Strategy and Innovation

Strategic Decision Making

  • Philip Meissner
  • February 02, 2021

Studies show that only 28% of executives are satisfied with the decision quality achieved in the strategy process. A reason for this may be that fewer than 20% of corporations have adequate strategic decision making processes in place to react to changes in the firm’s environment. 

The result of this is visible directly at the firm’s bottom line. A study by McKinsey found that ineffective strategic decisions can decrease total shareholder return by 6 percentage points.However, this is also good news. When companies pay attention to their strategic planning and decisions and apply good decision processes, this will lead to better strategy and performance.

Strategic decisions are crucial to the success of every organization. However, most managers, even the best ones, struggle with making good decisions.

When we make decisions, we are influenced by our biases and emotions. What makes this difficult to overcome is that both affect us on a subconscious level. They shape our actions without our conscious awareness. For example, we tend to overestimate our own abilities in a systematic way.

When I ask executives in workshops how many of them think that they are above average leaders, 90% raise their hands, but only 50% truly have the potential. This example describes a systematic tendency: We tend to overestimate our own competencies, and those of our company and tend to neglect the potential dangers and opportunities evolving from new technologies or competitors. It can be extremely problematic if this happens in an important strategic decision.

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However, only a few companies have realized this and started to address this issue. Companies like Alphabet and Goldman Sachs have started to redesign their strategic decision-making processes to reduce biases. They have introduced different perspectives to the management discussion to help them.

Some of these tools are well known, such as the devil’s advocacy technique. Other tools like the premortem analysis are less known. But they all have one thing in common: they can be applied in strategic decision-making processes quickly, without prolonging the process or making the strategy more complex. In fact, the opposite can be the case. Using simple checklists at the end of the strategic decision-making process, for instance, can save up to ten hours of discussions and speed up decisions by up to ten days, according to the Harvard Business Review.

So, if we want to make good decisions a priority in our organizations, we must use the right processes that help us focus our attention on the right issues, without making the process overly complex or long. This can be done based on simple tools that can be quickly introduced in every organization.

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