Effective Decision Making by Edoardo Binda Zane

Summary of the Summary

When there is a problem to solve, begin by making sure you're comfortable enough to think straight and clear. Your physical and mental states should be at optimal levels. This goes to say that you shouldn't be making serious decisions when you're physically exhausted or dealing with strong emotions.

Next thing to do after ensuring you're at optimal conditions is to study the problem at hand. Look at it from all possible angles before coming to a conclusion. It's important to hear from everyone on the team if you're making a group decision. If you're the leader, ensure everyone on board is comfortable before the decision making begins. You won't make the most of the exercise if team members are afraid to air their opinions for fear of criticism.

Decisions are the seeds of success

Everyone knows that we live in a fast paced world. It's good in some ways because we get to enjoy more comfort and speed than people who were here centuries before us. But with every merit comes a demerit.

The nature of our world demands that decisions are made quickly. This is especially true for those in management. Those who know their business and industry inside out will be better positioned to make good decisions when the need arises.

Daily, we're faced with situations that require immediate decisions. We're smart enough to know that good decisions are hard to come by when under pressure. But since it's not in our power to slow down the pace of business, the obvious question becomes: How do we manage this paradox and ensure we make the best possible decisions in record time? That's what this summary is all about. The chapters you're about to read will teach you strategies and techniques to help you make stunning decisions within any available time frame.

You'll learn:

• Four different frames of reference for making decisions
• Strategies for setting and achieving goals
• SWOT & PEST analysis and how they can help your organization
• Two complementary strategies for finding the root cause of confusing business problems, and much more.

Careful observation and taking time to think things through will help you make great decisions

Frames of reference refer to the processes the brain undergoes when making decisions. There are various types of frames, we'll discuss two of them in this chapter and two in the next. Note all of them and see which framework will work best for you.

OODA

This strategy was first designed by Colonel John Boyd to be used as a military decision making model for air combat. But it can be applied to any business decision you're making against your competitors. OODA loop stands for Observe, Orient, Decide and Act.

The observation stage requires you to become aware of your environment — physical, mental or business. Observe the various elements of the environment to see if they are in place. For instance, if you're in a boardroom meeting, you could observe the members on board. Did any new person join you? What does the look on their faces say? Is the atmosphere tense, or not?

Basically, what you're doing in the observation stage is taking in the facts around you. Remember, this was first developed for combat pilots. When pilots come to this stage, they will try to understand their environment so they can better strike opponents.

After observation, you move to the orientation stage which has a lot to do with your personality. The big question here is, in view of the observed information, what will you do? Your success in this phase is determined largely by your experiences, wealth of knowledge, and how true or effective that knowledge is. That's why people in decision making positions are advised to never stop learning.

In the decision phase, you’ll compare all available options and make mental pictures of their possible outcomes, then you Acton your decisions and the OODA loop is completed.

Setting goals and planning properly are necessary for long term decision making

We considered two decision making frames in the previous chapter, here we will go over the remaining two.

GROW

This stands for Goals, Reality, Options/Obstacles, and Will. Goals are the most important in this model. Every organization that seeks to succeed should have clear end goals. Business goals should be SMART (Specific, Measurable, Attainable, Relevant, and Time–Bound).

Achieving your goals is not as important as the growth you’ll experience in the process.

Having set your goals, ask what is your current reality? If the goals were set before the present decision making time, how far have you gone achieving them? Analyze your current situation then move to Options/Obstacles. Here you take cognizance of your possible options and their various obstacles. Next, Choose the most promising option whose obstacles you can easily overcome. This brings us to the Will. Basically, this last phase asks the question, what Will you do, considering all available factors? Thismodel is more of a coaching system than a decision making strategy. It's not effective when decisions need to be made quickly.

PDSA Cycle

This cycle is common among most healthcare systems. It is an effective, and well structured strategy, but it's time consuming and can't be used as a one–off system. The P in PDSA stands for Plan — a very important stage in the cycle. During planning, you study the available factors that could influence your end goals (assuming you've already set them). These factors will then tell you how best to strategize in order to achieve your desired results. After which you move to Do. In this stage, you act based on the information you have gathered from Planning. Study your results and see how successful you have been. Did your strategy work? Were you able to achieve your desired results, or is there a need to re–strategize?

The answer to these questions determine how you will Act.

You basically have three options in the Act phase:

• Continue with the plan
• Adjust the plan
• Terminate the plan

Remember, a real decision is measured by the fact that you've taken new action. If there's no action, you haven't truly decided.

Business owners leverage on various analytic tools to make better decisions

You need to be careful when making business decisions. Some decisions can be serious enough to cost you market share. If that happens, it may take you years of labor and huge amounts of money to regain positions occupied by your competitors. Sadly, some businesses never recover from certain mistakes. You will save yourself and your organization all the pain and regret if you take the time to analyze major decisions before making them. SWOT analysis is a tried and tested method for analyzing business decisions. Let's consider it.

SWOT ANALYSIS

SWOT analysis was developed by business and management consultant Albert Humphrey in the 1960s.

