How to make better business decisions
McKinsey and Company report that managers at a typical Fortune 500 company may waste more than 500,000 days a year on ineffective decision making. Startling as this figure may be, on closer inspection, there are clear patterns to be found linking the reality of many business environments to the ways in which managers make decisions that can impact on organisational performance.
Often, organisational dynamics operate counterintuitively to decision-making processes; where decisions are made, both deliberations and outcomes can be slow, reactive and convoluted; decision processes can be hampered by an excess of stakeholders, cognitive biases and information; there can exist a lack of clarity regarding roles and responsibilities. Sometimes, it can be the decision-making method – and the absence of an agreed outcome, or set of outcomes – which is to blame.
McKinsey and Company’s research also revealed that:
- Wasted days are equivalent to some $250 million in wages annually
- Of the more than 1,200 managers surveyed, fewer than half say that decisions are made in a timely manner
- 61% of those surveyed state that at least half of decision-making time is ineffective
There’s clearly room for improvement regarding decisions in the majority of workplaces. While senior leaders tend to focus on strategy, day-to-day business depends on managers at all levels making good tactical decisions – misjudgements can mean tangible, often-costly consequences. However, when important decisions are made and manage to alight upon the best-possible solutions, there are profound business benefits to be gained.
Why decision making is important
Decision making is the act of making choices through the assessment of information.
Business doesn’t get done without decisions being made. From the minor to the monumental, they occur every single day. They can involve a single person or millions. They can spell the difference between profit and loss. Between a successful product launch and one that fails to make an impact. Between entering new sectors and markets and stunted growth. Between success and failure.
Decision making is critical in any role, across any sector, operating within any global market. Organisations cannot function effectively if employees are not empowered and equipped to make business decisions that are consistent with their roles and responsibilities. Luckily, leaders, managers and decision makers now have more data and analytics than ever before at their fingertips to help make better-informed decisions. But that doesn’t mean it’s easy: as a result, employers are always seeking those with the skills and expertise to make effective, impactful decisions that can achieve business outcomes.
A good decision can bring with it a whole host of benefits, including: profit; business growth; employee satisfaction; new opportunities; clarity of organisational direction; and time, resource and cost-savings. However, Forbes indicates that the how of arriving at a decision can often be as, or more, important than the what. Concentrating on the process of decision making can lead to better decisions being made in the first place. It enables effective contribution and supports the professional development of decision makers through heuristic learning. It reinforces commitment and sense of ownership, facilitates delegation and can lead to fewer mistakes being made.
Ethical, rational and strategic decision making
There are various approaches and types of decision making. There are no right or wrong ways to approach decision making – it depends on the business, the business goals, and the requirements of those involved.
Ethical decision making refers to arriving at a course of action based on core principles, for example fairness, responsibility, trustworthiness, respect, dignity and citizenship. Essentially, what constitutes the right thing to do in a given situation, and why? It’s not always a straightforward path to follow; while unethical solutions can be immediately discounted, decision makers can still encounter ‘grey areas’ where ethical standards of conduct do not indicate clear right and wrong. Rather, it can mean prioritising and choosing one principle over another – even if both are ethical. Where ethical decisions are made, ethical behaviours tend to follow. As such, they offer a framework to implement positive business practices. Costco Wholesale, an American retail giant, made a decision in 2018 to raise its base wage in order to more fairly compensate staff for their work – and the benefits have been manifold. As an organisation, they experience less labour conflict and staff turnover, attract high-quality employees, and find that satisfied team members deliver higher levels of customer service.
Rational decision making takes a structured, logical, sequenced approach to arriving at solutions. As a template, it can be helpful in embedding discipline and consistency – and removing biases, intuition and subjectivity – in problem-solving and decision-making ventures. Rational decision-making models typically involve a variation of this seven-step process:
- Identifying an issue or opportunity
- Gathering information
- Analysing the situation
- Brainstorming potential options
- Evaluating potential options
- Selecting a preferred option
- Acting on the decision
In direct contrast to the previous approach, a rational decision does not factor ethics into the equation. For example, a ‘fast fashion’ company that uses a rational model to evaluate its supply chain – where the overriding goal is to deliver products at the lowest-possible prices – may opt for raw materials, suppliers, manufacturers and processes which do not meet certain standards, but can achieve rock-bottom cost prices.
Strategic decision making refers to charting long-term goals and focusing on ‘big picture’ organisational ambitions. Any short-term decisions and goals can then be aligned to ensure these goals and ambitions are met. For leaders, while it can bring clarity and consistency to operations, it can also be tricky in practice; the immediacy of short-term needs, such as increasing cash flow, needs to be factored into the wider vision and alternative solutions and compromises may be required in the here and now. As an example, a manager of a pet food brand, whose aim is to be a market leader, may observe that customers would rather pay more for better-quality, fresher food as opposed to lower-quality food with a longer shelf life. To meet the needs of customers, and remain competitive as a brand, they decide to increase quality and freshness; while this means a shorter shelf life, it also means customers are happy and prices can be increased to reflect the quality.
How to improve decision-making skills
While it’s almost impossible to arrive at the right decision every single time, there are plenty of ways to enhance decision making.
Those operating in decision-making capacities should focus on:
- Developing clear plans and being assertive
- Involving the right group of people, with the right expertise, in the decision
- Removing confirmation bias
- Reducing analysis paralysis, the inability to make a decision as a result of over-thinking it
- Learning from wrong decisions
- Keeping decisions in perspective
- Limiting choices
- Setting deadlines
- Taking responsibility for final decisions
Use highly developed decision-making skills to great effect in the workplace
Learn how you could make better decisions – and reap the benefits – for your organisation with the University of Lincoln’s online MSc Management programme.
Combining in-depth study of all aspects of business, management and leadership, this degree will give you the opportunity to blend the practical and theoretical, covering: how to handle emerging organisational concerns, how to apply knowledge and skills to real-world settings, and how to excel in fast-paced, global environments. As well as strategy, people management, marketing and finance, your learning will include project management, corporate social responsibility, entrepreneurship, and much more.
