Tag Archives | decision

How Decision Making Impacts An Organization

In my 28 years of working for different types of organizations – public, private and consulting for companies from $4 million in revenue to $1.5 billion in revenue – I continue to be surprised how decision making impacts an organization. I’m even more surprised how the lack of decision making negatively impacts an organization. In order to accomplish anything in your company, there are two options: to make a decision and control the outcome OR to not make a decision and react to whatever happens. 

What It Takes To Make A Decision

The University of Massachusetts (UMass) Dartmouth publicized a paper that summarizes how to make a decision effectively and successfully.

#1 Identify the Decision

First, a leader must identify the decision. In other words, you need to identify when a decision needs to be made. Clearly define the nature of the decision. 

#2 Gather Information

Then, gather relevant information that will help you make a good decision. 

#3 Identify Alternatives

After you gather internal and external information, identify the alternatives as you are likely to have different paths or choices to make. List those alternatives. 

#4 Weigh the Evidence

Next, you need to weigh the evidence. This is an internal process. It can also be an emotional process. This is what takes the most time in the decision making process. 

#5 Choose an Alternative

After you have weighed the evidence, you need to choose among the alternatives. This is based on the first four items listed above. 

#6 Take Action

Then, you can take action. Only do this when you are ready to take a positive action based on the alternative you chose. 

#7 Review Decision

Finally, review your decision. Remember, this will take some time to accomplish. 

The above 7 steps really apply to business every day. From making a large acquisition of a competitor to hiring your CFO, these rules should be utilized. 

Your CEO needs a trusted advisor. They need you to help guide them through the decision making process. Learn how to get to the trusted advisor level by downloading the free How to be a Wingman whitepaper (and get an invitation to join our SCFO Lab)!
 

Many Business Leaders Are Not Good Decision Makers

Unfortunately, many business leaders are not very good about making decisions.  They either rush through the steps, many times skipping a step, and end up with a bad decision. Or they get stuck on number 4 – weighing the evidence – and never move to step 5, which is making a choice. 

What Happens When You Skip The Steps

But what happens when you skip the decision making steps? The steps mentioned above in the paper from UMass Dartmouth are critical and should not be taken lightly. They are there for a reason. My guess is that some bright minds with real life experience put these together. I mention this because in my 28 years of business experience, I can relate to each one. 

I have seen “decision makers” (oxymoron) skip one or more of these steps.  This can be in a routine day-to-day business matter, or in a strategic major multibillion-dollar decision. The outcome is always the same. The wrong decision was made. The cost of a wrong decision to an enterprise can be catastrophic. Or at the very least, the cost is an expensive one and sets back an entire department/business unit for months. 

How Decision Making Impacts An Organization

How Decision Making Impacts An Organization Case Studies

It is sometimes difficult to see our own faults in decision making until we hear or read about a similar situation. In my 28 years of experience, there have been hundreds or thousands of examples that I could pull from. See below for 2 case study examples. 

Real life Case Study #1 – Regulated Utility

I was once involved with a regulated utility that was installing an ERP system. The company completed Step #1 (Identify the Decision) and that’s about it! Someone with title and power in the organization decided to skip steps 2-7, and the result was a very bad system implementation that cost the company 50% of its revenue. Because of the lack of decision making and follow-though in the decision making process, they ultimately had to shut down a whole division. 

Real Life Case Study #2 – Chemical Company

In another example, a chemical company needed to fire a CFO and hire a new one. The original CFO had a bad track record of poor decision making. Technically, that CFO was good. But he was a bad people person and managed people with a hammer. As a result, a bad culture had developed. People hated working for the CFO and in turn, hated the company. Finally, the Board of Directors insisted that the CEO fire the CFO. 

The CFO was fired, but the company’s moral was terrible. The worst part is that since the CEO was snake bitten, he was gun shy on making a decision to hire the replacement CFO. The CFO position was left open for almost one year. As a result, the company suffered due to the lack of leadership. During that time, the company loosened its internal controls, and the budgeting process became a mess.  The lack of decision making by the CEO caused the Board of Directors to lose confidence in the CEO. There was a lack of leadership in the entire organization.

Analysis Paralysis

Step #4 (Weigh the Evidence) requires some analysis. We can all get lost in the weeds during this process. You may have heard the term Analysis Paralysis before. Analysis Paralysis is where someone is overthinking the analysis so much that a decision is never made. 

