How to avoid making bad decisions in Business organizations

Decision making forms the core of our lives and any organization. Decision making in large organizations exists in a hierarchy. As illustrated in the figure. 

Strategic decisions are long term high stake decisions made by the Senior Leadership Team (SLT) and Board members. The SLT might include, the CEO, CFO, Senior Managers, Directors, etc. Strategic decisions affect the long term performance of an organization and relate to a company's aims and objectives. Good strategic decisions can be very rewarding to an organization.

On the hand Tactical decisions are midterm decisions made by Managers and Heads of Departments(HoDs). They are key initiatives established to achieve the overall organization strategy. Tactical decisions determine the day to day implementation of a company's activities aligned to achieving a specific goal. 

Operational decisions are essentially functional decisions made by the employee body during the execution of the day to day business operations. They are mainly administrative in nature and can be implemented quickly with low risk. 

In all levels in an organization or business, decision making is always constrained; not all decisions can be made by an individual due to a number of factors which could be a general lack of skill, economic constraints, legal implications, etc. That notwithstanding, every member of the organization has a stake in the decision making process. These decisions however segmented they might appear can at times be flawed due to a number of reasons detailed as follows;

• Emotional tagging: Emotions sometimes get attached to certain experiences in past memories and subconsciously influence judgment. A previous electric shock can signal impulses of flight at the sight of bare wires from an unplugged electrical appliance even if it is clear the appliance is not plugged into mains supply! Similarly, in business, previous good dealings with a particular company can be prejudice for further business dealings. 

•  Cognitive pattern perception: A human brain is very complex and odd as it might sound majority of our judgments are based on smart guesses it makes in correlation with information from our past experiences. Imagine while driving a car, a little child abruptly enters the road, the brain will process this scene and subconsciously create an estimate of the next position of the child and basing on this a decision to avoid her is quickly taken without delay. Similarly, when organizational leaders are faced with unfamiliar situations, their brain invokes similar patterns from past experiences to make quick judgments of a situation and  trigger action. The brains ability to recognize patterns in life experiences and make guesstimates is the sole reason for quick decision making, otherwise decisions would be too slow and often catastrophic. Pattern perception often results in good judgment though not all the time. It is not foolproof! The brain gets it wrong sometimes and can be difficult to correct the situation.

As already stated, the emotions you attach to a situation as well as your general perception of a situation based on experiences in the past can lead to flawed judgment. These past experiences could be; 

1. Misleading experiences manifesting in the face of an unfamiliar situation and lead you to think you are familiar with that particular situation. The brain might allude to an experience that does not befit  the situation at hand.
2. Inappropriate self-interest because perhaps we have gainfully profited from making certain decisions. It is not uncommon for a contracts officer to award a new contract to a company that previously rewarded him for previous contracts! 
3. Misleading prejudgments subconsciously prime the mind basing on past decisions you have made well before you become consciously aware of the situation. For instance childhood biases can influence decisions made years into your career!
4. Inappropriate attachment in the form of favored choices or tastes, interest, affection etc, can lead to biased decision making.

How to prevent clouded judgment and decision making

•  Information collection and analysis: It is imperative to do data collection and analysis, market research as well as get an expert opinion about a business prospect, product or entity to broaden the experience and knowledge. This enables making of informed unprejudiced decisions. It may be preferable doing independent studies by independent consultants so as to get a balanced view of the business prospect.
• Structured governance: Organizations keep their leaders in check against prejudgments by instituting structures that evaluate and review business proposals being considered prior to adoption. Such structures might include but not limited to; contracts committees, Vetting committees, Special committees, etc.
• Debate and challenge: This can be informal like chatting with a friend or could comprise of formally constituting a decision group depending on the organization and preference. This serves as a good check against biases and prejudgments that might arise. The subject of decision groups has been extensively discussed by lateral thinker Edward de Bono.
• Monitoring and supervision: This is the ultimate tool to biased decision making when all the rest have yielded little or no result. To keep leaders in check clear goals need to be set and performance measures calibrated against milestones achieved over a certain period. It keeps management focused on the target  goals and as such favorable decisions are made towards achieving those goals.

It goes without saying, it is not possible to avoid bad decisions completely in as much you strive to. Majority decisions especially if they are not strategic, are based on gut and instinct which often predisposes you to erroneous judgments. Nonetheless, it is possible to keep them to a minimum level through the measures identified.

Read More

When to Make Turn Key Decisions

Decision making is the engine room of our entire lives. Some decisions are made impulsively while others consciously. The impulsive decisions are difficult to control as they are based on instinct. There are decisions we consciously make  that can spell out our success. Failure to make those decisions or recognize that moment could lead missing out on a life changing opportunity like it was the case with my dad.
Many Years ago while I was still little - about 7 years of age, I remember my dad had run successfully a string of gas stations for close to 5 years. Later, business began to stagnate and profits dip - my mum advised to sell off the business but because it was his first successful business, he was adamant, blamed poor performance on the general economic slow down. He injected a lot of stimulus money into the business and in spite of it all, profits dipped further. My mum identified management as the sole source of problems but he never saw it that way. He continued to unknowingly lose a lot of money to station managers. After three years of bad business he accepted to change the business model upon receiving similar advice from a trusted friend. He re-structured the company, appointed new management who turned the fortunes around. Several months down the road, profits hit six digit figures again. Unbelievably, business stagnated for 3 years and yet the power to change its course was his all along! He simply failed or feared to make game changing key decisions in those 3 years!

