Decision-Making Strategies for Business Success
When Apple’s board of directors rehired Steve Jobs after he was fired more than a decade earlier, the decision shifted the company’s future in a seismic way. Jobs ascended quickly to iCEO and went on to make major decisions of his own: He laid off scores of employees and reorganized top management. After streamlining the company’s product line, Jobs instituted a strict no-speaking-with-the-press policy, which still lends mystery and amps up excitement whenever a new Apple product is about to be launched.
Hailed by Forbes as “one of the greatest business decisions of all time," Apple’s rehiring of Jobs is just one example of how certain types of decision-making can influence a company’s success on many levels and even affect an industry or society as a whole.
From setting short- and long-term business goals and developing strategies to meet them to managing teams and individuals, managers and executives make about 3 billion decisions a year, says Forbes. Research by Bain & Co. involving 1,000 companies conducted during a 10-year period found that the effectiveness of those decisions is 95 percent correlated with financial performance.
Sometimes, though, organizations don’t realize just how important decision-making processes are to their bottom line—and to employee contentment and customer satisfaction. Below are eight key decision-making strategies for business leaders followed by nine ways decision-making processes are often sabotaged. Both lists can help organizations small and large work more efficiently and successfully.
8 Decision-Making Strategies for Business Leaders
Crunching data can help businesses improve their decision-making strategies and, in turn, their outcomes.
“We’re seeing organizations capturing more data than they ever have before,” said Bradley Staats, an operations and MBA@UNC professor at the University of North Carolina Kenan-Flagler Business School. “Part of it is because now storage is cheap.”
What companies learn through data collection isn’t always about what works, though. It’s also about revealing failures, said Staats, who has spent 15 years teaching technology and health care organizations how to make good use of the data they’re gathering. In one instance, he helped a technology company analyze data collected on employee handwashing, which is linked to hospital infection rates.
“In theory, failure is good,” he said. “If we try something and it doesn’t work, we can learn from it and keep trying.”
While some may say big data is forcing companies to shift from intuitive-based decision-making to relying solely on analytics, Staats doesn’t think so.
“In very few cases do we use all analytics. For business leaders, it’s exciting, but it can’t do all of the work, and analytics can have plenty of bias,” he said, pointing out Reuters’ coverage of Amazon’s gender-biased AI recruiting tool (which the company scrapped).
Ethical decision-making in companies is driven by what an organization—and society—thinks are good values, such as honesty, integrity, fairness, equality, diversity and dignity. It’s what influences a company to pay men and women equally when they are evenly matched in skills and experience and discourages employees from insider trading.
With the support of a company’s board, what The New York Times referred to as “chief ethics officers” can help build a strong ethical culture within an organization and help make business ethics an integral part of their corporate strategy. Internal ethical challenges may include diversity and addressing employee sexual harassment. External ethical concerns could include compliance with environmental laws, federal and state safety and privacy regulations, and fiscal reporting statutes.
The day-to-day choices that keep a company running smoothly—simple, routine decision-making such as ordering supplies and choosing the best distribution channels—are operational decisions. They’re not big-picture strategy-oriented choices made by the CEOs and board but generally the job of middle and junior management. Companies can make hundreds of them in a week, or even in a day.
Operational decision-making may not sound glamorous, but it can have a significant effect on business. For example, McDonald’s use of the same operational standards at franchise locations across the globe has enabled the company to maintain a successful worldwide brand identity for decades.
Process entails everything an organization does in its ongoing operations, including deciding how the company prices products, what products to launch, and how they go about marketing.
While it’s traditional for decision makers to focus on outcomes, experts say that can get in the way of process. Staats points to the NBA’s Philadelphia 76ers, whose fans chant “Trust the Process” during games, as a reference to a management strategy designed to acquire top-level players.
“We think if we got a good outcome from our decisions that we followed a good process, but that’s not always the case,” said Staats. “Sometimes you make good decisions and have bad outcomes. So understanding the process that got you to the decision is important [for] understanding the why behind what you’re doing.”
