How Effective is Your Business Decision-Making Process?

At the most basic level, business is about selling a product or service to a customer market. It starts with decisions based on what the market wants, what products to sell, what services to create, how much to charge, how to deliver, how to communicate with the market, etc. medium-sized companies. No matter the size or type of the business, every aspect of the business is decision-based. Yet, we often do not consider how we go about making our decisions.

We have marketing systems, planning systems and IT systems, yet few companies have formal ‘decision-making systems’. Of course, we have unsubscribe processes – but these are unstructured in terms of making a logic-based decision. Thus, in the absence of any formal decision-making system, we rely on experience, intuition, and some form of collaborative communication to aggregate ‘opinions’ from different stakeholders. The result of this is a ‘rational’ decision? In 99.99% of cases, it does not. Knowledge, experience, gut feelings and emotions do not constitute a ‘rational’ decision-making platform. Rational decision making requires the visibility of all relevant information and resolution of various goals, historical experiences, expectations, preferences, alternatives, probability and decision making.

The results of a study analyzing the current status of corporate decision-making found that more than nine out of 10 business executives admit that they make important decisions based on insufficient information. More than half of these senior executives are concerned that they may be making poor decisions due to a lack of information. And a neighborhood believes that management often or always gets its decisions wrong.

These poor business decisions can cost an organization millions of dollars. The most important findings were that few managers received the information they needed and most felt that management decision-making was only moderately effective or worse. If these findings are not significant enough, the greater concern is that despite such decision outcomes, only 29% of executives believed that poor decision-making structures were a common cause of poor decision-making, despite the fact that 80% of respondents indicated that that data is the most important factor in making decisions. On an encouraging note, respondents ranked data-based decisions higher than others ’opinion, personal intuition, or external advice.

The report concluded that decision making was at the heart of both strategy and operations with a wide range of factors used to balance risk and reward. Yet, decision-making was not recognized as a strategic asset.

At a time when the economy and intense global competitive pressure are driving companies to optimize any benefit, this study shows that key decision makers do not get the data they value and need and rely on “gut instinct” than proven drivers . Of course, supporting good decisions requires much more than technology. It requires an organizational culture based on logic rather than emotion. A culture based on:

  • High quality Data – the more acceptable data, the more time spent on decision-making rather than discussing whether the data is accurate.
  • Access to advanced systems and training – High-quality systems require data source integration, master data management, and easy user access to timely delivery of information in formats that support rapid assimilation and action.
  • sound management – including governance, compliance and risk management
  • trust – in both the data and the interpretation of data from others
  • flexibility – adapting actions to new insights

*In Search of Clarity: Uncovering the Complexity of Decision Making. An Economist Intelligence Unit report sponsored by Business Objects

In my next article, I will further explore the culture required to support a logical organization.