The 5 Ingredients of Good Decision-Making

The Need for Informed Decisions

The results of a survey analyzing the current status of corporate decision-making were announced today, called “In search of clarity: unraveling the complexities of executive decision-making”

The survey of 154 global C-level executives, conducted by the Economist Intelligence Unit (EIU) and commissioned by Business Objects, found that more than nine out of 10 corporate executives admit they are making important decisions on the basis of inadequate information. 

More than half of these senior executives are concerned that they may be making poor decisions as a result of missing information. And a quarter believe that management frequently or always gets its decisions wrong.

These are sobering statistics. We are talking about business decisions that can cost an organization millions of dollars, either through costly errors or through the failure to grasp a competitive advantage.

Despite eight out of ten respondents indicating that data is the most important factor in making decisions, ranking it much higher than the opinion of others, personal intuition, or external consultancy, the research showed that more than half of respondents said that decision-making in their organizations was largely informal and ad hoc, and the the report concludes that:

“Decision-making is at the core of all business activity, as executives set strategy and manage operations by weighing a vast array of factors to arrive at the desired balance of risk and reward. It is cause for alarm, then, that executives themselves perceive the quality of decision-making at their companies as mixed at best.”

At a time when the economists are predicting that the current credit squeeze is likely to impact the business environment, it is important to wring out every advantage amidst intense and global competitive pressures.

The simple fact is that executive decision makers are not getting the data they value and need, and most executives, like ourselves, are relying more on “gut instinct” than metrics.

But, why would gut feel override our desire for proof? For fact?

What is failing us? Is fact-based decision-making too difficult to sustain?

Five Ingredients of Good Decision-Making

The report’s authors identify five ingredients of good decision-making. Obviously, supporting good decisions requires a lot more than technology, but I believe BI can help with each of these…

• High-quality data
• Access to advanced systems and training
• Sound judgment
• Trust
• Flexibility

High-Quality Data

High-quality data is obviously a prerequisite for consistently sound decision-making. The better the data, the less time you’ll spend debating the data rather than the decisions that have to be made, and the greater your understanding of your company, your competitors and your environment, the more you can move from guesswork to making strategic choices.

Here are some of the difficulties organizations typically face getting high-quality data, and what can be done to resolve them:

• Data integration. Executive decisions typically require information from several different computer systems, and organizations frequently underestimate the integration challenges involved. Organizations typically address data integration on a project-by-project basis rather than with a more strategy approach. The result is massive redundancy and poor quality. For faster integration and lower costs over the long term, organizations should invest in a robust data integration platform.
• Data quality. There isn’t an organization on the planet that doesn’t have a data quality problem, but where do you start? The latest data quality technologies can help you answer questions such as “which systems have the worst data quality?” and “where could I get the most value from fixing poor quality data?” To improve executive decision-making, organizations should invest in systems to evaluate, monitor and fix data quality.
• Shared definitions. Effective decision-making requires a shared vocabulary. Investing in “metadata management” technology can help you define and maintain the definitions associated with your key business indicators — and reduce the number of board-room arguments.
• Timeliness. Faster decisions mean higher profits. In particular, organizations are starting to realize the big benefits that can come from investing in integrated financial systems that help them close their books faster. And rather than managing by “looking out of the rear-view mirror”, organizations are investing in predictive analytics.
• Unstructured data. Executives need to be use data from all sources, not just from certain types of databases. It’s increasingly important to be able to extract intelligence from non-structured data sources such as documents or emails.
• Benchmarking and external data. Your own systems will rarely contain all the information you need to make decisions. In order to determine your real performance, and make the right decisions, you need to be able to compare your numbers with the economy, the market, or your competitors. New “information on demand” technology is making this as simple as a click of the mouse.
• Governance, compliance, and risk. Decisions can’t be made without considering risk, and without considering your regulatory environments. Organizations should invest in risk management systems that are tightly integrated with the rest of their financial applications.
• Transparency. Information transparency is key to maintaining high data standards. Executives need to be able to see exactly where the data came from, how reliable it is, how it was defined or manipulated, and when it was last updated.

Access to Advanced Systems… and Training

Access to advanced information systems is crucial to improved decision-making, as is training in helping employees to make full use of these tools. There is no point in spending on new technology if people do not use it.