Non-programmed (or unprogrammed) decisions revolve around new scenarios faced by an organization—unlike programmed decisions, which are based on previously established processes or rules made by an organization. Manufacturers that follow recommendations by the New York City Department of Health and Mental Hygiene to reduce sugar by 20 to 40 percent in their packaged foods and drinks will likely be traversing new territory and making non-programmed decisions.
Joint decision-making puts the onus on a team and allows employees to discuss a plan, weigh pros and cons, compromise where they disagree, and create a strategy together. This method can give a boost of confidence and motivation to employees and increase bonds among team members. Increased trust and transparency and sharing credit with others are also factors that improve employee relations and retention, according to HR Professionals Magazine.
Sustainable decisions are based on combating global climate change, reducing energy and water use, recycling waste, and adopting green transportation strategies.
There was a time in the last 50 years when the idea of making sustainable business decisions was considered at odds with making a profit. In Profits and Sustainability: A History of Green Entrepreneurship author Geoffrey G. Jones says that organic food growers and solar power energy businesses once had a fringe reputation in the business world. But today more organizations—including car makers, coffee companies and colleges—are now focused on developing innovative, environmentally friendly practices as part of their business models.
Tactical decisions involve the nuts and bolts of executing a larger strategic plan. They’re actionable and have a purpose and a measurable result. It means developing workflow structures and distribution channels. For managers, Forbes suggests that making tactical decisions might involve analyzing their department’s capabilities and strengths, as well as its weaknesses and gaps, and drawing up a plan to act on those findings. Or, it might mean assessing a customer’s needs and what drives them, including how to address those needs to increase big picture company goals such as growing sales. Tactical decision-making leads to measureable results.
When it comes to decision-making in business, said Staats, no matter what type you’re focused on, “understand what the baseline looks like; [understand] the sandbox you’re playing in.”
9 Ways We Sabotage Our Decision-Making Processes
Change happens, and you can’t always use the same business models from 10 or 20 years ago to make business decisions today. Push past fear. Don’t let it get in the way of process-focused decisions. Try new ideas.
Sometimes a past success may cause a person to freeze up when new decision-making challenges arise – they fear they’ll never have a great success again. But a failure is not a fault. Some CEOs look to hire people who’ve had business failures, as they bring experience and resilience to the job. Try again, even if you fail again. It helps you grow.
We have an overwhelming tendency to look for what confirms our beliefs and ignore what contradicts them. Counteract these tendencies. Try to prove yourself wrong. Ask if there’s a better idea. Use unbiased surveys to confirm issues. Plant a devil’s advocate in meetings to push back.
Some leaders may judge success based on outcomes, but a poor outcome doesn’t mean the decision-making process that led to it was poor. Remember that a product’s popularity with the public isn’t always a reflection of its value or true quality, or of the process that went into it.
Avoiding heuristic processes
The word heuristic is from the Greek heuriskein, meaning “to discover.” Sometimes businesses stick with tried-and-true decision-making processes instead of heuristic or trial-and-error ones. Try thoughtful exploration and creativity, which can lead to growth and fresh, surprising results.
Being too focused on the end result can lead to an unwillingness to take the risks required for longer-term success. Leaders can encourage their organizations to be thoughtful and unafraid to take step into the unknown.
We want to be seen doing something. Often, waiting or reflecting has a higher value than being out in front.
Perfectionism (sitting-in bias)
We’re afraid to stand out and be a so-called deviant in business. Don’t let the drive to be perfect stall growth or sabotage your career. Take decisive actions, even when they’re not flawless.
It’s the old ostrich-burying-its-head-in-the-sand method of avoiding conflict by looking away or denying it exists. Be aware: It is always better in business to acknowledge conflict than to live in denial.
Citation for this content: MBA@UNC, UNC Kenan-Flagler’s online MBA program.