This stands for Strengths, Weaknesses, Opportunities and Threats. SWOT analysis works best when individuals within the organization are allowed to provide individual organic contributions to the process, as opposed to abstract data. Let's use a practical example to explain this analysis. If you own a clothing line that averages $100,000 in annual sales, and you want to double that number in the coming year, your SWOT analysis could look like this:

Strengths

These are the internal factors that will make you reach your goal faster. Examples for the clothing line could be that:

? You have a competitive edge that makes you stand out in the market

? Your products are of high quality. They last long and are very affordable

Weaknesses

These are internal factors that could frustrate your goals. Outlining them will give you fresh insights on how to overcome them:

? One of your most competent staff just resigned because she has health challenges

? You're hugely indebted

Opportunities

These are external factors that could help you reach your goal:

? Someone is willing to invest in your clothing line!

? Your state just announced last month that the coming year is tax free for all SMEs

Threats

External factors that could stop you from reaching your goals. Examples:

? A major competitor is thinking of expanding their clothing business to your zone

? The transportation cost is incredibly high, making it hard for you to deliver products to customers who order online.

SWOT analysis only works well when done comprehensively, so take your time and really analyze the individual factors.

Identifying the external factors affecting your business can position you for growth

The SWOT analysis basically considers internal factors and a few external factors, but PEST analysis is about those external factors that you can't control, but which can cripple your business, if you don't consider and navigate your way through them. PEST stands for Political, Economic, Social and Technological analysis.

Political factors

These are all the political factors that could either help you or stop you from achieving your business goals. Examples are government regulations, political stability, employment, and environment laws.

Economic factors

Examples include taxes, inflation, deflation, and the general state of the economy.

Social factors

Examples of social factors that could affect your business or organization are customer loyalty, demographics, culture and the media.

Technological factors

This is the last on the list. Common technological factors that affect businesses are artificial intelligence and innovation.

The reason PEST analysis is important, especially for large organizations, is that it helps you identify the risk factors that could affect your business, thereby better positioning you for effective decision making. If you're a major decision maker in your organization, take some time out alone (or with your team) and analyze the state of your organization in the light of all the PEST factors.

Other models under PEST include: PESTEL, adding legal and environmental factors; STEEP, adding ethical factors; and STEEPLED, adding ethical, environmental, demographic, and legal factors.

Competition and profitability analysis are important to maintain a healthy business

In business, many of your decisions will be influenced by the nature of the market or industry you're in. For example, Apple and Samsung are big competitors in the mobile tech space. Samsung's Galaxy and Note series are accountable for most of the drop in iPhone sales over the years. As a result of this competition, both companies are careful when making manufacturing decisions, otherwise one of the two will easily lose market share to the other.

But not all industries are that competitive. That's why you need to know your own industry.

How competitive and profitable is your industry? Having the correct answer to this question will help you make wise decisions. And there's a tool to aid you. It's a strategy called Porter’s five forces, named after its developer, Michael Porter.

The five forces Porter observed to be indicators of industry profitability are as follows:

? Degree of competitive rivalry

The more competition in an industry, the less profitable it becomes; and the less competition, the higher the chances of raking high profits. Competition indicators to watch out for include innovation, industry transparency and market concentration.

? Threats of new entrants

How easy is it for a new company to enter your industry? Very easy? Then you need to tighten your belt and be smarter, or you'll begin to lose market share. Generally, industries with little to no entry barriers are in danger of easily becoming saturated.

? Threats of substitutes

You will be in high demand if you're not easily replaceable. Are your products or services replaceable? Why should customers buy from you and not your competition in the other industry? You need to sort that out quickly.

? Buyer bargaining power

This is similar to the previous factor. If buyers have multiple options, they will have the power to influence prices. Every business person knows that this isn't a good one.

? Supplier bargaining power

Suppliers also influence price when there are plenty of them. The degree of specialization of a supplier and how hard it is to switch suppliers all affect the bargaining power of a supplier.

Generally, the stronger any of the above five forces is, the less attractive (profitable) the industry is, and the smarter a business will need to be to succeed.

Finding the root cause of your problem is the key to solving it

There are two complementary techniques you can use to find the root cause of any business problem. The first is called “fishbone analysis.” The basic idea behind this technique is to break down the causes of your problem into different categories so as to be focused when deciding a proper solution. For example, if you're facing a marketing problem, you could break it down into the following categories: product, price, place, promotion, people, process, physical evidence. The next step is to focus your thoughts on finding the problems in each category. Do this until you're done and can figure out exactly what your problem is as well as a good cause of action.

It's okay if a category leads you to a different category you didn't know existed. Just pursue it diligently.

Define your problems properly using the technique above, before attempting to solve them so as to save yourself from solving the symptom instead of the root cause.

The second technique is called “The 5 whys technique,” developed by Japanese inventor Sakichi Toyoda. It's a simple technique that involves asking five whys before arriving at a conclusion. Let's imagine your business is not making sales as you expect. Start with asking why that's happening. Come up with an answer then ask another why. If the first reason, for example, is that your marketing isn't strong enough, ask why this is so. Keep asking till you get to the fifth answer.

The fishbone and the 5 whys techniques are complementary. After conducting a fishbone analysis, pass your results through the 5 whys.