Life is one hell of a bumpy road and a myriad of tough situations are bound to come your way. The decisions you take during such difficult times might as well turn out to be a game changer or catastrophic! Every so often, it may not be about a difficult situation you are dealing with; for instance, having to give up a good paying job to get married and move in with your husband can equally present a tough choice! No matter what your circumstances are, what counts ultimately is making timely key decisions! Occasionally, key decisions mighty be pretty straight forward, in other cases not that much requiring consultation and counsel. Don't be afraid to seek guidance, and when you do, keep your head above the water! The decision is still yours to make! A seemingly obvious key decision might equally turn out to be difficult to embrace simply because for instance;

1. You are afraid to fail: In circumstances where your legacy or track record as a manager is at stake, making decisions that deviate from the norm can be a daunting task, harder than braving the open seas even if logic defeats reason!

2. You are afraid of the unknown: I know not of many people who would be willing to delve into private business because they consider it "uncharted waters". Most Venture Capitalists or angel investors prefer to inject cash into a proven business - a business that has potential to succeed from their perspective. It may seem understandable since often times the sums involved are quite significant! Risk and get burned so they say!

3. You are afraid of leaving your comfort zone: You could be complacent with the current size and level of profits from your business and consequently reluctant to expand. Or perhaps you are in the employment world and afraid of quitting your current job for self-employment or for a new job; even though the rewards are not commensurate with the work you do. From experience, normally things go wrong when least expected. Nature always seems to side with the hidden flaw according to Murphy's laws. So it is always wise to perceive change as a new window of opportunity if exploited diligently! Be receptive and open to change! Who knows, you could land a "juicier" job or be the next founding father of a successful start-up!

4. You are ill-informed: There is nothing as puzzling as being faced with a difficult or critical decision and not knowing what to do! This happens very often in our daily lives, at workplaces, businesses and even in our homes. The end result is either a bad decision emanating from miss information or delayed action for lack of it.

5. You are under pressure: Some managers would defer decisions however befitting they are for the circumstances at hand and opt for decisions favored by the general established company framework out of fear of a back clash and undue criticism.

I'm certain most of us have been through this at some point - at least I have. Many years back I had started an IT company while still working with a telecom firm but was afraid of quitting my job to consolidate my company. The uncertainties surrounding my young company seemed immense and insurmountable. So I clung onto my monthly paycheck in oblivion like a tick! Two years later, the telecom firm I worked for, was acquired essentially rendering me jobless, with no money and with a failed company! This is when I realized I had missed making a defining key decision at some point.

In as much as making key decisions about situations is important, knowing when to make them is utterly critical! So when do you know it's time to make that key decision?

1) When the outcome does not tally with set targets

An outcome is an end result achieved after a process. Trying to direct efforts towards a specified and quantifiable outcome, as much as possible in all undertakings, is paramount. If it's a business venture, the mark up margin or sales turnover should be deterministic and reconcilable against a preset profit or sales margin. Variances observed from the set target must be followed up with immediate corrective action.

2) When no desired outcome has been achieved within a preset timeline

Any outcome that is not time bound normally turns out to be unnecessarily resource consuming and untenable. For instance, setting realistic targets in business for specified timelines is critical and if not achieved within the given time-frame, it could be a signal to change strategy. In the same light, if you plan to marry someone's daughter, set the date to that effect and act upon it lest you risk being dumped for making promises you can not keep!

3) When achievement does not tally with set goals

A goal is an envisioned desirous outcome of a planning and execution process. Setting realistic achievable goals is equally important while setting performance targets. If the goal is to expand a business by 50 new stores across the country within a year, due consideration could be made for the available capital and labor as the main modulators for this particular goal. At the end of the year an assessment on the progress, evaluation of successes and failures be made, to strategize for a better outcome over the next financial period.

4) When boredom creeps in

It could be a business you are getting tired of because of low profit margins, general loss of interest, etc. Or sometimes, the job you have is less rewarding, too repetitive and less challenging. All this and many more can subsequently make you less excited or interested with prolonged tenure. In this state mind, performance and innovation is unduly inhibited. To re-invigorate your spirits, a more involving job or business should be sought to spark innovation and creativity!

5) When complacency sets in

I 'm sometimes amazed by Warren Buffet. At 82, coupled with what he has achieved, you would imagine his desire to achieve and succeed more has dwindled. It turns out his desire to succeed is much more than ever before. Last year, he invested more than $500M dollars in Sunchor - a Canadian oil company, equivalent to a staggering 17.8 million shares. A good lesson to learn!

I have always told my family that I will never stop working until I achieve a debt free home. This seems like top of the ceiling measure for success but what happens in the event I achieve this in the short run? Do I stay home and enjoy my sweat? That is when I will probably lose it all. A fool with his money are soon parted!

Read More