Many organisations are relying on decision-making processes which are no longer fit for purpose, and facing a deluge of data, senior leaders are struggling to make the right decisions, according to new CGMA research.
Joining the Dots: Decision-Making for a New Era gathered the views of 300 executives from large businesses around the world to examine the effectiveness of C-level decision-making.
Many businesses are struggling with the deluge of data available to them, and turning all of that information into strategic insight poses an ongoing challenge. Thirty-six per cent of respondents said that their company was failing to cope with information overload.
Opinions as to the contribution data make to the process vary widely. While 37% of respondents said that data have helped them make better decisions, 32% said an overabundance of data has made things worse. Researchers identified a number of common flaws in companies’ decision-making processes and suggest that there is significant room for improvement.
For instance, 80% of respondents said they had discovered that a strategic decision had been made on the basis of flawed information at least once in the past three years. The findings suggest that despite recognising the potential for errors, few organisations take steps to review the outcomes of strategic decisions and learn from them. Just 28% of those polled said their organisation was effective at enabling senior leaders to learn from the outcomes of their decisions.
Lack of an effective review process means businesses risk repeating the same mistakes and failing to understand or identify the reasons behind past success. As the organisation moves away from a culture of continuous learning, innovation is curtailed and employees become disengaged, the report says.
Promoting better decision-making
The senior leaders polled see a need to improve and provide staff with greater support in other areas to promote better decision-making. These include interpreting new data sources, enabling challenges to traditional thinking, and ensuring deeper collaboration both amongst the C-suite and with employees.
Other important factors currently overlooked by many CEOs include breaking down silos, involving relevant people, engaging external stakeholders, and ensuring that a wide range of perspectives are heard.
Addressing these obstacles can enable businesses to become more agile, and ultimately, more competitive.
Of the organisations represented in the study, researchers found that those that have the most effective decision-making processes practise “integrated thinking”. Integrated thinking is defined in the report as the active consideration by an organisation of the relationships between its various operating and functional units and the resources and relationships that the organisation uses or affects. Integrated thinking leads to more joined-up decision-making and actions that consider the creation of value over the short, medium, and long term.
By cutting through silos and facilitating communication of critical information across operating and functional units, integrated thinking provides leaders with the best possible foundation upon which to base their decisions.
The authors of the report outline eight ways to apply an integrated thinking approach to decision-making:
- Build greater trust. Greater trust between leaders and employees facilitates the sharing of information and ensures fresh perspectives are heard in supporting decision-making.
- Value the non-financial data. Financial information alone can no longer capture all of the key value drivers of a business. Instead, leaders need to balance financial and non-financial data to provide a broader view.
- Extract relevant data. The most effective organisations represented in the study prioritise and process the data they receive to extract what is relevant by adding context and practical insight to provide clear signals to decision-makers.
- Promote collaboration. Greater collaboration facilitates the involvement of colleagues from different business units and functions with the right knowledge and experience in the decision.
- Incentivise the medium and long term, too. Adjust incentive structures to encourage decisions that create value for the short, medium, and long term.
- Engage external stakeholders. Gaining a better understanding of stakeholder value can help inform a business strategy which is sustainable over the long term.
- Review the outcomes. Learn from the outcomes of previous decisions and adjust processes and performance metrics accordingly.
- Be transparent. Embedding transparency as to how and why decisions are made helps employees understand the business model and the wider strategy.
—Samantha White (swhite@aicpa.org) is a CGMA Magazine senior editor.