This is actually very real, and it can happen to any of us – especially people who tend to be more detailed-oriented and analytical.  First, you need to realize that in any decision we make, the perfect alternative does not usually exist. We wish there was, but in reality, there is not. 

Is there the perfect car? 

What about a perfect acquisition target? 

Is there a perfect CFO? 

The answer is probably no on these.  We need to work with what we have and make the most educated selection based on the alternatives before us. 

How Decision Making Impacts An OrganizationTrust the Professionals

As professionals in our respective area, we are confident in what we know, or as they say, know what you don’t know. 

If you hired a trusted advisor to assist you with your decision making and they are a reputable person, then trust your advisor’s opinion. 

When I was growing up, it seemed like my father who was a physician would change his tax CPA what seemed to be every year.  He just did not “feel good” about taxes and did not trust anyone. Not even the trusted advisor he hired!  My dad was very talented and dedicated as a physician, but he knew nothing about business or taxes.  So, his lack of knowledge in this area created a huge “monster effect”. There was no monster nor was there a person trying to screw him out of taxes. He simply did not know what he did not know.  We cannot emphasize enough: trust your advisors. 

How Decision Making Impacts An Organization

Decision making makes a huge impact on an organization. It can either propel it forward and into success. Or it can destroy the company’s value. The worst thing that a leader can do is to not make a decision. There is always a better decision than not making a decision. It reduces the uncertainty because you have already collected evidence, weighed the alternatives, and went through various scenarios of how each decision will potentially turn out. 

Poor or Lack of Decision Making

Remember, poor decision making, skipping necessary steps or simply a lack of decision making is a sign of lack of leadership.  Not only is there a perception problem, but most likely your business enterprise will suffer due to the lack of decision making.  As the business leadertrust your professional advisors and allow them to help you in the difficult decision making process Download our free How to be a Wingman guide and step up into the trusted advisor role. 

How Decision Making Impacts An Organization

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How Decision Making Impacts An Organization

 

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Laying Off Employees | Who stays in the lifeboat?

laying off employeesLet’s go back to 1912… The RMS Titanic set out on her first (and only) voyage from Great Britain to New York City on April 10, 1912. The plans were drawn. The lines were cast.  Some of the wealthiest people in the world were aboard. The well-oiled machine was pumping the turbines below, pressing forth to America. Everyone wanted to be apart of this enormous ship. Nothing could jeopardize something as perfect and indomitable as the Titanic.

Like any successful business, the Titanic relied on its business plans and well-run operations. But what happens when your company hits an unseen iceberg, tearing your business apart?

The “Situation”

Here’s the situation you’re faced with… The iceberg takes your ship out, forcing you as a leader to make radical decisions.

There’s only so much room in the lifeboats.  Your conscience says to put the women and children in the boats, but who will be strong enough to row?  There’s no easy solution.  In the end, someone is going to be left to brave the icy waters.

Let’s put this scenario in business terms.  You’ve hit an economic iceberg and you’re now forced to make the difficult decision of who you want in the lifeboat with you.  This snap judgement will impact either a few, or possibly thousands of livelihoods, depending upon the severity of the crisis and the size of your company.

Making The Decision

Ylaying off employeesour human capital, or employees, are one of the biggest expense items on your financial statements.  Hence companies often struggle with whether they should employ a large pool of people or downsize their company to the bare minimum.

Ivey Business Journal concluded that “downsizing [a company’s employees] has been a pervasive managerial practice for the past three decades.” As a result of downsizing, “layoffs cause firms to lose institutional knowledge about how to get things done, disrupt work relationships and patterns, and increase burdens on those who remain” (Harvard Business Journal). Workplace diversity is one of the many things that are impacted from laying off employees.

Business owners have a fiduciary responsibility to take care of the people in their company. There is nothing worse than letting people go. Is it Becky or John? Lisa or Lauren? Brent or Jackson? Especially for entrepreneurial companies, they are like part of your family.

It’s important to realize that you have to live to fight another day in the harsh waters. Even though it’s tough, the decision needs to be made to prevent your entire team from going under.

laying off employeesTide Rises & Falls

The tide in the oil and gas industry has fallen and is dragging along the ocean floor for an uncertain amount of time. Other industries are doing really well. The economy is constantly rising and falling which often results in layoffs during the low times.

