Almost anyone can drive an INDYCAR at 200 miles per hour in a straight line. It is when you need to make a turn that the problems start. If you focus on the wall it is easier to drive into it. The key is to stay focused on the road. If you misjudge the turn you will end up hitting the wall. Ben Horowitz, a partner in the venture capital firm of Andresson and Horowitz, sums it up by saying “focus on where you need to take your company, do not dwell on the obstacles that are preventing you from getting there.” The same concept applies when you are making decisions, keep your eyes on the road, not the wall.
Whether your business is huge or small, when it comes to making major decisions, many companies make their decisions with a great deal of uncertainty or ambiguity still remaining. Their objective should be making an informed decision. For example, bigger companies probably rely on more traditional models for capital budgeting when they are faced with longer range planning. Small businesses, on the other hand, have access to many other applications that can assist with their planning. The difficulties begin when companies start making assumptions and/or have access to data that may or may not be reliable. In other words, the results are only as good as the accuracy and validity of the data being used. As the familiar saying goes “Garbage in, garbage out.”
In a Harvard Business Review article, authors Courtney, Lovallo, and Clarke examine the concept of decision making and attempt to provide a framework for how to make better and more informed decisions. They stress the need for alignment between the decision you are making and the tools that are available in helping you to make the decision. In order to achieve that alignment, there are three critical components that will help you succeed: how well you understand the variables (or inputs) resulting in a successful decision, predicting what possible outcomes (or alternative solutions) can result when a decision is made, and how meaningful (accurate) is the information you use in the decision making process.
They point out “The conventional tools we all learned in business school are terrific when you’re working in a stable environment…they’re far less useful if you’re on unfamiliar terrain- if you’re in a fast-changing industry, launching a new kind of product, or shifting to a new business model.” Those very issues speak to most growth businesses of today.
Simply put, there is a question that needs to be answered when you are developing a sound decision making framework:
What will it take to succeed? If you have done several acquisitions in the past, for example, your confidence level is probably quite high as you approach each subsequent acquisition. Or, maybe you have had several new product launches. It is critical that you take time to reflect on past, current and even future strategic decisions and ask yourself if you really do understand the variables that are the keys for a successful project.
It is much easier to make decisions when similar decisions have been made in the past. It is also easier to quantify the possible outcomes of a decision if there has been some form of repetition or consistency. But, when you are in a situation where there is uncertainty or ambiguity, the number of possible outcomes increases while the probability of success decreases.
The authors point out their research indicates most people who are responsible for making decisions have a tendency to rely on one single tool and typically that tool is a conventional tool which has been successful in the past. They also suggest there are “degrees of ambiguity and uncertainty that those (conventional) approaches aren’t equipped to handle on their own.” The overall guidance being suggested here is encouraging your company to consider expanding the decision support tools being used in order to not only improve the decision making process, but to use several of them, not just one of them, to be a major assist in the growth of your business.
In other words, as a leader in your company, strive to try and match the correct decision making tool or tools with the appropriate decision you are looking to make. Having the correct framework to start is essential as you strive to identify the variables that will help determine your ultimate success or failure.
Dan Arens is an Indiana-based business growth advisor.