond, and you’ll learn from the experience.

When reversible decisions create successes, you’ll reap those benefits with greater speed and agility. And you’ll also learn and gain valuable experience from the process.

As Bain & Company partners Rigby, Elk, and Berez point out, some corporations are already applying this model. Their executives review new projects and business lines quarterly, use fast feedback loops, create rough prototypes, and rely on objective metrics to test key hypotheses.

They’re also following the model of venture capital investors, who recognize projects and new business plans as experiments. They can “break large, risky gambles into a series of smaller, smarter tests.” Then they can “clarify the hypotheses, the best ways to test them, and the metrics that signal whether to persist, pivot, or pause.”

One way to execute these projects is by creating an agile team structure, in which employees are deployed to smaller groups tasked with solving key problems. Under this structure, organizations can move with the agility of a startup while benefiting from their enterprise status. 

With uncertainty becoming the reality moving forward, understanding how to deploy Type 2 decisions within an agile structure will be key, to not just surviving in the face of disruption but thriving as a result. Part of ensuring that the organization is poised to succeed with Type 2 decisions within an agile structure is securing that the workforce is also agile.  

Making Decisions with Confidence 

Once you understand that reversible decisions are two-way doors, you can start to see and use them as opportunities to increase the pace of your transformation, innovation, and learning.

Engaging an independent consultant is a great way to evaluate decisions, determine if they’re reversible or irreversible, and get insights to guide your efforts. They have a wealth of experience and knowledge to help make the best decision possible. Likewise, by adding an outside perspective, you land on innovative breakthrough ideas that push your business forward. 

Interested in learning more about independent consultants and when companies use them? Find out by reading this blog: Here’s Why Companies Really Onboard Consultants.

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