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Why it's Getting Harder to Make Good Decisions

Big incumbent firms are having to respond to changing markets and a competitive landscape more quickly than ever at a time when their decision-making has slowed to a crawl

The second quarter of the year is traditionally when corporate functional teams move from confirming budgets and strategic plans to the work of implementation. But before they can do this, managers need a firm grasp on the state of their functions – identifying key priorities and validating that they’re on the right path to advance their function.

This year is shaping up to be particularly difficult as companies are undertaking far more change projects, while it’s taking longer and longer to make any important decisions. All of which means managers need to place their bets more carefully.

And the cost of all this indecision can be substantial, particularly when firms are implementing strategic plans. One important data point from a 2012 CEB survey of heads of corporate strategy sums this up: while the average company growth rate for the 79 strategists in the sample was 5.8% a year, they said their firms could grow at an average of 11.1% a year if internal decision-making processes were more efficient.

Too Much Change, Too Slow a Response

Senior executives are finding it hard to make the right choices because of two pervasive trends in global business.

  1. Constant change: Managers realize that their company’s success depends their ability to respond appropriately to new opportunities and threats as they emerge. And given that markets, trends, and competitors are all evolving more quickly than ever, large incumbent firms are going through periods of almost constant change.

    This means that executives need to start and manage big change projects almost constantly, and must be ready to reprioritize, re-scope, or retire change efforts that are no longer working. This is tough and many business leaders lack the tools to help them check whether their change initiatives are likely to work, or to identify the causes of success and failure.

  2. Slower decision-making: Companies are bigger. After adjusting for inflation, the 500th-ranked company in the Fortune 500 is nearly five times bigger in terms of revenue than it was in 1990. And the way decisions get made has changed markedly. Decision-making has simultaneously become more decentralized and more collaborative. More people from different parts of the company and the world – often with little in common and sometimes with competing professional goals (a sales manager and a risk manager, say) – must now sign off on any big decision, from the launch of a product extension to agreeing on a new supplier.

    This rise in collaboration, along with a much heavier reliance on peers rather than direct supervisors, means that 60% of employees must consult with at least ten colleagues each day just to get their jobs done. When benchmarking the speed of key processes across companies, CEB analysis shows again and again that decision-making at even the most basic level has slowed materially over the past five to 10 years. For instance, the average time to complete an office IT project increased by more than a month from 2010 to 2015, and now stands at over 10 months from start to finish (see chart).

Make the Right Decisions More Quickly

It would be foolish to suggest that the root causes of the current business slowdown — change management and greater focus on collaboration — are in and of themselves bad things. In this environment, making decisions about when, where, and how to adjust important priorities is more challenging than ever before.

Leaders need better ways — and, often, better justification — to build effective strategic plans. In particular, they need the ability to make the right decisions, faster. Three steps will help teams execute with greater speed and confidence.

  1. Prioritize: The best functional teams regularly assess functional performance against a structured framework, but they should go further than that. They should be able to clarify not only how far their function has progressed but also what steps to take to do progress more quickly. Doing this will help managers understand critical gaps in their function’s “maturity,” and prioritize areas of improvement.

  2. Plan: They can then create plans that show a clear path to maturity. This will help functional teams establish action steps for advancing to the next maturity level without having to spend more than they need.

  3. Execute: Functional heads should make sure their teams have a step-by-step understanding of how to execute on the most important projects and, if not, it’s crucial teams are able to identify where they lack that understanding.

For each of a company’s main corporate functions, this forthcoming series of posts will look at what senior functional executives say are their top-three priorities for the rest of the year and why they matter, and include some advice on how to work on those priorities.

More On…

  • CEB Ignition Diagnostics

    Learn more about how CEB can help with each stage of the "prioritize, plan, execute" framework above.

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