Cisco Systems just recently announced that they had made the decision to lay-off 5,500 employees in their global enterprise. But when you realize that those 5,500 are only 7% of Cisco’s total workforce, it doesn’t seem like a lot – unless you were one of the employees let go.  Microsoft, Lloyds Bank, Intel, Avon and countless other companies have joined the ranks with Cisco in layoffs within the past 9 months.

Layoffs are something that you can expect, just like the tide rising and falling. Make the decision, knowing that everything will balance out.

Weather the Downturns

Start planning for your recovery in the downturns so that you can flourish after the storm passes by. Persevering through those hard decisions like laying off employees will pay off in the long-term.

Pull Yourself Back Into the Tide

Start by evaluating your employees. Use your key performance metrics that you use to measure employee success to determine your employees rankings. It’s not wise to just lay off the top 5% salaries because you’re concerned about cash. Pulling yourself back into the tide requires strength and grit and sheer determination. Make your evaluations based upon performance and skills, rather than compensation.

Who gets in the lifeboat?

Your company has taken a massive hit and the ship is going down.  Who do you want in the lifeboat to help you rebuild? We created three specific metrics that can make the analysis process of who stays and who goes a bit easier.

1.  Someone Who Increases Revenue

Find those employees that are holding themselves accountable as income producers. These employees will be thinking of new, creative ways to improve the sales process, increase revenue, drive new sales. Any position (accountant, supply chain manager, sales executive) needs to be mindful of what is coming into the funnel. If you can, find those entrepreneurial employees. They’ll be equipped with spark and energy to find a way in a dead end to help turn things around.

2.  Someone Who Cuts Costs

Stereotypically, accountants cut costs and only cut costs. But take a look at the bigger picture! Is there someone creating green initiatives that are increasing government funding? Are marketing managers converting from door hangers and mail-outs to digital marketing? Find someone who cuts costs anywhere. Those are the people (like those that increase revenue) that will find a way to make things happen.

3.  Someone Who Adds Value

Finally, you want someone on your lifeboat that can add value. While many can come in and increase revenue or cut costs, it takes a talented person to be able to add value to the company. Think of the bottom line.

Especially relevant in entrepreneurial companies, it is vital to add value. Bankers, investors, and employees will look to you as the owner or financial leader to add value to the company in a life-and-death situation.  You want someone in the lifeboat with you who makes that easier.

(Are you looking for someone that increases revenue, cuts costs, and adds value? Check out our free guide here to learn how to recruit a star-quality team.)

How to Avoid the Iceberg

Instead of consistently laying off employees during economically stressful times, there are 5 things that you need to key in on.

1.  Steer Your Ship

As a leader, financial or otherwise, it is imperative that you look at where you’re going. If you are staring down at your feet, then odds are you will crash. Look up and lead your company forward. Take note of anything changing immediately.

2.  Act Early

Acting as soon as you start see anything changing will prevent or minimize the chances of having a lifeboat situation.

Start by unlocking cash in your business. This is the easiest way to get some breathing room so you don’t need to start handing out pink slips.

3.  Cut Deep & Wide

Cut costs quickly and everywhere. There are several ways to dig deep and wide to prevent a lifeboat situation:

  1. Ask your employees to take a vacation.
  2. Cut back pay for a period of time with the understanding that previous pay will return once the crisis has passed.
  3. Reduce benefits.
  4. Offer part-time work instead of full-time work.
  5. Stop hiring.
  6. Communicate.

The last point is key, you must communicate.   Most employees will be willing to work with you if your expectations are reasonable and clearly communicated.  After all, they have a vested interest in the company remaining afloat as well.

4.  Have Enough Life Boats

Trees don’t grow to the sky and downturns don’t last forever.  Once you get back on dry land, make a plan for how to avoid the next iceberg, or at least minimize its impact.

What do wars and hurricanes have in common?  Once they’re over, smart people start planning for the next one.

5.  Start With A Star-Quality Team

Hiring is an important task. But so often, people take the approach of hiring fast and firing fast.  It’s no surprise that the #2 reason why businesses fail is because of employee turnover. Rather than trying to decide who to save, focus on hiring the right people in the first place so you don’t have to kick anyone out of the boat.

Interested in learning how to build a team you can’t live without?  Check out our free whitepaper 5 Guiding Principles for Recruiting a Star-Quality Team by clicking here.

 

laying off employees

laying off employees

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