Decisive action: how to tackle the biggest management decisionsPosted on: November 2, 2022
Making strategic decisions, such as whether to acquire another company, is a critical part of business leadership. But when a whole organisation’s fate rides on your decision, where do you even begin? Read on to explore strategic decision-making and how decision quality can help leaders make the best possible choices.
“The core function of leaders and executives is decision-making.” So said Peter Drucker, one of the most influential thinkers on management.
So how can we make better decisions? Nobel laureate psychologist Daniel Kahneman proposes four simple strategies for good decision-making.
First, he says that algorithms can always be trusted over people to make decisions, and when one isn’t available then people should be trained to make decisions uniformly. Second, take the broad view and do not look at your problem in isolation. Thirdly, test for regret – because regret is one of the biggest enemies of good decision-making. And finally, seek out good advice, ideally from “a person who likes you but doesn’t care about your feelings.”
While Kahneman believes these principles apply across all types of decisions – whether it’s deciding which brand of cereal to buy in the supermarket or whether or not to carry out a merger – when it comes to business there are clear distinctions between types of decisions. Administrative or operational management decisions, for example, might include employee hiring issues or deciding which supplier to use. But strategic decision-making, in contrast, has long-term, far-reaching effects for the whole business.
What is strategic decision-making?
Strategic decisions have major impacts on an organisation. They concern what an organisation is like and what it is about – and as such, they are taken at the highest level. They are usually big, complex, high-risk and full of uncertainty because they deal with the future. They’re also hard to reverse, with significant, long-term effects. One example of a strategic decision is reducing costs, which would be achieved through the operational decision of reducing the number of employees and administrative decisions on how this should be done.
Phil Rosenzweig at the Harvard Business Review sums up the unique challenges of strategic decision-making:
“Decision makers need to develop two vital skills. First, they must be able to discern the nature of the decision at hand. Second, they need to respond with the appropriate approach, able to act now as a psychologist, then as a tactician, next as a riverboat gambler, and perhaps once again as a psychologist.
“When it comes to the most complex decisions of all, those that drive the fortunes of organisations, executives need more than an ability to avoid common errors. They require a seemingly contradictory blend: a talent for clear-eyed analysis and the ability to take bold action.”
The five stages of a strategic decision
So how should one approach such heavily loaded, important decisions? There are generally said to be five steps in strategic decision-making:
- Define the problem. It’s important to work out if you are looking at the true problem or merely a symptom of another more pressing issue. How urgent is it? What would the end goal be? What would a successful solution look like?
- Gather information. Through researching data that reveals the source of the problem or talking to stakeholders it is possible to get a more detailed understanding of the situation. Keep going until you are sure there is nothing you are missing.
- Flesh out the options. A clear view of the issue will then allow you to start planning possible responses. You might discard some options straight away, but others might come together to present a better solution.
- Assess the options. Use strategic tools to determine which options are most useful. Look at the upsides and downsides, and evaluate how practical each option might be. Think about the possible impacts from different angles to discover any unexpected outcomes.
- Select and take action. Once you have chosen the best solution, it’s time for implementation. By breaking this down into smaller steps you can do this strategically.
What is decision quality?
For strategic decisions, business leaders may use decision quality (DQ), which provides the defining framework for a good decision.
DQ is the quality of a decision at the moment it is made, regardless of the decision outcome. Following DQ concepts ensures effective and efficient analysis of a problem to reach a decision. Done properly, the DQ process can get maximum value from uncertain and complex scenarios. Reaching decision quality depends on meeting six requirements:
- Frame the problem appropriately – Ensure that you are solving the right problem and that the decision makers are all on the same page when it comes to the problem’s purpose, perspective and scope.
- Consider the alternatives – Use all available approaches, tools and methods to find high-quality options or alternatives to consider.
- Choose relevant, reliable information – Ensure that you use high-quality information that’s based on appropriate data and judgement and reflects all uncertainties, biases and interdependencies.
- Clarify values and trade-offs – Identify the right decision criteria by listing all key stakeholders and what each of them values, backed up with metrics and trade-off rules between them.
- Use sound reasoning – Use decision analysis to serve as a guide to facilitate the conversation about the decision. Quality here is achieved when the value and uncertainty of each option is understood and the best choice becomes clear.
- Commit to action – The doing is what makes it a true decision. At the end of the process, all stakeholders should have bought into the decision and the organisation should be ready to take action and commit resources.
All of these components rely upon one another, like the links in a chain – so achieving less than high quality on any of them can make that element the ‘weakest link’ and result in a poorer overall decision.
Carl Spetzler at Strategic Decisions Group further highlights five common decision ‘traps’ or ‘mega-biases’ that leaders should be mindful of in the strategic decision-making process, which are:
- Narrow framing – attempting to solve too small a problem.
- Illusion of decision quality – where you falsely think you’ve reached decision quality.
- Agreement trap – confusing agreement with decision quality.
- Comfort zone bias – dragging the problem into our comfort zone and solving the problem we know how to solve rather than the one in hand.
- The advocacy/approval myth – believing that an answer you are being sold, or an idea which you approve of, is delivering decision quality, when in fact you are not considering alternative options.
Why is strategic decision-making important?
Strategic decision making is essential for any business because it aligns short-term objectives with a business’s long-term goals. Strategic decisions made by the top management team break down into smaller tactical and operational decisions that keep the business geared towards achieving an organisation’s overall strategic goals.
It’s also the bridge between deliberate strategy, which businesses plan for right from the start, with emergent strategy – that which results from the business encountering unexpected outcomes. Emergent strategy helps the overall strategic decision-making process by making the business dynamic, innovative and more capable of surviving tough times.
What is more, strategic decision-making defines the goals the entire organisation must focus on, and the resources and budgetary requirements for departments and activities. This makes it both easier and more efficient to realise the organisation’s overall goals.
Get inside the head of a strategic decision-maker
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