Article | June 2015 | Kanvic Grey Matter
Increasing the number of options when taking a decision is proven to improve the success rate. Managers can expand their options and make better strategic decisions by using three innovative techniques.
Managers are trained to look at all the available options before making a final decision for a number of important reasons. Firstly, multiple options allow decision makers to compare, helping them to see both the upside potential and the downside risk of each option. Secondly, managers can combine the best features of the available options to develop a hybrid option, improving the overall quality of the decision. Finally, more options increase the strategic degree of freedom, providing room for manoeuvrability in the face of changing real world events.
In practice, however, managers do not seem to be using multiple options while making big decisions. Paul Nutt, a professor of management sciences published research in the journal “The Academy of Management Executive” on the subject. In his study Nutt analysed 356 decisions made by senior managers in medium to large organisations. These ranged from a new location and design decision at McDonald’s to a 1000 bed acute care hospital’s decision to provide helicopter transportation.
Nutt found that managers used multiple options in only 20 percent of their decisions. This is in spite of the fact that when multiple options were used, success rates jumped from 56 percent to 70 percent.
Strategic thinkers understand this advantage and are the masters of creating and multiplying their options. They use a number of ways to do this, three of which have been outlined here:
One technique by which strategic thinkers generate more options is by shifting or changing the frame of reference. In a large number of strategy discussions, options are thought through the lenses of traditional industry boundaries, narrow product focus or a set of close competitors. Strategic thinkers however are able to change the dialogue by expanding, shrinking or shifting the boundaries or definitions of different actors.
For example, the management team of one industrial goods company was facing an increasingly competitive market as a result of multinational companies’ focus on India in recent years. The management team realised that the ‘creamy layer’ of the market was being taken away by their competitors who had advanced products supported by high investments in R&D. The company had tried to play the same game by making incremental improvements to their product without much success.
However, when the management team shifted the frame of reference from products to services, they saw new possibilities of integrating the latter into their value proposition. Once their perception was shifted, they were able to leverage their pan-India network and highly skilled service engineers, regaining some of their lost market share as a result. Importantly, their competitors were not able to match them on this dimension because their agency model was backed by service engineers flying in from abroad. Instead of trying to fight their competitors directly, the company was able to use their existing assets of network and people more effectively, becoming the preferred supplier for customers who valued superior service over getting the latest technology marvels.
Very often managers do not go beyond the existing options because they consider only their preferred solution and fail to think seriously about further possibilities. An effective way to deal with such a situation is to make the preferred choice unavailable for consideration.
For example, one retailer was looking to accelerate growth in its core fashion business. Historically, the management team’s preferred option had been to fuel growth by opening new stores in untapped geographies. However, the CEO wanted his team to consider other options with the same diligence. He realised that simply asking his team to propose new approaches would not have been sufficient.
The CEO therefore decided to change the flavour of the annual planning sessions by entirely removing the preferred option of opening new stores. To do this successfully, the venue was changed from a closed boardroom to an open area. The meeting area was also decorated with big cut-outs with a central question “What if we do not open any new stores this year?” Further, the “ritual” of making a power point presentation was dropped to break the thinking pattern.
By making the above changes, the discussions shifted to finding growth opportunities in the existing stores. By the end of the session, over 15 strong ideas such as moving the sales staff between stores, focussing on core categories and marketing effectively to the existing customer base had emerged.
When managers have moved ahead with one decision but arrived at a deadlock, they sometimes find it difficult to change course. The existing decision may seem unchangeable and a fresh start may require starting the whole process over again, with the consequent loss of time and other resources.
However, in such scenarios if managers simply divide the option into two it can often open up new choices. Take the example of a consumer goods company that was looking to acquire a fast growing player with multiple brands. Although some of the target’s brands were highly desired, the acquirer wasn't keen on buying the entire portfolio as not all of them were aligned with their strategy. On the other side of the deal the target company wanted to completely exit the business because of its unique circumstances. These divergent objectives led to what seemed like an unresolvable deadlock during the deal process.
The acquirer ultimately broke the deadlock by buying the whole business on the compelling strength of some of the brands. However, they did this only after developing a further option of later splitting the acquired company in two and divesting the non-aligned brands. As a result, the acquiring company could strengthen its position by keeping only what it wanted without the baggage of managing non core brands.
Expanding the range of possible options creates greater strategic flexibility for business leaders. As sources of competitive advantage become less certain, it is imperative that managers deploy innovative techniques like the ones discussed here to expand their choices and ultimately make better strategic decisions.