How Should CEOs & Organizations Think About Choice Making That Defines The Culture And Bottom Line Of Their FIRM...
The main job of business leaders, whether they be CEOs or entrepreneurs managing firms of varying sizes, is to take good decisions, or more appropriately make the right choices for their business. The kind and combination of choices they make determines the success or failure of their organization. Strategy development involves making choices and so does execution. But the rapidly changing business landscape of most industries frequently overtakes that ability of individual CEOs, for they are after all human beings with limitations in experience, knowledge and thought processes. This is why top CEOs are known to rely upon a body of advisers, whether in the form of a board of senior leaders from their organization or external consultants, coaches and so on.
As a CEO or entrepreneur, if you feel that you have reached some kind of plateau and are unable to move to the next level, or you are staring with increasing disbelief at a series of meticulously thought out but ultimately misfired decisions, then the following exploration of the choice making process would help you gain insights into the way you come to your decisions and how it can be strengthened or completely transformed for the better.
Best Practices Based Choice Making - This and the one that follows are the most common processes used by business leaders to zero-in on the options available to them. It's because they are either around the business leader in the form of existing best practices or they arise from within the business leader - from the wellspring of their experience. The immediacy and ubiquity associated with these two types of decision-making make them extremely powerful influencers. If certain best practices work for other individuals or companies in similar situations or domain as you, it's very tempting to try them out. Not only is it in some ways an easy and practical solution, as it has already been tested and proven by others or yourself in the past, but it also gives the business leader some sort of leeway, at least personally, for if the choices made do not work out they can always convince themselves and others that after all they went for proven practices and it was probably bad luck that things did not work for them.
However, contemporary business machinery is extremely complex, what works very well for WalMart does not work for every other low cost retailer. Analogies by definition can be misleading or disguised by way of not being identical, i.e. an analogy from your own industry might not work in your case, and that which gives results may come from an entirely different industry or situation. But all types of choices may not require independent enquiry. In most cases effective best practices can be chosen after proper evaluation of their applicability in your unique business environment or they can be made effective through some tweaking. The awareness of differences is critical for the successful application of best practices. Nevertheless, systematic and deliberate application of best practices in individual and corporate actions has the potential for creating huge value.
Example - The economic downturn of 2008 came about because certain fundamentally erroneous and unethical practices were treated as best practices and adopted by increasing number of executives till the financial markets could not take it anymore and collapsed.
Sources of Best Practices: Consultants, vendors, Syndicated Research, Book, Journal Articles, Trade Publications...
Experience Based Choice Making - CEOs occupy the topmost position in organizations, they are heavily rewarded for the ability and experience they bring to the job and their judgment call often tends to be overvalued. This in many ways may create a subtle pressure on them to make all the critical decisions for their company. This attitude is not confined to CEOs. It often percolates down organizational levels. While, most choices are based on experience and judgment, they certainly must not be all made that way. How varied can a single human or organization’s experiences be? Furthermore, how easy is it to tap into organizational knowledgebase? No wonder most organizations plateau out or die when they drive to the future while looking at the past. The pace of change in the market place these days pretty much suffocates experience based choice making in many critical areas. If one tries to make decisions about areas for which they lack the required degree of current knowledge then they are in obvious danger of making errors. Experience can also be misleading as it can create strong opinions and beliefs which may not apply in every context. Taking the example of the recent financial meltdown again, it was caused by some very poor judgments made by some well known and regarded people. Another problem with experience based decision making is that it tends to be devoid of deliberation and operates from CEO's, Executive's, or Organization’s default behaviors and hence promotes the culture of isolation. This can be damaging under many common circumstances. It is, therefore critical that executives recognize the need for external input in strategy and execution, when warranted.
Failure highlights ignorance and success hides it. Lack of both ignores it. In all three cases, it is detrimental to the organization.
Validating Beliefs - Many CEOs try to be progressive and initiate internal research teams to test their ideas and thoughts. This is a proactive approach but at the same time a highly suspect method as such investigations have a tendency for being partial, incomplete and misleading. Internal teams are bound to have their own biases and experience limitations. It's quite likely that when they go out to test new ideas they would try to find data that supports their existing beliefs. Beliefs are like habits, once formed they're very painful to let go. However, having active internal teams is better than not making any deliberate enquiry at all. As a CEO if you would like to inform your decisions from data gathered through internal studies, then you need to create systems and structures that force your teams to avoid their experiential limitations and biases. At the same time, effective utilization of best practice documents is critical in this process. Procedures like using the sales teams to collect data for making sales related choices should be avoided as much as possible. It is no wonder that marketing and sales are at odds on corporate strategy because they are promoting their own ethnocentric notions of reality.
Engage with Third Party - Considering the increasingly complex choices faced by most business leaders today, it makes sense to hire external consultants with specific skills, knowledge and experience. Consultants should be hired according to the requirements of the decisions for which consultancy is required. They should be screened for their knowledge of the industry, domain and training in different research methods. A carefully engaged CEO coach and consultants can dramatically change the financial picture of the firm. However, the keyword is "carefully chosen". When chosen correctly, they will bring three things to the table:
1) Varied Experience,
3) Domain Knowledge of Best Practices, and knowledge of scientific methods.
Employ Scientific Investigation - Big companies like Procter & Gamble do not move ahead with new product decisions without having done rigorous research which at times extends over several months and even years. The general impression would be that P&G is a giant and they stand to lose a lot if any of their decisions misfire, therefore it makes sense for them to invest a considerable amount of time and money in research, but small companies cannot afford to invest in rigorous scientific testing, even if they can, they don't stand to gain much. This is far from correct, experts trained in research methodology with knowledge of specific industries can design research for smaller firms that can be done in a relatively short time and yield empirically valid results that would help make confident decisions. Companies need to view scientific research as an ROI issue, and devise appropriate measurement tools, and then only they will be able to fully appreciate and utilize rigorous scientific investigations for making the right business choices.
The bottom line is to get as much assistance as possible when making critical choices. Decision finally, has to be yours but get in the habit of seeking dependable guidance.