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Critical Decision Making Alignment

 

Business Leaders  need to make critical decisions that will set their organization up for success many years into the future.With limited and imperfect information, business leaders must pack and plan so well that they not only survive but also thrive no matter what future environment they find themselves in.

There must be a shared understanding and broad ownership of why the organization exists, where it wants to go, and what it is great at. The company must also agree on the high-impact trends and uncertainties that will shape its industry.

Embrace uncertainty
Decision making slows when uncertainty exists. An accelerated strategy needs to acknowledge that uncertainty but still achieve absolute clarity and alignment among the leadership team on the most important forces shaping the future. That way, critical decisions can be made at pace—and adapted as circumstances turn out to be not quite what was expected.
Uncertainty is not the enemy; it is where some of the most profitable opportunities exist. As Nathan Rothschild, a prominent member of the second generation of the illustrious banking family, is reputed to have said, “Great fortunes are made when the cannonballs are falling in the harbor, not when the violins are playing in the ballroom.”
Research found that fully 60 percent of the respondents in a major survey said that their organization had been repeatedly blindsided by high-impact events, and 97 percent said their organization lacked an adequate early warning system. Yet organizations still focus on managing the more predictable events, using traditional tools such as extrapolative forecasting, net present value analysis, and decision trees. Organizations don’t focus enough on the more ambiguous and unpredictable possibilities in the environment. To do so, they need to adopt tools such as influence diagrams, real-options analysis, and system dynamics modeling.
Embracing uncertainty means focusing on solving the problems of the future rather than just addressing the operational pressures in front of the organization. This requires dedicated time—which means allocating much more time than many executives do now—to clear space on the calendar.

That time must be used to explore very specific cases to see where new markets might lie and to play with assumptions to see when they might become large, new opportunities. Lots of ideas should be generated because, conventional wisdom to the contrary, there is no trade-off between the quantity of ideas and the quality. A large quantity of ideas leads to quality.2
Embracing uncertainty means building a deep understanding of the highest-impact forces that are shaping the future of an industry and preparing for a range of alternative futures.For example, a global pharmaceutical company recognized that it was struggling with its annual strategic planning process. Once-routine decisions on how to manage its multibillion-dollar portfolio had grown increasingly cumbersome. The decisions had also become inconsistent and did not align with the biggest drivers of change for the industry. Company leaders asked the 10 core business units to submit operational plans for the next three years that were “more strategic” rather than entirely oriented toward finance, and they worked with business unit leaders to agree on a definitive perspective on how health care in the United States could evolve over the next five years.
This definitive perspective allowed for a better balance between longterm and short-term decisions and for faster decisions. Strategic choices that routinely took weeks to debate and approve now typically require only a few hours.
In an interview with the Financial Times, Masayoshi Son—the CEO of SoftBank, a superaccelerator—describes his approach to long-term planning, using the ancient game Go as an analogy: “The experts do not put the stones right next to the earlier stones. They put them in a completely different part of the board. That is what I do. I try to look in the future and think backwards.”

Pressure-tested Decision Making
Often, context needs to be broadened so that new options can surface. What seems to be a harsh, either/or choice can become a much easier decision. Continually reframing business challenges must become a best practice, to enable pressure-tested decision making.
Current approaches to decision making can produce behavioral and organizational blinders that impair our ability to make tough decisions and set an accelerating strategy. People are not naturally wired to be good strategic decision makers. It is human nature to have mental filters—they help us to efficiently manage information overload and to make many routine decisions without hesitation—but these shortcuts come with a cost. These filters often lead people to see what they expect to see rather than what is actually there.

Overconfidence can also cloud judgment, as people are far too certain that the current view they hold is correct. As Christopher Cerf and Victor Navasky explain in their book The Experts Speak, even people at the top of their field are often dead wrong. Confirmation bias means people have a penchant for evidence that confirms their view and filters out information that contradicts it.

As imperfect decision-making beings, we need to constantly recognize and work to overcome our biases. One approach is to employ an outsidein, pressure-tested decision-making process that takes inventory of the biggest decisions for the near term and long term as they relate to external change. This technique is used to determine which decisions the organization is prepared to make and which will require more information to fill gaps. Consider the 40–70 rule of Colin Powell, the former U.S. secretary of state and chair of the Joint Chiefs of Staff. The rule says you need between 40 percent and 70 percent of the information available to make a good decision.
Anything less is too little, and anything more will lead to analysis paralysis.Companies often struggle with making decisions under uncertainty, particularly when there is significant investment at stake. It is critical to make swift decisions with discipline while battling against the cognitive biases that can hinder decision making.

