Faced with a number of seismic digital shifts, organisations need to rethink how they approach strategic decision making if they want to break with the past
IN 30 SECONDS
Five concurrent, digital shifts are transforming the business scene: intelligence everywhere, increased connectivity and autonomy of objects, accelerating impact of technology, rise of the platform economy, increasing dependency on trust
Whilst organisations want to adapt, they are often hampered by their own complexity and traditions
New research suggests that in order to make faster, better decisions in the digital age, senior executives should be moving from unilateral, command and control models, to collaborative decisions by empowering stakeholders with information
What happened at Volkswagen? What chain of events led to the collapse in share price by 40%, the resignation of its CEO and the irreparable damage to the company’s reputation? With the dust still settling on one of the biggest corporate scandals in recent years, its causes remain obscured by the sheer size and complexity of the organisation. Whilst we may never get to the bottom of it, observers are clear on the drivers. Investigations will lead to ‘another case study in the annals of bad decision making,’ believes (note 2) Fortune’s Ryan Derousseau. Volkswagen isn’t alone: pick any recent corporate disaster and you will find a similar story. ‘Toshiba had a corporate culture in which management decisions could not be challenged,’ said the report (note 3) into the company’s 2015 accounting scandal, also resulting in a CEO resignation.
A fast decision is often better than no decision. Since no decision leads to delays or unwanted results. No decision therefore is also a decision but it’s passive and with high risk!
Thomas Lünendonk, July 2015
Volkswagen and Toshiba are just two more cases in a series of mega-failures, their causes obscured by complexity but their effects linked to failures to respond to the changing context within which they operate. A number of technological shifts have catalysed a business landscape where such failures are not tolerated for long, even as it transforms the business models and operational processes upon which companies depend. Rooted in the accelerating spread of technology, the digital wave is creating as many opportunities as risks, driving a need for faster decision making as organisations look to benefit from all-too-brief market advantage. Writes (note 4) Rita Gunther McGrath, professor at Columbia Business School (note 5), 'Transient-advantage leaders recognise the need for speed. Fast and roughly right decision making will replace deliverations that are precise but slow.'
A number of technological shifts have catalysed a business landscape where such failures are not tolerated for long, even as it transforms the business models and operational processes upon which companies depend
Having carried out some research to understand decision making better, we have found that many firms struggle over complex structures, systems and processes. Respondents were 2.0x as likely to think that new market entrants and more agile competitors using digital technologies are a significant threat, even as they recognise time is not on their side (figure 1). And inevitably, bigger (and therefore more complex) companies have less efficient decision processes – ‘too big to fail’ can become ‘too slow to succeed’.
Time is not on any organisation’s side. Whereas industries once changed slowly, the digital wave has first impacted more susceptible sectors (taking down Kodak, Borders, Blockbuster and others) and is continuing its relentless progress into previously immune verticals such as financial services, automotive and healthcare. A key element of an organisation’s strategic response, clearly, is to make better, faster decisions that will stand the test of time. But how can this outcome be achieved, given just how complex and downright opaque organisations are today?
Strategic decisions are over 1.3x as likely to lead to good outcomes if a number of inter-related elements are in place
Using the BearingPoint Hypercube smart analytics solution we found that strategic decisions are over 1.3x as likely to lead to good outcomes if a number of inter-related elements are in place. Top of the list, according to our research, is empowerment.
Staff and customers should be directly involved in decisions
Human involvement in decisions is fundamental to both driving strategic insights and steering day-to-day priorities. In our research, when we looked at behavioural factors, we found that 60% of decisions were influenced by people who provided information, even if they were not direct participants in the decision process. This increased to 71% when high levels of business risk were a factor.
Significantly, different types of decision can be seen to benefit from involving different stakeholder groups. In general terms, while the bulk of decisions involved only senior executives, decision processes were 2.2x as likely to be effective when all levels of staff were involved.
Where decisions have an impact on specific stakeholder groups, it becomes fundamental to involve those groups in the decision. For example, from the research we see that one in three marketing decisions met their expectations if customers were involved, compared to one in five where they were not.
One in three marketing decisions met their expectations if customers were involved, compared to one in five where they were not
Overall, whilst only 8% of decisions directly involved the customer, 49% of decisions where expectations were exceeded directly involved customers in the process (figure 2).
The link to today’s increasingly collaborative business landscape could not be more clear. As information sources diversify and extend beyond company boundaries, so must the pool of people involved in deriving insights, not as passive sources but as active participants in achieving a shared goal. ‘Think tribes as well as teams,’ explains Forrester’s Allegra Burnette. ‘Teams come together to win; tribes come together around common beliefs and work as a team for the interest of the whole community.’ (note 6)
Information needs to be accessible to all stakeholders
For improved decision-making, the research tells us information needs to be immediately and digitally accessible, reliable and of high quality. A significantly higher proportion of decisions – 28% compared to 18% – had their goals exceeded when information was immediately available, for example (figure 3). And a good decision-making process is over 2.0x as likely to have used digitally accessible information.
Given how many business decisions rely on gaining even the smallest advantage over the competition, this finding is highly significant. Says Sir Clive Woodward, who pioneered the use of data in sports science in 2003, ‘Whoever wins in information technology tends to win.’ (note 7)
In the digitally enabled world, organisations need to take into account an increasingly diverse and complex range of information inputs, driving the need for a well-architected digital platform. From the research we can see that a good decision-making process is 1.5x more likely to include immediately accessible information; indeed, it is 2.3x more likely to have used digitally accessible information, such as via portals or reporting systems. Similarly, a good outcome is 1.8x more likely when the information needed to make a decsion was totally automated. And, as shown in figure 4, decisions using algorithms to analyse data and deliver insights were 2.8x as likely to yield better outcomes.
