The manager’s job is to bet

September 21, 2021
by Noriyuki Morimoto

To choose is to bet. In business management, and more fundamentally in people’s lives, one specific action is always being chosen from among multiple options, and to varying degrees, that choice is accompanied by an element of betting. This is because choices are rarely logically univocal based on certainty.

It’s a bet, but we are rarely strongly aware that we are betting. This is because we can reach sufficiently rational decisions through reasoning based on past experience. In other words, even though uncertainty is inevitable, it is usually controlled within a certain probability.

On the flip side, because uncertainty can be controlled in a rational manner, we all live while making appropriate decisions at any stage of our lives, and organizations such as companies can function because discussions are based on rational reasoning to form a consensus, enabling the organization to make decisions.

However, where there is decision there is always uncertainty. Reasoning under certainty allows for only one answer, and the solution is determined ahead of time without the need for people to decide. Uncertainty is why we have decisions, and decisions always involve an element of betting. As uncertainty increases, the precision of rational reasoning decreases, and beyond a certain range, the decision is made somewhere beyond rationality. In that case, the term “resolve” may be more appropriate.

When defining the decision-making process in an organization, small bets, i.e. decisions made under small uncertainty, are delegated to lower levels, while large bets, i.e. decisions made under large uncertainty, are kept at the top. In other words, resolving is the job of management. What cannot be decided by subordinate divisions can only be decided by management. On the other hand, the scope of management’s exclusive responsibility must be clarified by transferring as much authority as possible where decisions can be made reasonably by the lower levels. That is what management is about.

So what does the business leader resolve? The answer is innovation. Since innovation is not an extension of the past, but a break from the past and a leap into the future, it is not a logical decision, but one that must be made under ultimate uncertainty. Since innovation is the driving force behind growth, the job of management is to make decisions that lead innovation and achieve growth.

 

[Category /Investment Professional]