Winners Are Not Those With Size but Rather Those with Speed
- 24 Best Leadership Practices | Part 21 of 24 -
Leaders are often faced with seemingly impossible decisions, having to make the right call when there is no right call to make. While often faced with such a decision-making paradox, great leaders learn to unlock value by reconciling speed and decisiveness with unbiased, quality decision-making. While speed and quality are oftentimes diametrically opposed, leaders that find the right balance - one in which speed doesn't sacrifice quality and vice versa - see immense success. However, these two elements, quality and speed, are two difficult elements to reconcile. As such, without distinctive decision-making, companies will be reacting instead of disrupting. Instead, leaders and their organizations must act instead of being acted upon, must disrupt into of being disrupted upon, must innovate instead of imitate, and must predict instead of react. Such a mindset begins and ends with high quality, quick decision-making which necessitates an enterprise shift in both mindset and culture. This is especially true in today’s Fourth Industrial Revolution where volatility is the new normal and speed rather than size is the real competitive advantage.
Most companies in today's highly volatile landscape are either disrupters or reactors. Reactive organizations are not shaping the industries they are in but are rather reacting to it because high-quality decisions are made too slowly. On the other hand, disruptors are those that innovate because they make high quality decisions very quickly. Thus, to keep pace with today's ever-quickening innovation cycles, leaders must make decisions more quickly than ever while ensuring speed does not compromise quality. Leaders that fail to quickly commit by revisiting discussions again and again leave the door open to ambiguity, which ultimately ensures windows of opportunity close. Remember, indecisive leaders create indecisive followers and biases such as groupthink ensures "yes" people (followers) instead of leaders. Simply, poor decision-making creates complexity instead of simplicity, complacency instead of innovation, and followers instead of disruptors. Accordingly, this article will introduce The Decision-Making Matrix™, a two-by-two matrix that leaders can leverage in ensuring value maximized decisions in today's disrupted landscape.
The Impact of Poor Decision-Making
Poor decision-making is often the number one greatest driver of value destruction and plagues even the world's most admired companies. Much of this value destruction stems from the fact that many enterprises fail to have any decision-making and/or strategic planning process in place to guard against value erosive decisions and biases. For example, and according to a finding from McKinsey & Company, enterprises without any decision-making and strategic planning processes are twice as likely to generate extremely poor results as extremely good ones, often failing to achieve even 75 percent revenue expectations.
Indeed, left unchecked, poor decision-making will undermine revenue and profits. In a recent McKinsey & Company survey of 772 board members, including over 200 chairmen, respondents ranked "improving decision-making" as their No. 1 aspiration for how to improve their performance. Yet, according to behavioral economists, very few companies and their leaders implement measures to combat poor decision-making. This ultimately leads to value erosive decisions that deviate from rational calculations. Indeed, behavioral economics indicate that corporations and its leaders are often not rational as decision makers, and that this irrationality is quite predictable. Furthermore, Nobel Laureate Daniel Kahneman has demonstrated how biases lead to sub-optimal value eroding decisions – decisions that are diametrically opposed to the rational choices assumed by classical economics.
For example, companies that exhibit a greater number of biases (i.e., poor decision-making) are 32 percent more likely to pass up good investments (See Exhibit 3). In addition, poor decision-making can decrease the returns on a company’s investments by 31 percent (See Exhibit 3). According to a recent McKinsey & Company survey, 72 percent of senior-executive respondents believed bad decisions were as frequent as good decisions. In another McKinsey survey, only 28 percent said that the quality of strategic decisions in their companies was generally good. On the opposite side of this spectrum, those that improve their decision-making from the bottom to top quartile can witness at least a 7 to 9 percent ROI increase and sustainable revenue growth (See Exhibit 4). Simply, decision-making can either be value erosive or value maximizing with many companies unknowingly taking the path of value erosion.
Accordingly, leaders should ensure simplicity in complexity. For example, over the past 50 years enterprise complexity has increased by 35X and 50 percent of performance requirements are contradictory. This transpires in large part because many enterprises generally respond to growth and new challenges by adding further complexity via areas such as additional functions, teams, and decision-making stakeholders. Such additional complexity leads to a domino effect of value destructive elements, including deeper silos, ever-increasing interdependencies between functions, and value destructive decisions that are either too slow or bias led. Simply, the plethora of stakeholders, decision rights, silos, processes, biases, and policies slows down and destroys nearly every decision. This in turn hinders collaboration across departments, reinforcing the silo effect and complexity - the ultimate enterprise destroyer. Unsurprisingly, such a mindset is the enemy of speed and quality decision-making.
The Decision-Making Matrix™
- Reconcile Speed & Quality for Value Unlocking Decisions -
Making profitable decisions can be analogized to a normal distribution curve within a two-by-two matrix (See Exhibit 2). Simply, companies must find the right balance between (1) quality and revenue (both on the Y-Axis) as well as (2) speed and costs (both on the X-Axis). The greatest value unlocking point is when these four elements come together (i.e., top of the normal distribution curve). For example, poor quality decisions (e.g., hasty, bias led decision-making) lead to low costs but also low revenue and ROI. On the other hand, if the quality is very high but the time to decision-making was too long costs go up and revenue goes down because one is likely reacting instead of disrupting the market. Remember, an organization may have the right answers but if they’re too slow it’s equivalent to being last place in a race. You crossed the finish line but everyone else finished before you.
