Better Decision Making Leads to Better Profits

As leaders climb the leadership ladder, there is a critical deficiency in the learning process involving decision making. Although decision making is one of the most valuable skills for all leaders, it is very often either neglected as a teachable skill or considered an “inherent part of the job”. It is neither.

You have likely heard, “that decision is up to the VP of [department], that’s what he/she gets paid to do.” It’s true, making the best-possible decision is what each leader is paid to do, but simply accepting the positional authority of a leader is a mistake.  I’ve seen this practice generate increasingly poor decisions by creating a barrier to rigorous analysis of decisions. Even more damaging to the organization, I’ve seen this institutionalized in the culture, establishing that every leader will have the “magic power” to make decisions as soon as they earn their promotions–so don’t question them.

There is a great deal to learn about best-possible decision making. One of the most important elements is that decisions made out-of-context are never the best-possible. Never.

In-context decision making is the only way to optimize the results.  In-context decisions include the assessment of the trade-offs, interactions, consequences and constraints in any given situation. Out-of-context decisions are made from a much narrower perspective, often just the gut feel or experience of the leader.

As you have probably already realized, in-context decision making is more complex and is often only possible with computer-aided analyses. Since it is harder and requires better tools, it is easy to see why it takes understanding and commitment to be a best-possible leader.

As an example of traditional decision making, let’s imagine that you are the operations manager for a steel company. Your responsibility is to produce steel at the best cost, best quality and at the best rate to service the customers and optimize inventory. To do so, you must control the recipe of raw materials, the most expensive component in the process.

The raw material recipe affects the cost and quality of the steel, the production rates and the customer satisfaction with the end products. For this example, the company is focused on increasing profitability, and you are challenged to improve the old recipe to optimize costs.

The recipe is a complex combination of procurement options, raw material options, quality requirements, product profitability, production capabilities, and ultimately the customer requirements and needs.

The simplest and most common way to make the decision is to ignore the entirety of the “context” that the decision entails in favor of considering only one or two of the decision variables involved to make-the-call. The rationale I’ve seen most often is that the leader is an expert in these few areas and justifies the decision based on his/her out-of-context knowledge (particularly when the decision is complex and beyond unaided human capabilities).

I’ve learned that many leaders find a sense of self-worth in “controlling” the decisions within their domains and fail to recognize how much more successful they could be if they applied better decision-making practices/technology.

Leaders committed to traditional approaches are usually defensive.  I’ve heard statements including:

“We know what we are doing. We’ll take care of our business. You take care of yours.”

“We tried changing things before, and it was a disaster.”

“You need to work with what we give you. We are world class, and we know best.”

“We’ve been doing this for 50 years, are you telling us how to do our jobs?”

Have you heard any of these? Have you said any of these?

Ego, poor decision making practices, lack of decision making technology, silo culture, and many other factors contribute to out-of-context decisions and to an enterprise that is not achieving its best-possible profits.

In-context decision making requires healthy questioning to be sure the applicable variables, interactions and constraints are considered. It also requires the diligent pursuit and application of technology to overcome our human limitations and ensure the best-possible decisions.

Decision making technology has advanced light-years beyond spreadsheet capabilities. Today’s profit optimization systems are to spreadsheets what GPS is to a sextant in global navigation. There is every reason to pursue expertise in decision making. Your growth will start with the simple realization that in-context decisions are always better than the traditional approaches. 

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