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Decision Impaired or Impaired Decisions?

A few weeks ago, David Spitulnik had the opportunity to hear Neil Novich, retired Chairman, President and Chief Executive Officer of Ryerson Inc. speak at a Shields Menely Partners Event. The title of his presentation was “How Can Such Smart People Make Such Bad Decisions … and Is There Anything We Can Do About It”? Novich’s fundamental premise, developed through his years as a consultant to and leader of organizations, is that bad decisions are often made in a consistent way.

The core of all business is, or should be, driven through the following process:

1. Develop a strategy.
2. Make decisions based on the strategy.
3. Implement the strategy.

While these three steps are fairly simple, there are ample opportunities for the process to fail. In fact, according to Novich, the following questions highlight the five key areas that often lead to poor decisions.

1. Do we act consistently with our strategy? Novich described that consistency of action, while sought after, is often not practiced when it is easier to take another course.
2. Are we working on the right problem or asking the right questions? Not identifying the correct issue or problem is one of the main reasons initiatives fail.
3. Do we generate a variety of alternatives? Frequently, ideas under consideration are limited too early in the planning process. For planning and implementation to work, there needs to be a mechanism in place to encourage and capture as many alternatives as possible. From there, in a fact-based and objective manner, alternatives can be evaluated and eliminated.
4. Are we good at evaluating the alternatives? Any process needs to correct for the inclination to stick with first impressions, or what Novich calls “anchoring.”
5. Do we evaluate and plan for risk mitigation? Too often, the risks of the chosen course of action are downplayed and, if the worst case happens, companies are not prepared to handle an undesired outcome.

In the discussion following Novich’s presentation and in Blackman Kallick Strategic Services meetings, we discussed ways we could use the above thinking to help our clients make better decisions.

Here are some questions we believe can help drive the process of keeping decisions in line with your company’s overall strategy.

• Does your organization, from top to bottom, understand your company’s core beliefs and, when confused, know who can make the judgment call?
• While encouraging and asking questions are critical, asking the right questions is even more important. Have you created an environment that is open to discussions regarding issues and framing questions?
• Do you involve too many people from the same discipline in the planning process thereby submitting, unwittingly, to “group think”? Look around the room. Does it seem like this is the right group for getting the widest range of ideas?
• Do you keep track of questions and insights from past exercises so that these points are available for future planning?
• Do you acknowledge that even ideas that were rejected in the past might now be appropriate due to changed market conditions?
• Initial conclusions are often developed based on incomplete data. Do you ensure that you continue to test and evolve your answers, based on all of the information you have? Do you understand the relative importance of all of the data you are using and make decisions accordingly?
• Have you realistically and thoroughly assessed the risks of your plan? Does your plan incorporate sufficient mitigation expenses? In other words, what is really the worst that could happen even if it is very unlikely? Can you find a way to make sure this does not occur? If it should occur, do you have contingency plans in place to address the consequences?

While there is no guaranteed formula for successful decision-making, ensuring that your decisions are fully weighed and in line with your company’s strategy can help you position your decisions for a higher likelihood of success.

This publication is part of Blackman Kallick’s marketing of professional services, and is not written tax advice directed at the specific facts and circumstances of any person and/or entity. Contents of this publication are of a general nature, and you should not act on this information without obtaining professional advice from your business advisor that is appropriately tailored to your individual needs and circumstances. This written advice is not intended or written to be used, and cannot be used by any taxpayer, for the purpose of avoiding penalties that may be imposed under the Internal Revenue Code.