Type 1 and Type 2 Decisions (Jeff Bezos)
We are used to approach decision making from many different angles… strategic to operational, personal to professional, long-term to short-term and so forth. Back in 2015, Amazon's CEO Jeff Bezos shared that being able to distinguish between 2 types of decisions had proved to have great impacts on Amazon's success. It was in a letter to Amazon's shareholders
where he started with saying how once a simple startup Amazon has since become matured and eventually built 3 profitable business lines – Prime, Marketplace and AWS. Unlike many he acknowledged the presence of luck in each of those endeavors as he wrote, "Luck plays an outsized role in every endeavor, and I can assure you we've had a bountiful supply." But he also thinks decision making had a unique role as well. Even though many of their decisions proved to be a failure, he described failure as a part of Amazon's distinctive culture and that Amazon is "the best place in the world to fail". In that letter he clarified why even those failure couldn't stop Amazon from wining.
One of the reasons was Amazon's ability to distinguish between two types of decisions
as a matter of course. In Bezos' own words:
TYPE 1 DECISIONS
"Some decisions are consequential and irreversible or nearly irreversible – one-way doors
– and these decisions must be made methodically, carefully, slowly, with great deliberation and consultation. If you walk through and don't like what you see on the other side, you can't get back to where you were before. We can call these Type 1 decisions."
TYPE 2 DECISIONS
"But most decisions aren't like that – they are changeable, reversible – they're two-way doors
. If you've made a suboptimal Type 2 decision, you don't have to live with the consequences for that long. You can reopen the door and go back through. Type 2 decisions can and should be made quickly by high judgment individuals or small groups."
IMPLICATIONS FOR DECISION MAKERS
Bezos says, "As organizations get larger, there seems to be a tendency to use the heavy-weight "Type 1" decision-making process on most decisions, including many Type 2 decisions. The end result of this is slowness, unthoughtful risk aversion, failure to experiment sufficiently, and consequently diminished invention."
He also pointed out that the opposite is perhaps even worse: "Any companies that habitually use the light-weight Type 2 decision-making process to make Type 1 decisions go extinct before they get large."
In my opinion making this difference is a good example of contingency
⇨ What do you think of Bezos 2 types of decisions? Do you actively make the distinction between the 2?