A global supplier for the food, beverage, and other industries shows how this is possible. It was positioned to be first to market with a sugar substitute and needed to decide whether to spend $60 million to expand production capacity. It was uncertain about the regulatory environment and customer demand, and time was of the essence. FDA approval for new sugar substitutes was pending, and a much larger competitor was preparing to enter the market as a fast follower. Looking at both the short term and the longer term through pressure-tested decision making, the organization recognized that the decision was not a $60 million one but a $180 million one because of the additional investment that would be required to support the first decision on the expansion in capacity.
This realization prompted leadership to think more strategically about the consequences of all its options, including how the new sugar substitute would fit with the other products in its global portfolio. This analysis led leadership to realize that it could sell the new capacity for $40 million if the profit pool for the new product was not as attractive as once thought. This realization greatly reduced the risk and accelerated the action to expand capacity.

Shared Vision
A strong, shared vision enables leadership to remain committed to a strategic direction in times of crisis or great opportunity. If an organization can embed this type of guide to action at all levels, it can make decisions faster and more confidently to find new profit pools, ultimately improving performance.
Extensive research shows that companies that specifically state where they are going, and why, do remarkably better than those that do not. For instance, in Corporate Culture and Performance, Harvard Business School professors John Kotter and James Heskett reported on a four-year study of 10 firms in each of 20 industries. They found that firms with a strong corporate culture and vision grew revenue more than 4 times faster; their stock price grew 12 times faster; and their profit performance was 750 percent higher.

It is often difficult to align on a vision in times of certainty, let alone set a bolder vision to guide the organization during times of uncertainty and disruption. Most visions are incremental and stifle an accelerated strategy, promoting the status quo and limiting change to minor investments in new capabilities that support the core business. But a bold vision is often a bridge too far, creating a state of paralysis by presenting the prospect of radical changes to the business model. Most accelerated strategies find a hybrid vision in the elusive sweet spot between incremental and bold, balancing the familiar with a distinct north star for the future.

Ajay Banga, president and CEO of MasterCard, one of   the superaccelerators, has rallied the company around a clear and compelling vision: “a world beyond cash.”“Eighty-five percent of the world’s retail payments are still made using cash, but the tailwinds of urbanization and globalization are driving the gradual conversion of cash to electronic forms of payment,” he told us. “Even if we change that 85 percent to 84 percent and we just maintain our market share, we will grow revenue by 7 percent. That’s remarkable, and very few companies are benefiting from that sort of change. The real challenge, and hence opportunity, is to actually grow market share and grow faster—that’s the kind of runway our business has. My predecessor’s strategy was to close the profitability gap between us and our competitors, which addressed the need at the time. When we are in a situation, as we are now, where smart reinvestment in the business has the potential to yield very high returns in growth and revenue, we should pursue that path. Moreover, foregoing reinvestment in favor of achieving very high operating margins in the short term has the potential to attract new competitors and regulatory oversight.”
The reframing of the vision led Banga to focus on growth, not margin, and to think not just about competing for share against Visa and other traditional rivals but also against cash and checks. “The answer is simplicity of mission and vision of what the industry is,” he said. “Cash is still king.
Let’s put our energy against that. How do we do it in a smart way, both with existing products and with digital innovation, and take advantage of the trends in the market and build? How do we build the culture that cares about winning all the time, as compared to being okay with just growing at the 7 percent? We couldn’t have grown the business without a big change in the culture. And I couldn’t have changed the culture without laying out a vision of what the market is all about and directing the resources to where the opportunities were, rather than trying to satisfy everybody while also growing profitability.”

To achieve the growth strategy meant not only a cultural transformation but also some key changes in the people and technology underpinning it. According to Banga, “We began to recruit more technology-oriented staff and more people who were focused on building external partnerships. We also made a number of strategic acquisitions whereby we gained cutting-edge technology and the people around it. This growth was global rather than U.S.-focused because, while the United States remains the world’s largest consumer market and our largest market, the opportunity to displace cash is worldwide.”

Similarly, John Murabito, executive vice president of human resources and services at Cigna, one of the superaccelerators, told: “Our overall enterprise strategy ends up being the fuel for all of the substrategies, whether that be at the business unit level or at the functional level. So there’s a really strong tie-in to support the strategy from deeper in the organization and at all the key levels—business, function, and otherwise. All employees have a good sense of how they can personally contribute to the strategy. The alignment in the organization is as strong as any I’ve seen.”

 

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