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 being willing to take risks and innovate. And one key to doing that is to make reversible decisions.
Reversible decisions are what Bezos calls “two-way doors.” These are Type 2 decisions that are easy to reverse, such as introducing a new pricing scheme or offering a new service.
It’s a strategy that Jeff Bezos has famously championed at Amazon, and it’s one that Bain partners Darrel Rigby, Sarh 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 the go back through.”
As a consequence, Bezos recommends that Type 2 reversible decisions be made quickly by high judgment individuals or small groups.
In contrast, Type 1 irreversible decisions 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.”
However, 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 they fail to experiment sufficiently.
To encourage quicker transformation and accelerate innovation, companies and investors should learn to distinguish between reversible and irreversible decisions and treat them accordingly.
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 built a customer-facing app, secure a warehouse, determined which items to sell, got the items stocked, recruited and onboarded new staff, tested, iterated, designed new internal software, and 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 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.”
Like leading innovators and investors, 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.
And one good way to evaluate decisions, determine if they’re reversible or irreversible, and get insights to guide your resulting efforts is to work with independent consultants.
At Graphite, our network of business experts includes many leading strategists, management consultants and leaders who have helped guide thousands of successful projects, innovations and businesses transformations.
With proven backgrounds at Big 3 consulting firms, Fortune 500 companies, and in serving thousands of clients worldwide, they can help you execute the right decisions. And they can provide leading expertise in company transformation, new product development, R&D, M&As, finance, sales and marketing and much more.
Visit our website at www.graphite.com and sign up or log in to search our public consultant profiles, or post your project now and start receiving proposals from our entire network of over 6,000 pre-vetted and highly qualified experts.