Evaluation of decision-making

How do you make decisions?  Do you use a structured analytical process or do you use gut-feeling and hunches?  Do you just copy the actions of your competitors – creating a ‘me-too’ culture?

Working on hunches, gut-feeling or relying on assumption can be a dangerous path in making business decisions.  If it leads to a ‘me-too’ culture it can destroy important points of difference and weaken your competitive advantage. Worse it can mean wasting scarce resources and budgets on products and plans which have little or no chance of achieving your stated goals.

For example, a couple of years ago, I met with a businessman looking to develop a recipe costing app for chefs and caterers.  Discussing this product with the businessman, I asked how the product calculated the mark up of a finished dish.

His response was that all catering businesses used the same basic formula for calculating profit margins i.e. the whole industry was using a simple cost-plus method of price calculation and that every dish on a menu had a similar profit margin element.

This assumption astonished me.  I went to my office and did some desk research.  I found that the proposed product was working on a myth.  Worse it was predicating a practice which most academics teaching at catering colleges, and to students on hospitality degrees, thought inappropriate and a bad practice.

The restaurant trade is probably the riskiest business sector.  Up to 80% of new restaurant businesses fail within the first year.  Often the cause is poor cash flow.  Perhaps one reason is that catering businesses were relying on the poor pricing practice of a common mark up rather than pricing their meals in terms of the value customers see in them, rather than a flat accounting formula.

The above product had been developed with an incorrect and dangerous assumption at its core.  And so its viability and attractiveness to prospective customers was fatally flawed.

Worse, decisions about this product were made without proper research and proper evaluation of its workability and feasibility.

Over the years, I have also met numerous businesses who do marketing the ‘wrong way round’.  They design a product and then go searching for a market for that product.  Surely a better approach is to examine the needs and wants of the market, and to design a product to meet those needs rather than assuming that a market exists for a preconceived product.

A common activity during my years of food law enforcement was meeting farmers’ wives keen to diversify into cake or jam-making.  Usually this was because they had won a prize at the local Women’s Institute or the had been told by friends that their home-made jam was delicious.  These new start businesswomen had often only carried out the least amount of marketing research possible.  They had carried out no research into the viability of mass production of their recipe; no research into the amount of competition already operating in the homemade jam market; no research into the law regarding the sale of jam (that jam is a prescribed description with strict compositional standards of sugar and fruit content); and no research into developing year round production, not simply seasonal production.  There was little or no thought amongst these prospective jam-making businesses if they were attacking the competition head on; no attempt to find market gaps and develop products in those gaps.

Good decision-making is based on three factors:

  1.  Intelligence –  Do you have all the appropriate intelligence which enables you to make the decision?
  2. Alternatives – Have you explored all the possible alternatives?
  3. Evaluation – Have you evaluated the feasibility, suitability and acceptability of the  outcome of your decision; both for your target market and also within your organisation (the physical, human and financial implications).

Decision-making needs to be objective.  You need to understand the potential implications of your decisions and have contingencies in place.

Such pre-planning does not make decisions infallible but you will greatly reduce the risks inherent in the decision and increase your chances of success.

Prevarication in decision-making is also dangerous.  Continually delaying decisions can be as dangerous as not making the decision in the first place.  you shouldn’t wait to make a decision because you have failed to gather every miniscule piece of information connected to it.  You need information which relates to what is most probable and what is most prominent in relation to the decision. One of the most important factors in today’s markets is swiftness of decision-making and this may make it more dangerous to delay a decision than to make the wrong decision.

If you are aware of the risks associated with a decision, and the probability of those risks occurring, you can plan contingencies appropriately.

To ensure decisions are effective, you need to evaluate the functional, technical and human criteria of those decisions at the following levels:

  1.  Strategic fit:  Does the decision fit within your corporate aims and goals?  Does it fit within your organisation culture; your brand image; your existing product range; and your social and environmental policies?
  2. Operational fit:  Will your organisation need to be modified or changed as a result of the decision?  Does the decision improve your operations? Does it fit within the constraints affecting your organisation? Does the impact of the decision offer sufficient reward for the risk incurred? Does your organisation have the ability to adapt to the change and accept it?
  3. Tactical Fit:  Do you need to change processes and procedures as a result of the decision.  What impact does the decision have as opposed to the benefits offered.  Remember, process belongs to the management of an organisation but the culture of an organisation belongs to all its stakeholders.

Marketing is about the development of a customer-focused organisation.  It is therefore critical that organisational decisions are assessed for their impact on your customer experience.

Of course, there are dilemmas in decision-making and the decision-making process may not always seem rational.  Such distractions as concerns that you do not have all the available information, that you have insufficient time for making the decision or that you lack the appropriate skills to make the decision.  Such distractions may make you fearful of the decision-making process.

But there are rational fears and irrational fears.  It is rational to fear that a wrong decision may affect reward.  it is rational to fear a bad decision may affect career prospects.  It is rational to fear that bad decisions may affect your social esteem.

All decisions are associated with such rational risks; so you need robust assessment processes.

One of the best ways of making decisions is to have a structured decision-making process which appropriately assesses risk.  Such a process must include the ability to amend decisions over time.