Bringing your decision making into the 21st century
Despite the strong rise in profitability in American and European companies over the past 30 years, there is a general lack of decisive leadership. In order to remain competitive, today’s leaders need to continuously review their decision making and to maintain speed and agility. New players from emerging markets pose a threat to more established companies, as they often have greater agility and aggressiveness. Making sound decisions at the necessary pace is a skill set that clearly needs to be developed, yet there are few tools for managers and leaders in this regard. Here is some advice on where to start:
Overcome (strategic) decision inertia
Many leaders today feel the pressure to demonstrate short-term financial performance, yet believe that a long-term approach for business decisions will increase performance. Long-term (strategic) decisions are very (critically) important, but not urgent, and therefore the time and effort taken in addressing these decisions is often not proportional to the value they bring to a business. In order to avoid this pitfall, review where you spend your time and determine the fit between time spent and your strategic priorities. Just like you create a budget sheet; make a decision sheet to ensure you spend your time efficiently.
Create a suitable decision making culture
A company’s culture is often a key driver of its success. The decision-making culture needs to match the ecosystem in which the business operates. For example, a consensus-seeking decision making culture may be too slow for certain environments. To meet the prerequisites, different departments within a larger company may need different approaches. R & D is likely to thrive when people feel confident to think differently, when no idea is too simple to explore, when there is a great deal of flexibility and so on. Production and IT require more structure. As we develop more and more diverse workforces, culture becomes even more important to address, as it is not only the ecosystem, but also the individual cultures of employees that affect how decisions are made. A western mentality may not work as well in a hierarchical environment, unless the company manages to supersede local preferences. Google, for instance, has succeeded in this. The best cultural approach to adopt depends on many variables, but a general recommendation is this: if the aim is to explore new possibilities and make more broad-minded decisions, then you must hire people with diverse backgrounds and make sure everyone is heard—and not inhibited by the fear of failure. You need to create an “ok to make a mistake” atmosphere, because if you don’t dare to make mistakes, you rule out the possibility of progressing beyond “what we’ve always done” (a necessity in a rapidly changing world).
Establish clear decision processes and roles to maintain effectiveness
Understanding the what, who, how, and when of critical decisions and actions will enable you and your team to pace the work appropriately with the right people (and only the right people!) involved. To stay on top, it is more important than ever to maintain speed and agility. Too many initiatives get bogged down as too many people are involved in the decision making and at the same time no one takes the utmost responsibility for making sure it gets done. Moreover, it’s important to understand that a decision process doesn’t end once the decision has been made; it is cyclic and should always involve a review at the end. Only then is it possible to optimize and learn from mistakes.
Evaluate your options against a set of criteria
We have a natural tendency to seek information that supports what we believe and disregard information that doesn’t. This is called confirmation bias, and today it is one of the greatest challenges we face when it comes to making good decisions. A common approach when faced with a decision is to first find an alternative one believes in and then gather information that supports it. Most of the time, the environment rewards a myopic focus. However, this narrows not only your mind, but also your possibilities. Instead, you need to take a step back to initially consider what criteria you find important for your choice, and then gather information about what you really need (and not just information you can get your hands on, as the amount of available information is enormous.) Thereafter, make a choice by weighing your options against these pre-determined set of criteria. This will help you consider/evaluate your options more objectively and make your decision making more effective.
And, last but not least, remember that feelings are always faster than logic
Using intuition in combination with the courage to decide can be a great asset if you aim to make fast decisions. However, understanding your gut feeling can be a tricky task and using it for important decisions comes with a warning. You need to be aware of the fact that your feelings are always, always, always faster than your logic, and your intuitive choice of a certain cause of action can be based on hidden parameters; for example, a feeling of fear, stress, threat, or preference for a character trait, smell or color. The old saying: “Don’t make permanent decisions based on temporary emotions” is sound advice. When you need to be fast, using your gut may be the only option, but add a step or two. Make sure to explicitly answer why you believe it is the right decision and why it’s not. This is a way to recognise your emotions, give you a more objective view of the situation and help you spot your subjective or irrational tendencies. Also, if possible, seek input from people with different mindsets to add their perspectives and broaden your view.
