The Importance of Guiding Principles (or, Key Decision Making Criteria)

At the heart of getting something done is getting everyone on the same page to move the project forward. This is especially relevant in an environment of a variety of individuals from department teams, and, ultimately, different walks life.

The diversity of views creates a challenge: Do we argue about the rightness or wrongness of ideas or a decision? Or, do we agree on a set of “guiding principles” and make decisions?

What is a guiding principle?

A guiding principle is a statement that summarizes a criteria or value-based mechanism. Let’s take the following situation in pricing strategy:

  1. Situation: Company X has developed a patented Water Retention System that helps trees grow faster, while using 80% less water.
  2. Complication: The founder and owner of Company X wants to target low-income farmers that cannot afford an expensive system. The venture capitalists wants the founder to charge higher rates to ensure maximum distribution, and ultimately a strong return on their investment.
  3. Question: How should Company X price the Water Retention System?

If you were in this situation, how would you facilitate a decision? Clearly, both the owner and the venture capitalists have a strong case to make regarding the rightness of their decision.

Option A: Conduct a pricing analysis, and present different prices and see if there is a price that meets both needs.

Option B: Develop a core set of guiding principles around making key business decisions, and then conduct a pricing analysis, and evaluate the options based on the guiding principles.

In Option A, there is an implicit debate about what the Owner and the Venture Capitalists value. In Option B, there is an explicit debate about what the Owner and the Venture Capitalists value.

Why is this important?

The point of this example is codifying the unsaid in guiding principles, each individual can evaluate what they value and see whether it resonates.

If there is resonance, then decision making and team dynamics can be more fluid (or, at the leaser — easier).

If there is not resonance, then decision making will be stalled and inauthentic — team members may grudgingly go along, but there will continue to be dissension as increasingly complex decisions are made, and the team will need to decide whether to continue together or not.

Originally posted on Karma Advisory’s medium page here.