A strange phenomenon has arisen as a result of the recession. The most successful companies – those which are used to having the most money and more opportunities - may very well be the ones which need to make the most radical changes in their thinking in order to weather this current storm.
As a colleague in one such successful company told me, "Whenever we get to a decision point where we have to choose between investing in one project or another in the past we have tended to find a way to choose both by expanding the budget a bit. We have also had the strategy to compete in every market or segment, at every price point, for every sales channel. This means that the typical leadership decision making model has been 'find a way to do it all'. We try to do everything and some of it works."
The current financial situation suggests that a change is needed in the competencies to run a successful business, particularly in terms of decision- making.
Do these successful companies lack people who have the courage to say "NO" and can see the need for pro-actively making a painful decision? Or more importantly, who can look at a situation and think differently about how a decision should be made?
For example, decisions to kill an activity, pull out from a market up-front in order to secure the remaining activities, or to look at a completely different way of attracting business? Take the US auto makers who for many years ignored the growing worldwide trend toward smaller, more economic and environmentally friendly vehicles. Using out-dated decision making, they were still able to make large profits. Now, despite their current financial difficulties, their decision making still appears to be based on false premises.
When sales are down, traditional decision making would suggest "reduce prices". But when customers do not have the money or are unwilling to buy, no price reduction will encourage sales (one dealer even offered a "two for the price of one" deal, which may have brought short term results but perhaps at the expense of long term survival).
Enlightened decision makers on the other hand, instead of looking from their own perspective (of trying to increase sales) might say, "Why are people not buying cars at the moment?". True, some cannot afford to. However, there are many people who have the resources but are unwilling to purchase at the moment. "Why are these people unwilling?"
One car maker took a totally different decision making approach with stunning results.
In answer to the question "Why are people unwilling to buy?", they discerned that "people are in fear of losing their jobs, hence they are unprepared to make a commitment to buy a new vehicle irrespective of a price reduction".
So, instead of massive price discounting, they offered a "returns policy". The policy covers every buyer of a leased or financed vehicle who involuntarily loses a job, becomes physically disabled, loses a driver's licence for medical reasons, is transferred to another country, is self-employed and files for bankruptcy or dies in an accident. They guarantee to let buyers return their vehicles at no cost and with no loss of their credit rating should they lose their job or income within a year.
As a result of this type of decision making, Hyundai increased sales in the US by 14% in January (year on year) and the sales of their Sonata model increased by a staggering 85%!
Taking a different decision making approach, Hyundai answered the needs of the buyers' concerns for job security and increased sales against all the trends.
At the heart of the Hyundai decision making approach, is the oft-quoted, but not so often used, principle of "what's in it for them?". In other words, before looking at one's own needs, identify the needs, interests or concerns of the other party first. And then, "how will satisfying the needs of this stakeholder meet our own needs?"
As my colleague cautioned "Now we have tougher times and different decisions are needed. It's my feeling that we have to consciously pull out of some markets and focus on the key areas in order to maximise return on more limited investment ... but I see huge challenges for people to make the shift in decision making mindset that would make that possible."
And therein lies the rub – the ability of people to shift their decision making mindset.
Perhaps help is at hand. In a new book, Think Again: Why good Leaders Make Bad Decisions and How to Keep it From Happening to You (McGraw-Hill 2009), authors Finkelstein, Whitehead, and Campbell, suggest that for many of us the fault lies not so much in our own errors of judgment, but rather in the brain's processes that help create these errors of judgment.
They quote many famous cases (including the US auto makers) of managers and leaders who have made poor decisions. They attribute these to the brain's agility in linking the current situation to previous misleading experiences; its ability to relate current situations to our pre-judgments of similar situations; its inability to separate the situation from personal self-interests; and a tendency to draw an inappropriate emotional link between current stakeholders and those for whom we have strong personal feelings.
The authors suggest some rules to help overcome possible decision-making errors. These are not the typical governance rules. Rather, they are tailored defences against the particular red flags in a given situation.
The authors advise leaders to design, for each important decision, a decision process based on an understanding of the red flags that are present at that moment.
So, perhaps the answer for improving the decision making mindset of leaders and managers is twofold: first, they need to identify the needs, concerns and interests of the other stakeholders; and second, make sure each decision making situation is assessed in terms of the possibility of one or more of the four "red flags".
Would such a mindset overcome my colleague's concerns, when as he says "Every day I deal with people who have a long list of things that 'we cant even discuss' (when considering cost savings) for various strategic reasons and they believe this almost religiously...
"I see a huge danger in this kind of thinking as it prevents some necessary discussions and some difficult decisions from being made when in my opinion this is the time to throw away all these ideas that were formed in a different financial climate and take a totally fresh look at how we want to compete or even survive in the current situation."