Why Teams Should Record Individual Expectations

With all the performance troubles at GE over the past couple of years, one problem stands out: Corporate executives were regularly making promises to shareholders about revenue and profits that operating managers knew were impossible. According to The Wall Street Journal, GE had developed “a culture that disdained bad news [and] contributed to overoptimistic forecasts and botched strategies.” Billions of dollars of value destruction might have been avoided had management’s decisions been better informed by the insights and expectations of its employees closer to the ground.

That may sound like a tall order, especially for such a large organization, given the logistics of wrangling staffers at multiple levels, recording the numbers they expect from upcoming projects, consolidating their input, and then meeting (sometimes repeatedly) to align forecasts and inform planning. But when we had to evaluate a potential partnership at Trefis (where one of us, Manish, is the CEO, and the other, Ken, consults), the team hit upon a surprisingly manageable method for recording and analyzing individuals’ expectations that has improved decision-making and risk management, and has even informed the central offering to clients. Granted, most companies — Trefis included — are not the size of GE, but the process we’re talking about is fairly straightforward for teams to implement, and it can be scaled from there.

Here’s how we stumbled on it: We knew the partnership we were considering had great potential to expand our customer base. But as we updated our investors and directors, we began to realize that our expectations were widely divergent. We had several different versions of how much growth was possible and of how to get there — and, of course, our views changed as we exchanged contrasting scenarios. This made it hard to tackle decisions such as how to price our service to the partner’s customers and how many support people to deploy on the account.

After about six months, to improve alignment, we developed a basic spreadsheet to capture everyone’s individual volume, price, and revenue expectations for the partnership. We entered the historical data from the first two quarters of pilot projects and allocated space to record projections for the business we might do over the next five quarters. We converted that spreadsheet into an interactive dashboard and sent a hyperlink to our investors, directors, and top executives — and to employees involved in the partnership — so they could each enter their projections. Everyone could see the collective results and where the variances were, in graph form. It helped us quickly identify areas that needed further discussion before sound decisions could be made.

Now, any time we meet to discuss the partnership, we consult our dashboard. We can tinker with individual expectations and see how those adjustments would change the mean and the variance. That makes it easier to understand where the group stands. Perhaps more important, every stakeholder feels heard and better aware of others’ viewpoints.

For three reasons, we have since adopted this practice for a whole range of decisions, including pricing, sales and marketing resource deployment, new-product priorities, and broader strategic choices.

1. Decision alignment and quality improve when you record expectations. We shared our experience with more than 30 Fortune 500 and private equity executives to gain their views on the idea of systematically collecting expectations for important decisions. In those interviews, we heard one story over and over: Standard practice is to seek a consensus view with an upside and downside case. But it’s extremely rare that members of a decision-making group know and discuss their respective expectations. As a result, executives told us, it’s common to have the appearance of alignment on a decision, when just below the surface a slew of different and potentially informative views are bubbling away.

However, when individual expectations are recorded along with the key assumptions behind them, important differences become visible. One person might see 2+2 as the problem to solve, another might see 1+3, and another might think it’s 5-1. Even if you all arrive at the same answer, recording and then discussing the variety of paths that different stakeholders expect forces everyone to think in new ways. And often the team ends up concluding that 1+5 is the right starting place — and thus arriving at a different, unanticipated, and better decision altogether.

This was borne out by our experience with the decision we faced on a go-to-market partnership. Our product and sales teams disagreed on whether we should partner or go it alone. Creating expectations dashboards for each option put our discussions on firmer footing, and we came up with a third option that appealed to everyone: Go all in with the partner but negotiate for higher net pricing from the partner as certain milestones are reached.

2. Looking only at past outcomes is a flawed way to manage risk. Companies tend to measure the risks of pending decisions by looking at outcomes of past decisions because those results are known. Analysts pore over everything, including profit, margins, volume, price, and cost, and use those data points to assess the new decision’s prospects. This approach has two flaws. First, risk is context-dependent, and the current situation may present entirely different obstacles or constraints. Second, for a backward-looking assessment to be truly valuable, you need a big sample of outcomes from relevant decisions made in the past. It’s rare for a company to have a statistically significant number of those to draw on — and the bigger the decision in front of you, the more likely this is the case.

Gathering independent expectations from each stakeholder shifts everyone’s focus to the real point of interest: how the decision at hand is likely to play out in the future. Those expectations are still essentially guesses, but they’re tied to the appropriate context; they’re coming from informed parties; and they reflect a variety of perspectives, which helps to hedge against individual biases and groupthink.

By considering a range of expectations on key inputs, leaders and their teams can also better anticipate where surprises — both positive and negative — might alter a desired outcome. One private equity executive told us that before making deals, he wants to see what his team members expect for deal parameters such as exit multiples and follow-on acquisitions, as well as for metrics on sales expenditures and EBITDA growth. Only when he has that data can he really get a sense of whether and when to participate in a venture. In our decision-making, we collect expectations for different metrics but with a similar goal: getting the fullest possible picture of the risks we face.

3. Leaders and their teams grow as decision-makers when they record expectations. While a dashboard can simplify the process of recording and analyzing expectations, it cannot erase the human element. It cannot force people who fear constructive disagreement to volunteer their estimates. It cannot comfort someone whose expectations often vary widely from the rest of the team’s. Only leaders can address those issues — and to do so, they must recognize that decision-making is a skill. People need feedback to develop it. Having information on how the expectations behind your decisions panned out gives you that feedback.

Recording expectations and comparing them against actual results over time can reveal a leader’s or team’s habitual biases and blind spots. For example, executives at a global life sciences company based in Switzerland commissioned a comprehensive study comparing outcomes of decisions with the expectations that went into them. According to its corporate strategy executive, that assessment of decision quality across initiatives helped even the most intuitive leaders improve their “decision batting average.” The company is now planning to conduct a similar study every year.

Making better decisions takes practice. You may have to push to make recording expectations an accepted routine in your organization. Even though it’s not as taxing as we initially assumed, it still takes time, and there’s cultural work to do. To facilitate buy-in, we’ve found it’s important to clearly articulate the benefits and make it safe for individuals to lay their expectations bare. Positive leadership can help show employees how recording and analyzing data leads to more inclusive — and therefore better — decision-making.