The X-Axis | Quick Decision-Making
Winners will be those that reconcile speed and quality. Regarding speed, moving forward on the basis of partial information is often better than trying to complete a precise assessment before taking a first step. For example, enterprises can launch minimally viable offerings (MVO/MVP), allowing organizations to quickly act on opportunities and continually refine the offering/product based on customer feedback. Innovation cycles are transpiring at an ever-quickening pace, meaning the days of achieving perfection before moving forward is over. It’s far better to take an initial step, fail quickly, and learn, than to come out with that perfect product three years too late.
The Y-Axis | Quality Decision-Making
Quality decision-making ensures unbiased decisions that are not only quick but also high quality. When decisions are made too slowly everything happens in crisis mode, which is demoralizing and draining on the workforce. In addition, this crisis mode generally leads to having to make last minute, bias led moves, which ultimately destroys value from the inside-out from poor quality decisions. In addition, this mindset produces a need to overly focus on short-term, quarterly results while sacrificing the necessary elements needed for long-term success. Ultimately, after the crisis mode is over everyone returns to business as normal until the next crisis hits, meaning this vicious cycle continues to repeat itself. This can be equated to cramming for a pop-quiz. Perhaps the student can squeak out a decent score for that quiz but ask them the questions three months down the road. The likelihood of a high score is minimal. Unfortunately, many enterprises live in a constant state of panic, squeezing the lemon dry for quarterly results at the expense of long-term benefit. Once the lemon is squeezed dry companies die. It’s no surprise that studies have shown that one in three companies will cease to exist in 5 years, up from one in twenty 50 years ago, in large part due to poor quality decision-making.
To summarize, the Fourth Industrial Revolution has reinforced that speed is king so leaders must ensure any decision-making paralysis is avoided by bringing the enterprise together to ensure quality, quick decisions that drive both short and long-term benefit. Simply, winners are not those with size but rather those with speed. Accordingly, great leaders are able to see through the complexity and discern the fundamental economic driver of the business by reconciling the two levers of growth unlocking decision-making, namely speed and quality. As such, visionary leaders mitigate indecisiveness and value destructive biases, leading to (1) simplicity instead of complexity, (2) speed instead of sluggishness, (3) innovation instead of imitation, (4) disruption instead of reaction, and (5) value unlocking ROI instead of destruction from within.
Read the other best leadership practices HERE.
24 Best Leadership Practices
- Series Overview -
The following article is Part 21 of a 24 part series on leadership (See all 24 best leadership practices HERE). To summarize, leadership is everyone’s business. Moreover, leadership abilities are not some innate talent that some were either born with or not but rather is a highly learnable skill. As such, everyone has the potential to become a great leader as long as one embraces a mindset of continuous improvement. Simply, leadership is not so much about inherent gifts and raw talent but rather the emotional awareness, humility, and perseverance to understand that leadership is a lifelong journey that is never mastered. Indeed, aspiring leaders must acquire the endurance of a marathoner, the musculature of a sprinter, and the mental fortitude to embrace that there is never a finish line but rather an unending goal of continuous transformation.
Ultimately, the leadership journey is not about becoming someone else but instead is about becoming one's best self so that in turn one can help others become their best self. And, while there are many facets that go into successful leadership we have identified 24 best leadership practices all of which are grouped into one of three categories, namely (1) inspire, (2) empower, and (3) innovate (see all 24 practices HERE).
INSPIRE: To inspire action, great leaders appeal to people's hearts more than their minds. Simply, visionary leaders plan with the mind, lead with the heart, and reflect with the soul.
EMPOWER: Great leaders empower those they are leading while simultaneously creating a collaborative culture that promotes the notion that together we can accomplish anything as long as we don't care who gets the credit.
INNOVATE: Visionary leaders embrace change and understand that the term "good enough" is used by the lazy to justify inaction. As such, great leaders disrupt themselves and their companies before others do it for them.
Leadership is the greatest race one will ever run – one without a finish line but also one with an exponential ceiling for those that embrace change, growth, and learning. While the level of employee talent may determine the potential of an organization it is the leader that ultimately unlocks that potential and determines the success of both the organization and its people. Although no leader will be a master at each of the proposed 24 leadership practices, awareness is often the greatest agent for change and continuous improvement. As such, we hope the proposed practices will be of service to you in maximizing not only your leadership potential but also the potential of those around you.
ABOUT THE AUTHOR
Joshua Seedman is the founder and chairman of PNI Consulting, a management consulting firm that specializes in global transformations. He has over 20 years of operating and general management experience with expertise in organizational transformations, customer experience, employee engagement, digital transformations, sales & marketing, operational turnarounds, culture/change management, and high-stakes negotiations. His experience includes executive roles within F500 companies, top-tier consulting leadership (McKinsey & Company), over 10 years of global P&L ownership, and corporate lawyer (Davis Polk & Wardwell). He received his MBA from Kellogg School of Management and his Juris Doctor (cum laude) from Northwestern University School of Law.