Executive confidence in business trends deteriorated from the start of the year, as CEB’s Business Barometer results showed a dip from the first to the second quarter; breaking five consecutive quarters of increasing optimism.
2014’s first quarter was the first time since 2011 that the global average for our Business Executives’ Sentiment Index was above 50 (or “neutral”). But in the latest quarter, the index dropped to 49.5 from 50.2. The index measures senior executives’ sentiment on revenue growth and cost pressure over the next 12 months.
What Causes Regret
When line executives struggle to maintain a positive outlook, it can be hard for corporate strategists to encourage bold but necessary decisions. Much like any cheesy “life coach” quote, people are far more likely to regret what they didn’t do than what they did. Corporate strategic decisions are no exception.
When business decision-makers worry about the outlook for their market or industry is they tend to end up feeling one of two types of regret about how they should have managed the business portfolio, but didn’t. Talking about regret in this way can help executive prioritize time and resources accordingly. The two types are:
|Conservatism “Too Little”||Inertia “Too Late”|
|Shifting too few resources.||Shifting resources too slowly.|
|Divesting too few businesses/product lines.||Missing deals because too late.|
|Spending too little on acquisitions.||Divesting businesses/product lines too late.|
|Under-resourcing partnerships/joint ventures.||Too late in establishing business development relationships.|
What Prevents Regret
CEB Strategy research has identified four “regret buster” competencies that mitigate that disappointment.
Strategist should look to improve in these areas to help the managers that they support act more quickly and decisively, and seize on the right business development opportunities:
- The ability to identify stakeholder biases in the decision-making process.
- The ability to systematically catalogue all assumptions made in the decision process.
- The ability to calculate the opportunity costs associated with each portfolio management choice.
- The ability to detail different investment options.
For an example of the first two in action, look to the CEB Strategy case study from Volksbank. Strategists at this financial services firm interviewed heads of business units to gather strategic planning assumptions. This allowed the company to uncover areas where leaders disagree about their assumptions.
For help evaluating options and opportunity costs, consider how one food company mapped out all its options and their tradeoffs when it had to make quick M&A decisions. Doing so helped the organization make short-term decisions while keeping the long-term impact in mind.
These regret busters can mitigate inertia and conservatism by 27%.