From the research we can see that a good decision-making process is 1.5x more likely to include immediately accessible information
Leaders need to drive digitally enabled decisions
To many organisations, empowering stakeholders by giving them the right information at the right time is going to raise a number of challenges. As we covered at the start of this paper, no business is operating in a vacuum with unlimited resources. However, some organisations are taking the bull by the horns and recognising the importance of improving their capabilities. For example, of those respondents achieving better outcomes, 45% have already changed their business processes and systems to support better decision making. In addition, whilst up to 55% of companies had no plans to invest in digital, companies with good decision processes are 2.3x more likely to have recruited a Chief Digital Officer (figure 5).
Other factors, such as using key performance indicators (KPIs) to assess how well digital tools are being implemented, are at least 1.3x more likely to be in place. Note that such factors may be transient – for example, a CDO or digital-specific KPIs may not be necessary in organisations that have already embraced digital capabilities.
Certain industries appear better at creating enabling environments for good decision making, not least utilities – which has a higher level of senior executive support than other industries (figure 6). Meanwhile the communications and media industries appear to have a head start on other sectors in regard to agile methodologies and the use of KPIs. Ultimately, in today’s fast-moving business context, the main crime any company can commit is to act as if nothing is happening, or to merely tinker at the edges of ‘transformation’ without making the deep changes that are actually required. To paraphrase an old joke, for change to happen, the organisation itself has to want to change – from the front lines to the very top of the hierarchy.
Stop deciding unilaterally, start enabling good decisions to happen
Even as the world becomes more complex, the answer is simple. Future decision-making success will be defined through harnessing the skills, insights and experiences of an increasingly broad and diverse ecosystem. There is no going back to traditional, command and control: the future will be defined by those who rethink their strategic decision-making approaches to engage with the collective voices of their stakeholders, both internally and externally.
For Volkswagen this knowledge may have come too late: interestingly, in the company’s new drive for transparency, it has extended an amnesty across the organisation such that staff could speak out without fear of dismissal. Even as traditional organisations fear opening up in case they release some competitive advantage, new upstarts throw caution to the wind in the understanding it is speed, not secrecy, that holds the key. Today’s volatile business landscape creates a transience of opportunity and of insight that cannot be met by making decisions in isolation. A better alternative, indeed the only one, is to stop making decisions unilaterally, and start enabling decisions to happen – by listening first, then acting fast. ‘We are perpetually listening and watching what’s happening out there, and we are testing a lot of things,’ says Lubomira Rochet, CDO at beauty products company L’Oréal, which is pioneering this new way of thinking strategically (note 8).
Other firms such as GE and UK retailer John Lewis have also proved they can be just as innovative as start-ups, if they act in harmony with the ecosystem rather than fighting against it. Such companies recognise the need for fast, reliable decision processes that take into account digitally enabled information flows, which put the right information into the hands of customers and staff, partners and suppliers and delivers insights stakeholders need to contribute at a strategic level.
In the future, no room exists for opaque decision-making structures which seek to protect senior management rather than enable the business
In the future, no room exists for opaque decision-making structures that seek to protect senior management rather than to enable the business. Change can only come from the top: for efforts across the organisation to bear fruit, the leadership team needs to fully embrace the collaborative, information-enabled future, and so create the enabling culture their organisation needs to thrive.
As writes Isaac Getz, co-author of the book Freedom, Inc on the skills required for future leaders, ‘We did find three distinguishing character and psychological traits: egalitarian value – respect, dignity, consideration, trust, fairness and equity; creativity – an ability to redefine problems; and wisdom – holistic and thinking style.’
Future decision-making success will be defined through harnessing the skills, insights and experiences of an increasingly broad and diverse ecosystem
The need for a strong, experienced, visionary corporate brain does not diminish, but it needs to be tightly integrated with the ecosystem within which it participates – engaging as a peer, not making pronouncements like some disengaged dictator.
To this end organisations can take actions such as:
- Implementing a data lab, so that the firm has state of the art analytical capabilities that deliver the right information to the right people.
- Adopting experimentation-based approaches, as every business has different needs – building experience of what works should be a higher priority than assuring the ROI of each initiative.
- Institutionalising co-creative activities, expanding their scope beyond product development to decision making across the board.
Achieving these changes in thinking are not for the many, but for the few who want not only to ride, but become part of the digital wave. The alternative is a continued disconnect from an increasingly integrated, dynamic world, leaving the organisation on an accelerating slide towards oblivion.
Hypotheses on which this paper is based:
- Multiple digital shifts are acting in tandem to have an unprecedented impact
- Empowerment of staff, customers and other stakeholders should be the focus of any business looking to improve its decision-making
- Digital technologies are enablers of significantly better business decision making
- Becoming smarter requires a significant change in mindsets, structures and skills.
Conclusion: Embracing digital technology, in an actionable way, leads to improved decision making. To achieve this, there needs to be a breakthrough in thinking from the top of the organisation.
As part of our review of the current state of strategic decision making, between July and August of 2015 we undertook some primary research into decision-making practices across a number of European countries. 300 senior roles were interviewed from France, Germany and the UK.
In our research we asked about a recent, strategic decision: 50% of the 300 decisions directly involved the board, and the board was consulted in a further 29%. As well as painting a picture of current practice we wanted to identify how to enable better strategic decisions, more frequently and with better outcomes.
In order to qualify answers we used the following definitions:
Good outcome: 100% of outcomes listed EITHER Exceeded expectations OR Met expectations
Good process: Agree OR Strongly agree:
- There was top level commitment
- Decision was formal
- Decision used workflow application/tool
- Alternatives considered were appropriate for decision
- Decision was straightforward