Saturday, March 21, 2009

In search of clarity: Unravelling the complexities of executive decision-making

In search of clarity: Unravelling the complexities of executive decision-making
A report from the Economist Intelligence Unit Sponsored by Business Objects


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. The enormous growth of companies’ size and operations in recent years—particularly across borders—is making this process increasingly complex. It is cause for alarm, then, that executives themselves perceive the quality of decision-making at their companies as mixed at best.
Well over half of executives surveyed for this report—61%—characterise management decision-
making at their companies as moderately efficient or worse, a figure which climbs to 72% for large organisations. Nearly one in five—rising to over one quarter in North America—thinks that management frequently gets its decisions wrong. This may result in part from the greater challenges of running a business in a period of rapid growth, such as many of the surveyed companies are experiencing, but it suggests deeper problems as well. This is the key finding of a major programme of research, conducted by the Economist Intelligence Unit and sponsored by Business Objects, into how senior executives in different regions make decisions for their companies. It is based on a survey of 154 senior executives from around the world, as well
as a series of in-depth interviews conducted with practitioners. Other major conclusions of the research include the following:
Poor data leads to poor decisions. By far the most important input into decision-making identified by surveyed executives is good data. As one expert interviewed for this report remarks, “You cannot make proper decisions without proper information.” But the timeliness and quality of this information leaves much to be desired. Less than one in ten executives
in the survey receive information when they need it, and 46% assert that wading through huge volumes of data impedes decision-making. Worse still, 56% are often concerned about making poor choices because of faulty, inaccurate or incomplete data.
Approaches to decision-making vary by region. There are distinct geographic differences among respondents when it comes to how they take decisions, and to their reliance on technology in doin so. For example, Asian executives appear more likely than those in other regions to trust their own intuitio and judgement, while Europeans look more strongly
to the opinions of their peers. Asian executives also make greater use of technology to support decision-making. Companies need to take these cultural differences into account as they seek to improve decision-making tools and processes. Detailed, uniform decision-making processes may be hard to apply across different cultures; broad frameworks describing missions and values may work better.
The challenge only increases as companies grow. Executives at smaller companies are more confident in the efficiency of their decision-making than peers at larger companies, more reliant on people over process, more consultative, and less worried about data overload. This is an advantage of being small. The ability to retain these qualities is an important management challenge for companies in a period of rapid growth.
Too much art, not enough science? Senior management decision-making at the majority of
surveyed companies (55%) is largely informal and unstructured, with executives consulting others largely on an ad hoc basis. Most executives seem comfortable with these arrangements: only 29% think poor decision-making structures are a common cause of bad choices. This reflects a view expressed by several interviewees that strategic decisions always require a strong element of intuition or judgement.
Nevertheless, there can be no doubt that better data and processes would take some of the guesswork out of decision-making. Common metrics and greater use of automated information tools such as dashboards would also help to support better quality decisions.
Decision support tools need to be easier to use. Executives believe that technology can play a key role in improving decision-making, by making it quicker and easier to access and organise large amounts of information. This is hugely important as companies become larger and more complex and as the volume of data available rises. At the moment, however, too many executives do not feel comfortable using dashboards and other IT tools that could sharpen
their decision-making. Companies therefore need to develop decision-making tools that are sufficiently reliable and user-friendly to appeal to even the less technology-savvy members of the management team and wider workforce.

Who took the survey?
A total of 154 executives from around the world took part in the Executive decision-making survey, conducted by the Economist Intelligence Unit. The survey sample was cosmopolitan: 40% of respondents hailed from Europe, 31% from North America and 23% from Asia-Pacific. It was also senior—50% of respondents were C-level executives such as CEOs, CFOs and CIOs or board members, with the rest consisting of heads of business units and other senior managers. The majority of organisations were large: 53% had annual revenue of over US$500m, and 25% earned more than US$5bn. The main industry sectors represented were manufacturing (16%), technology (16%) and financial services (14%). For more detail on the sample and results, see the Appendix to this report.

Source: Economist Intelligence Unit

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