Type 1 and Type 2 Decisions (Jeff Bezos)

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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 in decision-making.

⇨ What do you think of Bezos 2 types of decisions? Do you actively make the distinction between the 2?

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		2 Maurice Hogarth Consultant, United Kingdom
	A Decision Made is not the Same as a Decision Taken I am struggling with the precise wording of the concept / referents of type-1 decisions. - A decision 'made' is not the same as a decision 'taken'. Any decision, taken (i.e. has actions taken so as to achieve it) is irreversible. Because it is not possible to go back in time and not-take that decision, not take those actions. - A decision 'made' but not 'taken' is still changeable. It is not the 'decision' that is irreversible as it is the actions taken to achieve it that are irreversible. If I kill someone that is definitely a "type 1" decision-action set for which there is no reversal. For every other(?) decision taken the consequences of the actions will show if it was 'wrong'. If so it will be possible to stop actioning it, to "re-set" and start again. This might mean irreversibly lost time & money and it may mean (possibly irreversible) 'hurt' for some people. So those 'doors' cannot be returned through. But on the ever-forking-path of decision and consequence (foreseen & unforeseen) I can choose to take a 'fork'/decision that will take a 'path' that will enable me to counter/mitigate the unwanted consequences (at least partially) and get (or at least get a close approximation of) the required results. Any decision made (particularly ones of high risk) should be analysed to identify "in how many ways can this decision (if implemented) fail?" What are its (actual and potential) weaknesses, shortcomings, negative consequences and what (cost-effective) preventative/mitigating actions should be taken? This analysis will determine if the decision is 'balanced' in terms of its 'results' (strengths) against its 'costs' (weaknesses) and whether it should be taken. The 'bigger' the decision, the more important is the analysis for "unforeseen" consequences. It is not so much that consequences are unforeseen as they are not looked for. Data for many decisions are apparently looked at through rose-coloured glasses, blinkered-tunnel vision or 'head-in-the-sand' mind-sets.

		3 Steve Player Director, United States
	Examples of Type 1 and Type 2 I want to thank the original submission for a useful summary of Jeff Bezos discussion of "Type 1 and Type 2 decisions". While there is a slight distinction between decisions "made" and the subsequent "taking" of action to implement, I believe that distinction misses Bezos' point. For purpose of this discussion I am simply assuming all decisions made result in actions taken. Then we can focus on the differences between Type 1 and Type 2: Type 1 decisions are like turning onto a one way road that leads away from one direction without a path back to that point. For instance, when a firm must decide on merging with one of its largest competitors or allowing that competitors to merge with a different firm, this decision is of such a size and requires an entangled implementation plan such that it is virtually impossible to reverse. On a more regular basis, fast moving industries such as high tech and drug development require regular decisions on which developments your organization chooses to invest in which also results in passing on other investments. If you fail to invest, development passes you by making it impossible to reverse the decision. For instance, Blockbuster dominated the US video rental market. It had a chance to buy an upstart (NetFlix) early in the development of streaming. Later on that threat grew, but by then the upstart's valuation was much larger and growing rapidly. The one way door was closed. This are why Bezos notes the need for deep study of Type 1 decisions. Type 2 decisions are more like a revolving door at a department store - you can easily enter, quickly look around and easily reverse course back. Yes you will have invested a little bit of time and resources in exchange for seeing if what is inside in to your liking. If it is, you can proceed. If not, you can exit quickly. It is what Peter Drucker meant when he advocated making 1,000 small experiments as a way to win.

		1 Maurice Hogarth Consultant, United Kingdom
	Decision Types 1 & 2 + 3? @Steve Player: Thanks Steve, clarification appreciated. (I suggest that there is more than a "slight distinction" between the making and the taking of a decision; in one case that I am aware of, two ...

		3 Jaap de Jonge Editor, Netherlands
	An Interesting Further View to Reversability of Decisions Thanks Maurice for explaining the subtle difference between making a decision and taking a discussion. if I understand you correctly, a decision taken is per definition irreversible in a linguistic se...

		2 Steve Player Director, United States
	Focus on Type 2 Decisions can Lead to Greater Agility @Jaap de Jonge: Thanks to both you and Maurice for your kind words and further discussion. The time spent to study decisions (both in making and taking) is an interesting dynamic. Having worked in the...

		1 Jaap de Jonge Editor, Netherlands
	Agile Decision Making Thanks Steven for sharing that example about differences in how much time companies take for making type 1 decisions, even with such an important issue like a merger or acquisition, and how difficult ...

		1 Munadil Shafat Student (MBA), Bangladesh
	Decision Making or Taking! I'm really fascinated to see such a deep discussion is going on to this topic. Thanks all for taking part into the discussion. As a person living in a country where English is not the primary language...

		0 Maurice Hogarth Consultant, United Kingdom
	Decision Classifying or Scaling @Jaap de Jonge, Steve Player: Thanks Steve / Jaap. I like your points that Bezos' type-1 decisions, as described, have an 'air' from their sheer scale of "irreversibility" and that a key factor is the...

		0 Libardo Daza Business Consultant, Colombia
	Libardo Alberto Daza, Consultor, Miembro, Colombia @Maurice Hogarth: A todos muchas gracias por compartir sus apreciaciones sobre un tema que sigue generando discusión, por las múltiples aristas desde las cuales se puede mirar, todas, en un horizonte ...

		1 Rick McPherson Teacher, United States
	Great Way to Think About Making More Timely Decisions As both a former executive and an educator, I find this idea of Type 1 and Type 2 decisions a great way to think about how much time and resources to spend on a decision... Is it reversible or flexib...

		1 Graham Williams Management Consultant, South Africa
	Decision Types 1 + 2 + 3 + ... Quite a comprehensive discussion! I found @Jaap's insights around real options theory and agility to be very valuable. My two penny's worth: TIME SOMETIMES OVERIDES any rational, cerebral process to ...

		0 Maurice Hogarth Consultant, United Kingdom
	The Choice of Consequences Graham Williams; as you say 'When faced with a choice, select the best of both'. Frequently decisions are taken on the basis of the least worse option, the option with the more acceptable consequence...

		2 Graham Williams Management Consultant, South Africa
	Decision Types 1 + 2 + 3 + $ + Rational decision making, whatever the nature of the decision consequences is sometimes trumped by a deeper, sometimes intuitive knowing. In 1914 Henry Ford bravely doubled his worker's wages. This wa...

		0 Jaap de Jonge Editor, Netherlands
	Type 1 and Type 2 Decisions (Bezos of Amazon) Thanks all for sharing your views. Sometimes the beauty of a model is in its simplicity. That's what I like about his decision-making model by Amazon founder, President, CEO, and Chairman Jeff Bezos. ...