• Ease of use. Th
  e easier the technology, the more people will use it. The latest BI innovations bring information to the users’ fingertips by making it a seamless part of their existing environments, whether it’s email, a standard productivity application like Microsoft Word or Excel, or a cell phone. In the future, BI will be “ambient” — like ambient lighting, it will bring illumination without calling attention to itself.

• User adoption. The implementation of BI technology should be considered the start of a project, not the end. Better access to data doesn’t provide any benefits — that only happens when business processes change based on the new information. Training must be more than a one-off activity, and encompass all aspects of business change management.
• Standardization. Having a standard BI environment across the organization helps provide economies of scale on all aspects of training and user adoption, and makes it easier to create a community of users that can support less experienced users.
• Competency centers. Organizations should invest in a BI competency center: a team that is dedicated to making the best use of the organization’s information assets, ensuring the right trade-offs between the needs of each department/project and the company as a whole.

Sound Judgment

Decision-making processes, whether formal or not, need to leverage the strengths of human intuition. Data does not run companies; people do.

• Collaboration. Intuition is very important, but it needs safeguards — and one of the best is other people. It must be easy to share data, different interpretations of what data means, and proposed plans to improve the situation. The more information is shared, the more likely it is that bad decisions are avoided.
• Guided analysis and best practice applications. Many decisions have to be made on a regular basis by lots of different employees. Organizations should propose a consistent set of analysis steps in order to help every user make decisions as well as the best analyst.
• Links to financial planning. Business decisions have to be backed up by appropriate business changes, including budgets. Your business intelligence systems should be closely linked to your organization’s financial systems.
• Profitability analysis. Make sure that decisions are being made based on what’s important: profit. After all, there’s no point in maximizing revenue if you’re making a loss on each product.
• Sharing with the business ecosystem. It’s no longer just about your organization. You increasingly need to make decisions based on the operations of the “business ecosystem” of customers, partners, and suppliers. For example, to make sound decisions about quality you may have to share and collect warranty information from your distributors.

Trust

To gain employees’ confidence in management decisions, establishing transparency and trust is at least as essential as a good track record.

• Shared vision. The more widely information is shared across the organization, the easier it is for employees to understand and carry out executive decisions — and to provide critical front-line feedback.
• Linking strategy to execution. Nine out of ten organizations struggle to execute their strategy. One thing that can help is clear scorecards and dashboards that cascade high-level goals into key performance indicators that are tracked for teams and individuals. In particular, this helps make the inevitable tradeoffs between different decisions more explicit and transparent.
• Compensation management. People must not only understand the strategy, but understand why they should follow it. There are few things that are more likely to make employees resist and mistrust decisions than misaligned incentives. Applications exist that help organizations plan and implement optimal compensation management strategies — and track if they’re actually achieving the desired goals.

Flexibility — One Size Does Not Fit All

Approaches to decision-making, and even to the use of data, need to reflect the fact that the world is a diverse place, and one size does not always fit all.

• Standard platform. Letting every individual or group look after its own information needs is a recipe for disaster. A BI competency center should be given the mandate to make the necessary trade-offs between flexibility and standards. In today’s fast-changing business environments, flexibility is achieved most easily with a standard platform but a variety of different techniques and interfaces appropriate for different users and situations.
• Collaboration. Organizations increasingly realize that decision-making is an activity that needs to be opened up to more people in the organization. Top-down execution of fixed strategies is giving way to more flexible, collaborative approaches, and a common “information infrastructure” is an essential enabling technology.
• Service-oriented architectures. Computer systems are moving from monolithic suites to more modular, “services-oriented” architectures. As business intelligence becomes more process-oriented, organizations need the ability to easily share and consume information services that can be adapted by business users without further IT assistance.
• Independence. The more volatile the environment, the more companies need to be able to access critical information fast. Your information systems should be maintained separately from your underlying operational systems, and support any and every environment, and be ready to accept information from new systems — you never know when you might merge with another organization, for example.

Conclusion

Technology is necessary but insufficient condition for good decision-making and performance excellence. Without a solid information infrastructure, and support for financial planning, the best decisions and strategy in the world is unlikely to succeed.