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You run a mid-sized division at a diversified manufacturer of industrial machines and manufacturing equipment. At the end of the quarter, your division finance officer comes to you with some bad news: Profits are down significantly in the quarter.
You know you’ll be hearing about this from your boss at corporate headquarters. You know you’ve got to decide how to improve profits. You need to decide on an action plan and implement it before the end of the next quarter.
The key to great decision-making? Context.
Even executives with strong critical thinking skills can make bad decisions if they ignore the context around the decision.The best executive decisions aren’t just logical, they’re also accepted by the people who must implement them. A “correct” decision that your direct reports carry out half-heartedly isn’t going to carry the impact you hope for.
To make bulletproof executive decisions, you must understand what factors should influence your decision. There are six variables to consider.
The first key to making effective decisions is clarity about the problem involved. Do you understand what the problem really is? Have you framed it correctly?
How do you proceed? You’ll probably want to investigate the financial results in greater detail. Have revenues declined? Expenses increased? Are there seasonal factors at play? Has a new product resulted in a greater-than-normal number of returns?
Clarity about the nature of the issue is vital. So, before making any decision, ask yourself if you’re truly clear about the problem or situation at hand.
The second key factor is information. It’s hard to make good decisions without accurate, complete information. And while we rarely have all the information we’d like, making sure you’ve gathered what’s available is important.
As you work on increasing profits in your division, you’ll likely want to know exactly how big the decline was, whether there were any business segments or markets it was concentrated in, and whether it was due to one-time or ongoing losses.
You may have analyzed the problem correctly and come up with a solution that’s sure to work. Congratulations! But other people will almost certainly be involved in implementing that decision, and how well your solution works may be largely or entirely dependent on their commitment to the decision.
After reviewing the financial information in detail, you realize that quarterly profits declined because your sales team used more discounts and special offers to move product. Your firm changed its company-wide commission policies to emphasize units sold rather than sales profitability. But you know you’ll still be evaluated based on your division’s profits.
You’d like to restrict the sales team’s use of discounts, but your sales managers don’t like this idea. They believe discounts are an important tool for their field reps, and are worried that sales volume will drop off if their reps aren’t free to use discounts to close deals.
You can make an executive decision to restrict the discounts, but will it be implemented effectively, or will the sales team engineer other profit-eroding work-arounds? You need commitment from your sales team if your decision is going to be implemented effectively.
Alignment is the degree to which the people involved in making, approving or carrying out a decision agree with the end goal the decision is meant to achieve.
Worried a about whether your plan to improve profits is going to succeed, you fly to corporate headquarters to meet with your boss, the company’s chief operating officer. She reminds you that the company’s strategy has shifted. It’s now focused on growing market share, she points out, to increase production and gain more cost efficiencies.
She asks you to find other ways to address the profitability issue, perhaps by focusing on reducing costs rather than tying the sales team’s hands when it comes to moving products.
The fifth factor that influences decision-making is urgency. How much time do you have to decide? Do you need to make a decision today? This week? This month? How much time you have will have to gather information, analyze the problem and consult others?
At the end of your meeting with the COO, she asks you to report back to her in one month with a plan to improve your division’s profit margins while staying aligned with the corporate strategy of increasing market share. You have four weeks to make a decision — it’s not an emergency, but you can’t wait long to get started.
The last factor to consider is how long it will take you to arrive at a good decision. How many meetings do you need to have? How difficult might it be to gather the information you need?
With the eyes of the C-suite now on you, you know you need to make the best decision you can in the next four weeks. As you fly back to your divisional headquarters, you ponder your next steps.
You’ve been very successful so far in the company by carefully analyzing problems and making solid business decisions. Those decisions haven’t always been popular, but they’ve helped you rise in the ranks.
Now, though, facing opposition from your own boss and resistance from your sales team, you realize you need to take a different approach to how you make decisions. You’ll need to involve more people.
Perhaps it’s time to call your direct reports together for a problem-solving retreat. Yes, that’s it, you decide. You’ll schedule a half-day meeting for next week to get your key executives working on the problem. It’ll seem sudden, but you’re confident that you and your team can come up with a good plan in the next month.
You’re not as comfortable with this approach, but it reminds you of what you learned at that leadership development retreat last year. There are five different decision-making styles, ranging from relying solely on your own judgment to sharing decision-making with others.
You remember that you tended to prefer to discover the facts and then make a decision yourself. But now, it seems, you’re going to have to adopt a different style if you’re going to be successful.
That’s OK, though, you decide. After all, your goal is to ultimately land a position in the C-suite as a top company executive — not just to fly to corporate HQ when you need to consult with your boss. You know that being able to choose the best decision-making style will make you a better executive, and help land you the next promotion.
Ready to dive deeper into your decision style?