Life presents positive and negative, and low and high impact choices for us to choose from every day. Right from childhood, teenage and young adulthood we are faced with mundane choices such as what to wear to a social function as well as important ones like which subjects to study at school and which course to take in the University. As we grow older, we make choices on who to marry, which career to pursue or which business to go into. As entrepreneurs the pool of choices in our business endeavours deepens and widens vastly. Who should we employ that meets our requirements at the price we can pay? Which segment of the market should we target? Should we invest in a ten ton per hour plant for which we have the funds to pay or borrow as much amount and go for a plant with double that capacity? What are our reasons for one rather than the other?
Regardless of the stage in, or department of life, and irrespective of whether the choices we need to make are mundane or of great importance, they all add up to influence and determine our path and fate. Obviously, we can alter the path and the fate, but again that would be only by altering the type of choices we make. Making wise decisions, however, is not always as easy as may seem to be. As we shall see later in this series, there are several pitfalls such as ‘the sunk-cost trap’, ‘confirming-evidencing trap’, ‘anchoring trap’, and ‘status-quo trap’ that can distort our capacity to make optimum decisions in various scenarios. Consequently, to enhance the chances of our success in business, we have to be deliberate in our decision-making process on important as well as seemingly ‘less important’ matters and whether from a narrow or wide pool of choices.
We, and our businesses, are, indeed, only as good as our choices.
What is decision-making? Decision-making is the process of making deliberate choices from two or more possible alternatives. In business, decision-making is built on management strategy and process of selecting optimum, sensible, and practical solutions to issues before, during and after their occurrence. It comprises of several component steps that identify a problem, collate information about the problem, develop and weigh possible options, choosing from the options, plan, execute, receive feedback and follow-up.
The importance of wise decision-making: The modern environment is highly demanding of the best we can offer. Globalisation, intense competition, information overload, etc. necessitate that we are alert, deliberate and conscious of the challenges and opportunities that we may have as well as what we can do to face the challenges and seize the opportunities. Decision-making is considered by many schools of thought as the most important job of the entrepreneur. It can be tough, risky and cause irreparable damage to a business if handled poorly.
On the other hand, the benefits of making wise decisions are multi-fold but can be grouped, for our purposes into two, viz personal and business. From a business perspective, making wise decisions improves efficiency of operations, and consequently productivity, through saving of resources such as time, effort, and materials. Furthermore, the effectiveness of the business is improved through better focus in everything that is done to achieve goals and objectives. At the end of everything, wise decision-making helps create more value and, therefore, likely profitability and opportunities for growth for a business. From the entrepreneur’s personal perspective, wise decision-making improves interpersonal relationships with others within and outside the organisation, thereby helping to create more opportunities. In addition, wise decision-making establishes the entrepreneur as a true leader capable of understanding issues and reviewing options.
Scope of choices: The scope of choices we face every day is truly diverse. Again, for our purposes here we are focussed on business decision-making. On this basis, we can group decisions into ‘strategic’ and ‘operational’ as well as ‘programmed’ and ‘non-programmed’.
- Strategic decisions are those decisions that will impact the overall direction of a business, current operations and also the prospects of future growth. They are decisions, typically, of core and long term nature. Strategic decisions usually take time to be made because a lot of information might need to be gathered before the choices can intelligently be made. If you get your strategic decisions right, they may take a while before they are altered except if there are seismic changes in either the internal or external environments. On the other hand, if you get your strategic decisions wrong, they can be costly to be corrected.
The simple example of wrong strategic decisions that we can make is that of Airbus in the development of the A380. While Boeing chose to develop a fuel-efficient moderately sized Boeing 777, so-called ‘Dreamliner’, on the assumption that airlines and passengers will prefer to fly directly from one airport to another, Airbus worked on the assumption that the hub-and-spoke network model would continue to flourish. And on that basis, they invested in the development and manufacture of the large ‘Superjumbo’ A380. In under twenty years, the Airbus decision has been proven wrong with the production of the A380 ceased and the company has not recouped its over Euro25 billion development cost.
- Operational decisions are those that have to do with the implementation of processes that are required to achieve tactical advantages and goals. They tend to be ‘minor’, not in the sense that they do not matter or do not impact on overall results but in terms of the relative ease with which they can be corrected when errors are made. Take for instance the delivery of goods ordered by customers. This is an important activity but if errors are made, they can be corrected reasonably easily and fast even if at some inconvenience and cost.
Operational decisions can be further understood from the extent of whether they are programmable or not, as follows:
- Programmed decisions are those decisions that tend to be routine and recurrent. This means they are repeated as well occur reasonably frequently. A programmed decision might be about monthly payment of salaries by the Human Resource Department. For this, a simple computer software can get it done pretty fast and easy with the input made by an employee. It is a routine and recurring decision that need to be made monthly. Programmed decisions can be made pretty easily with standardised guidelines that may be put in place.
- Non-programmed decisions are those that tend to be unusual and irregular. A non-programmed decision might be, for instance, the actions that need to be taken to regain a heavy loss of market share. Such decisions cannot be made out of some standardised guidelines. Instead, the entrepreneur and their team must pool a lot of information and also demonstrate understanding of the situation, creativity and fluidity of thought.
Today, we have tried to introduce what decision-making is, the importance of wise decision-making as well as the scope of decision-making. We will take up the principles and processes of wise decision-making next week.