65 - Second-order thinking for organizational decision-making



When we think of a decision we look at the effect it may have. And then we stop. But the effect has an effect too. Second-order thinking is thinking about the effect of the effect. The need for it becomes clear when you look at how organizations design incentives.

First-order thinking (FOT): Procurement setting up 40-page requests for proposals (RFPs) that takes bidders months to meet, and then offering only a snappy decision email to those who miss out

FOT: Running an org-wide initiative to come up with a set of values that define the cultural operating system of your organization (example: fail fast and break things)

FOT: Recognizing the efforts of employees who fight fires and solve business emergencies

Each of these first-order decisions makes sense. You’re trying to do something right. Seen through the lens of this one interaction, you’re doing the right thing.

Except that when you pause to consider the subsequent effect of these decisions, you see it all adding up. The best vendors start ignoring your RFPs. Your culture isn’t what you imagined it to be. There seem to be a lot of fires around that make execution difficult.

Pairing up first-order thinking with second-order thinking teases out the ripple effect of your decisions. You do so by asking ‘and then what?’ for every decision you’re considering. Doing so means you might be the first to suffer but you’ll also be the first to recover.

Second-order thinking (SOT): Losing bidders in an opaque RFP often feel disgruntled. So shorter RFPs with transparent decision criteria and assured feedback to bidders for the pain of applying.

SOT: Having a set of values to guide behavior is necessary. But it may not be sufficient if applying them is left to the discretion of employees. We tend to take the path of least resistance. Operationalizing the values by clear process is a better guarantee of desired culture (example: If your value is ‘fail fast and break things’, reserve a few minutes in every team review to talk about what you broke and what you learned).

SOT: Employees who take charge in a difficult situation are worth their weight in gold. But an unintended consequence of feting fire fighters is that employees may be incentivized to light fires to fight fires. What you want is to prevent fires. What are the incentives you have for fire prevention? What can you do to encourage employees to raise red flags without fear? And what system do you have to receive these signals?

We live in the land of the seen. But what affects our future is often unseen. Making sure we think of both the seen (first-order) and the unseen (second-order) is what gives us the best chance to execute our plans.

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