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Posts Tagged ‘Second-order Thinking’

Decision-making techniques to ramp up efficiency in strategy planning

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Image Source: Yan Krukov | Pexels

Decision-making and strategy planning are considered the most important managerial functions. One cannot simply exist without the other. Planning refers to the intent of choosing a future course of action, whereas decision-making implies selecting a course of action from the alternatives. The interrelation between the two functions creates the process of strategic decision-making, which entails the efforts before and after a choice has been made.

With the strategic decision-making fueling the management process, every organization can model its own by imprinting it with the corporate culture. That means every company attempts to create a better mousetrap to dominate the market through common values, attitudes, and beliefs that ultimately influence the way decisions are made. Eventually, the strategic decisions are considered rational if consistent with the corporate objectives.

The strategic decisions and list of action items are the outcome that derives from the regular performance review meetings held by the Strategy Office and Department Heads. These gatherings aim to monitor the organization’s progress in achieving its objectives by looking at KPIs’ results and initiatives’ status.

Through strategic, tactical, and operational decisions, companies form a habitual way of doing things. As a result, the employees get a sense of behaving and acting in certain situations.

Decision-making techniques

Different techniques are applied depending on the data analysis type encountered. During the data gathering and reporting stages, specialists often encounter the analytics data. Several approach techniques found in practice would be using statistics on historical data to identify data patterns, forecasting methods or regression, and correlation analysis.

During the performance review meetings, the executives benefit from the analytics, and a root cause analysis is conducted to identify the real source of issues, the moment in which the situational analysis starts to take on color. Before any decision is made, several root cause techniques are conducted, among which are the Ishikawa diagram and the 5 Whys.

By using the Ishikawa diagram, managers can identify the many possible causes for an issue. By listing the main issue and finding its possible root cause matches, a fishbone diagram’s results serve as a map of problem-solving situations.

The 5 Whys gives the specialists the chance to understand how relevant asking questions is. The approach is rather simple. Whenever a problem pops up, ask “why?” five times to clarify the nature of both the problem and solution.  The answer has to come from informed decisions. The decision-making process should be based on an insightful understanding of what is actually happening on the work floor.

Residual uncertainty is what haunts many executives. But what is that, and how can it affect strategic decisions? After grueling hours of conducting the best possible analysis, there remains one gram of uncertainty. Either that may materialize into a new product in development that cannot ensure 10% in net profits or the outcome of an ongoing negotiation. However, there is always quite a bit of uncertainty around the corner that can fissure the best strategic decisions agreed upon.

Under the umbrella of uncertainty, traditional approaches pursued in strategy planning can turn out to be a spike for failure. Disparaging uncertainty can lead to strategies that do not defend against the threats nor take a chance to discover the opportunities brought by it.

In order to hedge this risk, agile decision-making techniques are addressed. Some of them consider their risk tolerance by evaluating the consequences of each alternative and apply Second-order Thinking. Others choose to perform a comparative analysis of alternatives, gather input from each team member, and then share perspectives with the whole team. This is called the Decision Matrix. In the stage of documenting decisions, the Decisions’ Log technique is applied, while in the stage of communicating decisions, there is the DACI matrix (Driver, Approver, Contributors, Informed).

Initial and horizontal alignment as part of strategic planning

After the decisions have been agreed upon, the key phase is to translate the corporate goals into objectives for each business unit. This completes the circle and brings us to the finish line of the strategic decision-making process. At this final stage, the traditional cascading approach may cause discrepancies between the objectives and projects from each business unit. To prevent this, a horizontal alignment is performed.

In other words, the managers, together with the strategy office, need to cascade corporate objectives, KPIs, and targets at operational level. All conflicting initiatives or objectives need to be addressed. The last step is setting in place prioritization criteria for selecting initiatives to see what gets approved and what is not.

If you want to learn more about the traditional and agile decision-making techniques and the strategy planning process, sign up for The KPI Institute’s Certified Strategy and Business Planning Professional course.

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