In the end, many times it takes courage to make important decisions. Depending on the outcome, we can be called either brave or foolish. Yet, as Michael Jordan has said “Never let the fear of failure keep you from playing the game”.
Mona Riabacke, PhD and Ari Riabacke, PhD, are the authors of Freestyle Decision Making
Billionaire Kumar Birla Champions Regional Supply Chains
As the head of the Aditya Birla Group, a US$46bn firm that operates in 36 countries, Kumar Mangalam Birla is no stranger to splashy strategic moves. Yet his recent announcement that he no longer wants to acquire globally distributed supply chains stood out. While many companies have struggled to cope with shipping backlogs, his firm has chosen to pivot and focus on regional networks. Said Birla: ‘We wouldn’t look at a company or a business where you source in one corner of the world and sell in another’.
He cited protectionism, the pandemic, and the limited movement of products and people around the world as ABG’s primary causes of lost profits. And they aren’t alone. Over the past year, 900 of the U.S. and Europe’s biggest IT, defence, and financial services firms have lost an average of US$184mn apiece.
An Era of Global Disruption
Over the past few decades, low shipping rates and rapid delivery times have lulled multinational firms into a false sense of security. In the early 2000s, companies chose to take on significant global supply chain risks in exchange for increased profits. First, it made sense to manufacture higher-value goods, such as electronics, in low-cost regions throughout Southeast Asia, India, and Africa. Second, first-tier suppliers started to outsource the manufacturing of specific components to second-, third-, and even fourth-tiers—leaving supply chains with extremely limited visibility.
So when COVID-19 disruptions struck certain regions, companies were caught unprepared. Usually, these events come few and far between. But over the past ten years, we’ve seen a number of ‘black swan’ events that have thrown the supply chain industry into chaos. Here’s a quick history of the most significant events in recent years, thanks to the MIT Sloan Management Review:
- 2010. China creates export quotas for rare earth elements.
- 2011. The Tōhoku Earthquake hits East Japan; flooding sweeps throughout Thailand.
- 2016-present. Trade wars between the U.S. and China hurt suppliers.
- 2020-present. COVID-19 pandemic shuts down international shipping ports.
Now, Kumar Birla is one of many who want to re-evaluate how we run our supply chains. Though his company has acquired 40+ companies in the last quarter decade, Birla intends to build up local hubs rather than expand operations.
Why Pursue Regionalisation?
Combine Chinese economic dominance, global supply chain vulnerabilities, and major government policy shifts around the world, and you have a storm brewing on the horizon for big multinational firms. As Brookings noted, ‘the biggest risk for trading opportunities in the developing world is growing protectionism in more advanced economies, often dressed up as national security protection’.
Altogether, from the U.S. to the European Union, governments are trying to protect their domestic supply chains, secure adequate stockpiles of materials, and build world-class local networks. Consider Biden’s recent executive order, which seeks to bring semiconductor manufacturing back to home soil, or Japan’s bid to open more memory chip fabrication factories near Tokyo. The Aditya Birla Group intends to react in kind. Said Birla: ‘We’re looking at regionalism as a very big theme’.
Will Others Follow Suit?
In the post-pandemic economy, global businesses must decide whether to expand or contract. On one hand, the Alibaba Group’s Cainiao Smart Logistics Network recently launched a direct flight between Hong Kong, China, and Lagos, Nigeria. On the other, the Japanese government is desperate to make its chip manufacturing domestic. Indeed, as two supply chain strategies diverge in a post-pandemic world, the one businesses take may make all the difference.
Yet Birla is confident that regionalisation is the right call. According to his words at the Qatar Economic Forum, even necessary cross-border transactions should be smaller in scope. And as the Bloomberg Billionaires Index now lists his net wealth at US$10.4bn, up 52% from 2020, he may have the cash to test his theories out. ‘Regional hubs, regional presence, regional employment, catering to regional demand’, he stated. ‘We’re a global company rooted in local economics’.