Decision-making is an act of choosing among available alternatives that can either make or break an organisation. A decision includes a set of actions purposely selected from a group of other options to achieve organisational or managerial objectives or goals in a business. Decisions are made at every management level to sustain all units’ activities and ensure corporate or business goals are achieved. Decision making in a business aims to attain a purpose and is channelled to improve organisational performance and effectiveness.
Decision Making: Types and Impacts
McKinsey’s survey report highlights different types of decisions categorised by their importance, size, and impact.
They are:
- Big Bets: These are infrequent and high stakes decisions, often with the potential to shape the company’s future. Some examples are; acquisitions and annual resource allocation.
- Cross-cutting decisions: These decisions are also broad, but they are more frequent and familiar. They consist of a series of smaller interconnected choices made by different company groups as part of a collaborative, end-to-end decision process, for example, pricing decisions.
- Delegated Decisions: These are frequent decisions that are much narrower in scope, such as HR policy changes. A decision like this is often handled by a single individual or working teams.
- Ad hoc Decisions: These are infrequent and unfamiliar decisions that arise periodically. Their impact on the organisation depends on how concentrated they are.
Two notable examples of organisations that made Big Bet decisions without fully considering their impacts are Motorola and Blockbuster.
- Motorola: Motorola was one of the top mobile phone manufacturers globally during the mid-2000s. With the release of their hugely popular Motorola Raz The company gained a market share of 22%. However, their lack of urgency and adamance of retaining the existing aesthetic appearance of their Razr model, without fully considering customer’s needs or experiences, led to the crash of their market shares by 90% between October 2006 and March 2009. By 2011, the company had become defunct after over eight decades in the industry.
- Blockbuster Vs Netflix: In 2000, Netflix co-founder Reed Hastings made an offer to Blockbuster, a famous movie rental service during that period; he wanted the already popular store to help publicise Netflix in its physical stores and in return, Netflix would help Blockbuster to promote their brand online too. Blockbuster was quick to say no. A decade later, in 2010, Blockbuster filed for Chapter 11 bankruptcy protection. Ironically, the Popularity of Netflix had been the main contributing factor. Netflix currently has over 100 million users worldwide, while Blockbuster has closed operations in most major territories.
These organisations did not critically consider the impact of change on their organisation’s sustainability and products. It could not take the necessary decision to prevent business failure.
Effective decision making: Steps and Tools.
Decision-making is often time-consuming, especially when the decision’s outcome will significantly impact the organisation. Good decision making involves seven (7) necessary universally adaptable steps, they are;
- Defining the problem: Identify the issues and what decisions need to be made.
- Establish the goals: Determine the objectives and expected impacts of the decision.
- Gathering information and collecting data: After Identifying the problem and outlining set goals, carry out external and internal research relevant to the issues and decisions.
- Developing and weighing the options: After gathering all relevant information and gaining a clear understanding of the issue, identify the possible solutions to the problem. According to management experts, it is also necessary to weigh the identified options and evaluate them for feasibility, acceptability and desirability. This is to know which alternative is best. It may also be helpful to seek a professional opinion.
- Choosing the best possible option: In selecting an alternative, be sure to understand the risks involved with the chosen option.
- Plan and execute: The next step is to develop an implementation plan. This plan includes identifying the resources required and gaining support from employers and stakeholders. After this is done, take all necessary steps to ensure the plan is executed.
- Take follow up action: Review and refine as you go forward.
Along with the adaptable steps in making decisions, there are several practical tools key stakeholders/decision-makers in an organisation can take to ensure that their decisions will positively impact its sustainability and growth. They are:
- Make Collaborative Decisions: According to the idea of synergy, decisions made collectively tend to be highly effective. Decisions made by a group of people also help to reduce the possibility of self-serving decisions and nepotism. Group decision making draws from the knowledge and experience of a large number of individuals; as a result, they have the potential to lead to more effective decisions.
- Use Data Analysis: Data represents necessary information that may directly impact its revenue, growth, goodwill, and other defining factors. It describes past and existing trends, giving an estimated insight into the market’s future or the company itself. Data is often cumbersome, and to properly harness its potential, it must be appropriately analysed to derive the right result.
Here are four steps that can guide the conversion of data into effective decisions; include:
i. Define your questions: You must ask the right questions to generate the right types of data. These questions should be measurable, unambiguous and concise. Design questions to either qualify or disqualify potential solutions to specific problems or opportunity.
ii. Set clear measurement priorities: This is divided into two parts: Defining what to measure and deciding how to measure it. After defining key questions, it is essential to understand what answers are required and their measurement.
iii. Collect Data: With the questions and clearly defined measurement priorities set, related data is collected and collated.
iv. Analyse Data: After collecting the necessary data, they should be analysed and manipulated to generate the exact data required to answer the initial questions. If the data does not entirely provide answers to the questions, the original problem may need to be revised, or more data might need to be generated.
- Engage Consultants: Engaging the help of external experts, such as consultants, helps an organisation avoid and exclude self-serving interests of decision-making individuals within the organisation. Consultants come with an unbiased perspective that often helps in spotting the real issues of an organisation. Consultants with broad market experiences often understand the surrounding market in which the company operates will also aid the decision-making process and existing trends that may assist in making the best decisions possible.
The use of one or all these steps for decision-making will help reduce the possibility of making biased or impractical decisions that do not consider the organisation’s best interests.
Making Good Decisions is a critical part of every executive’s job, and good decision making is the cornerstone of business success. Good decision making helps businesses succeed and boosts profit. Poor decisions, on the other hand, could jeopardise not only business growth but also sustainability.
As a decision-maker in an organisation, it is vital to understand or have an estimated impact on every decision to be made; this will help the decision-maker understand the tools necessary to make the best decisions possible.
Written by:
Wonu Salawu
Senior Analyst
