The business press is no stranger to stories of CEOs using their gut instinct to make decisions - especially in uncertain, ambiguous situations. Indeed, to Steve Jobs, intuition was "more powerful than intellect".
Following your gut can be problematic. Studies have concluded that hunches (or to use the language of behavioural economist Daniel Kahneman, Type 1 thinking) are emotionally driven and quick to form, and are unsurprisingly usually linked to past experiences, exposing them to bias.
There are some instances, however, when trusting your intuition is unavoidable, says Mark Naysmith, UK and South Africa CEO of multinational engineering consultancy firm WSP. He learned to hone his instincts during a 30-year career there, but never were they more important than during the 2008 financial crisis.
"I had to reshape the business through the recession. The challenge was that we were in uncharted waters - there were clients running out of money, projects coming to an end, and we didn’t know how long the downturn was going to last or how many people we’d need to let go.
"In a recession, you can’t be proactive because you don’t necessarily know what you’re up against, but you still have to be decisive, which means you’ll find yourself making decisions based on gut feel rather than just the facts, and accepting that sometimes you’ll get it wrong.
"Looking back, there were definitely things we didn’t do quickly enough. I was managing director of our Irish business. We had a fantastic team of 30 to 40 people, the calibre and work ethic in that office was really exceptional, but the Irish market completely dried up.
"I didn’t want to close the office and lose that talent, so I decided to keep it open by sharing projects with the office in the UK, hoping to hold it together through the recession. My heart was in the right place but all we ended up doing was putting off the inevitable. By the time we got to the end of the road and closed the office, we had probably put too much effort and time into what was a relatively small part of the business.
"I can remember adopting an 80/20 rule, which was as long as you’re getting 80 per cent of the decisions right you have to accept that 20 per cent won’t be. When you have to reshape a business you have to make people redundant, which is horrible, but you have to remember that if you have to let 20 per cent go, you’re doing it to protect the 80 per cent.
"We did have to let 20 per cent of our UK workforce go in the end. The challenge at that point was that we still had a business to run, projects to complete and clients to work with. You can’t go at it with a blunt instrument - it’s a balancing act between continuing to operate effectively today and making sure you come out of the recession with as strong a business as possible.
"There’s not a book that says what you need to do - it’s very much about intuition. You have to learn the hard way and take on an element of risk."
Image credit: WSP