What is the most common point-of-reference for making a decision? – The desired outcome of the decision. It’s simple. People, in general, focus on the immediate result of doing something. In effect, decisions are most often based on the first order consequence of the decision. For example – I’m late for a meeting, so I decide to ‘speed up’ so I can make the meeting on time. Or, I decide to start cutting back on reinvesting in my business to increase my profitability. What could possibly be the second and third order consequences of these decisions?

Every decision has second and third order consequences to that decision; i.e., outcomes that are different than the first desired outcome yet are directly related to the initial decision. They are most often separated by time and space from the perspective of the decision. Let me give you an example.

An industrial manufacturer began feeling the pressure of foreign competition in its domestic markets. At the same time large retail outlets also began increasing their offering of similar industrial products (mostly foreign) to their commercial customers. The company saw this as both a challenge and an opportunity, and began working aggressively to get into the retail business. The opportunity became seductive. After a lot of work, the “big” order finally came from one of the large retailers. High-fives and celebrations were the order of the day. (First Order Consequence)

Although care was taken by the company to maintain their relationships with an exclusive dealer network, they underestimated the quick reaction and concerns that surfaced from their dealers. The initial decision put a lasting strain on that network. (Second Order Consequence)

Overtime the initial order turned into a large portion of the company’s total revenue. However, during this time, the retail outlet had put increasing pressure on the company to reduce its prices in order for the company to be able to keep their products on the retailer’s shelves. Some prices fell to the extent that certain customers began realizing that they could purchase some products directly from the retailer at a lower price. Retail volume went up; profits went down. (Third Order Consequence) – The intended results of the initial decision had now become a challenge for the company.

While the above example reflects unfavorable intended consequences there are examples of companies that followed a first-order decision process and ended up in a better place. When you ask them why they were successful, some refer back to the initial decision, not understanding the second and third order consequences that had a significant impact on the eventual outcome. On the other hand, there are many examples of successful companies that recognized possible second and third order consequences early in their decision process, and implemented their decisions accordingly.

What can you do? Think through the first, second, and possibly third order consequences of your important decisions before you make the first decision. If you can, experiment before you jump in. It takes a lot more resources (time, people and money) to deal with unattended consequences than is does to consider and plan for their possibility up front. Will you always be able to see the future consequences? Of course not; but you will be surprised at what you can see if you put forth the effort.

Take a look back over your career and think about some of your important decisions. Were there eventually second and third order consequences to those decisions? Did you see them coming? Did you consider them? What critical decisions are you currently considering? What are the possible second and third order consequences of those decisions?

What are your thoughts?