Originally published on the Vistage Research Center
When Kodak filed for bankruptcy protection in 2012, it seemed like the inevitable outcome of the company’s failure to adapt to the emergence of digital photography as a disruptive force in their market. However, they had invested billions in developing their own line of digital cameras to make “Kodak moments” instant. So why did they fail?
The same reason that thousands of other companies fail each year: They made poor critical decisions.
According to research from The Ohio State University, up to 50% of companies that have failed have done so because of a flawed critical decision (Nutt, 2015). In 2015, according to the US Census Bureau, 400,000 businesses were created and 470,000 firms failed. Up to 235,000 of these businesses may have unnecessarily gone under due to one or more uninformed critical decisions. (Meszaros, 2016).
The economic, social and competitive implications of this crisis are profound for individuals, families, communities and stakeholders. Direct and indirect job losses impact between 5 and 7 million employees annually. So how can your business avoid meeting the same fate as Kodak? The answer lies in your decision-making.
Uninformed vs. informed decision-making
Uniformed decision-making is a process that relies largely on human factors to make a decision. Many executives instinctively use this method for both simple and critical decisions. Studies suggest that failure is four times (Ch, 2015) more likely when executives use uninformed decision-making, regardless of the critical nature of the decision.
This problem spans and influences the entire business community. According to a 2017 McKinsey Report, critical decision failures occur as frequently as decision successes. In addition, more than 90% of business decisions are commonly based on factors such as personal intuition, experiences, education, history, emotions and gut feelings (Marks, 2017; Elliott, 2007; Wolf, 2013).
Uninformed decision-making is appropriate for decisions that do not pose significant risks, downsides or consequences, where intuition and experience are key predictors of success.
When facing a decision with significant complexity, risk, cost or consequences, executives need to take a very different approach. They need to apply informed decision-making, which integrates the intuitive aspects of uninformed decision-making with information and logic. This provides the decision-maker with a significantly better chance of a successful outcome.
All information is not equal or important in decision-making. Gathering and analyzing the right information about your customers’ needs is critical to neutralizing competitive threats and avoiding missed opportunities.
Empirical evidence from The Ohio State study indicates that 90% of executives admit that they do not have this critical information, including how they rate against other competitors. Moreover, marketing and sales are not the only functions that need this information. Departments such as manufacturing, shipping, customer service, finance and R&D need it to better meet and/or exceed their clients’ requirements and expectations.
4 steps to making informed decisions
Informed decision-making comes from integrating these four steps:
1. Acquire, organize and disseminate appropriate and accurate information
Filter, prioritize, analyze and synthesize data or information to support or refute a decision.
Extract and categorize best-practice insights and wisdom in an easily accessible knowledge repository.
Communicate critical information and knowledge to the appropriate staff.
2. Create a customized decision-support team
Provide easy access to specialists who can provide expert advice and counsel in fields such as legal, financial, regulatory, marketing, sales and operations.
Foster a culture that promotes collaborative and systematic approaches to decision-making.
3. Establish a threat-and-opportunity early warning system
Identify and monitor significant technology, industry and competitive challenges and opportunities.
4. Adopt a rapid decision-making process
Define a process that works well with repetitive and unexpected critical business decisions.
Optimize the process based on the size and type of your business.
Triage and plan to prioritize choices, minimize risks and avoid negative consequences by evaluating the existing situation and applying the best available resources.
Why every CEO needs a peer advisory group
The judgment of an executive is only as good as their information and how they empower their team. Informed decision-making is a crucial tool to keep your business from becoming the Kodak of your industry.