The importance of trade-offs and compromises

I recently entered into a competition to win a signed business book via the ‘Online MBA‘ (nine different books were included, including Seth Godin’s “Linchpin” and Daniel Pink’s “Drive“). Most of the entry requirements were limited to administrative contact details, with the competition seemingly hanging on one key question: “What is the most important thing you have learned about business?” (* see also my footnote regarding the competition)

Of course, there is no ‘right’ answer to this question; indeed, there are almost certainly many, many very good answers.

Below I set out what I submitted as my thoughts on this:

Essentially everything comes down to trade-offs and compromise, both on a personal level and on enterprise level. How you recognize, and then manage those trade-offs and compromises will determine your success in each of the areas of your life that are important to you. The first step to success is therefore to learn to recognize the trade-offs and compromises.

This is the answer that first came to my head, and while I think the matter of ‘trade-offs and compromises‘ is very important, one could point to other matters which might be equally important, or more so. In any case, I think there is some value in considering this topic further, and so have decided to use this post to further develop my thoughts on the brief submission above.

Examples of trade-offs and compromises

The topic of “trade-offs and compromises” is one that we often highlight in sell-side discussions in my transaction advisory work (in situations when companies are considering divesting a business):

Sellers typically benefit from being well prepared, however preparation times time; shortening the time spent on preparation can result in loss of value for the seller (typically, but not exclusively, meaning lower sales price); nevertheless, some sellers consider a quick sale to be critical, and are willing to accept this trade-off (however much of these decisions are often based on limited data – it is difficult to know what would have happened if you had taken a different route).

Individuals face trade-offs and compromises in their careers also:

  • work-life balance, with regard to how much time, and energy to invest in one’s personal life, versus work life
  • whether to take an opportunity for a new secondment
  • whether to leave the current career path, and whatever opportunities that might have, and pursue another
  • whether to invest time and money in working to develop relationships with one client/customer/supplier/account, or another
  • who to go to lunch with on a given day
  • whether to attend a conference, or stay in office and reduce backlog of “to do” actions
  • which tie to wear on a given day
  • etc.

In counseling discussions I often welcome the knowledge that staff have discussed their career options with recruitment consultants, or considered alternative careers – the most effective and motivated workers (speaking from my personal experience) are those who have chosen the current career path as being the best for them, after comparison to and evaluation of others.

This approach also ensures that managers make an effort to ensure that they also understand the trade-offs that staff are dealing with, and ensuring that the trade-offs are not disadvantageous for the staff that they want to keep. Staff who are ignorant of whether their job might not be the best for them likely don’t realize the value of their opportunities, and consequently may not appreciate them or have the desire to make the most of them.

Challenges one faces in assessing trade-offs

Trade-offs can often be difficult to notice, or one has poor information to quantify/judge the possible outcomes – in particular trade-offs that have delayed effects or trade-offs where the causal link between outcome is perhaps not so obvious (eg, poor diet, health issues in later life). In such situations people usually consider only the primary/initial, immediate, and direct advantages and disadvantages of the decision. Just because an outcome might be difficult to quantify or control (eg, in the case mentioned above, the value in preparing for a divestment) doesn’t mean that the outcome is not an important alternative worthy of consideration.

Trade-offs are sometimes also irrationally ignored due to the existence of ‘over confidence’ – people sometimes inaccurately estimate the possible outcomes due to overconfidence of their abilities or independent outcomes, or might be emotionally tied to a certain outcome, or even have an inbuilt bias towards an outcome, even when experience (or even hard data) might show that the outcome is typically different to what the decision maker is assuming.

Conclusions – How does one recognize and act upon potential trade-offs and compromises?

Trade-offs typically come down to the opportunity cost of using one limited resource versus another (eg, time versus money) or the allocation of a limited resource to different activities (eg, time, money, or even personal energy or concentration levels).

There is an opportunity cost to every decision we make, from what clothes to put on in the morning, to whether to approve a $billion investment. Active evaluation of those opportunity costs can help us make better decisions. Below I set out some thoughts on how one can train oneself to have a greater awareness of trade-offs and compromises, and be more comfortable in forming decisions in that knowledge:

  1. Take time to reflect in peace
  2. Brainstorm options, including both sides to major decisions (not just one side of the decision), and write down the options (sometimes seeing it on paper can highlight the gaps)
  3. Consider whether it could help to further research options – obtain and analyze data, enquire of others experience, etc.
  4. Discuss with work colleagues, friends, or family (saying things out aloud helps some people; others might have interesting or useful experience/insights which can help guide you), and/or use a counsellor or mentor to challenge your beliefs and whether you have truly considered all options (could be an independent person who you don’t know)
  5. Accept that you won’t always have all the information to make a decision, and some data can’t easily be modeled (but, as often taught in business school, it is important to “know what you don’t know”)
  6. Understand that not making a decision, or procrastinating until the outcome is effectively already decided, is also a decision (only it is an unconscious/inactive one)
  7. Understand that perhaps the biggest trade-off/compromise is in not having enough time to fully develop all decisions (one must choose which decisions to investigate deeper and upon which for form a conclusion; others must be delegated, ignored, or given only a light-touch)
  8. Don’t be rash – time taken to properly evaluate outcomes, even ones that might not ultimately be chosen, is time well spent (in today’s culture of immediate gratification this can be difficult).  However, once you have properly considered the options, maybe discussed them with someone, maybe documented them somehow, move on – there is no added benefit to dwelling on the same information (indeed valuable time might be lost)
  9. Go with your ‘gut’ after researching the options – it portrays all information and experience that you have, so don’t fear it!
  10. Don’t regret outcomes of past decisions – use the resulting information to help you make the next step, or educate you in future decisions.

* Footnote/Disclosure:  Since having written the majority of this post I have been notified that my entry has been successful and I will be sent one of the books (I chose Linchpin, by Seth Godin).  I understand that, at the time of writing, the competition is still open – why not also enter, and try to also win one of the books?  Click here for the entry form:

http://www.onlinemba.com/blog/online-mbas-recommended-books-giveaway/

About “Online MBA” (per the email notifying me of my successful competition entry):

Online MBA is a new business education blog that tries to keep [business professionals] informed with resources, tips and links to what they should be keeping an eye on.  We also provide occasional musing through the use of neat Infographics […]  We’re always looking to add value to the online community, and have found that visual aids have had great success providing information that is easily communicated and retained. 

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