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The value of a strategic decision


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A Boardroom Fable that describes how a young woman saves her company (and her CEO's reputation) through good decision making

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The value of a strategic decision

  1. 1. getting more value from your decisions … a boardroom fable Genesis Management Consulting Limited “improving lives through better decisions”
  2. 2. Chapter 1 setting the scene Brad Facing disasterGenesis “improving livesManagement Consulting through better decisions”
  3. 3. setting the scene The mood in the Boardroom is tense …. Brad, the CEO of Marcon Limited, is clearly annoyed and frustrated as he taps his fingers impatiently on the table. 24 hours earlier, the major investor of Marcon had told Brad that if he could not turn the company around – and rapidly – he would find someone who could. Brad was facing personal and professional disaster – and his senior team did not seem to be helping him at all. Brad: CEO: annoyed and frustrated and facing disaster!Genesis “improving livesManagement Consulting through better decisions”
  4. 4. setting the sceneLinda, the CFO, who had just delivered the even-worse-than-expected quarterly results is thefocus of attention – although she feels like the messenger that is about to be shot. “I justmeasure the results, it’s the operational and sales people who have screwed it up”, shethought to herself.Greg, the Head of Operations can see his most important project, the technology-based QUIP(quality improvement project) is at risk of being canned.While Maria who leads marketing and sales is facing the prospect of being forced to lay off upto 20% of her people and slashing her advertising budget. Brad says: “ I see no other way out. It seems the only way we can slash our costs is to take these two tough, but necessary decisions: cancel Quip and strip 20% out of our marketing and sales area. Linda : CFO: it’s not my fault !
  5. 5. facing the facts …Gail, the Director of Strategy decided it was time to put her point forward.“The way I see it is this:“We have made a loss in the last quarter which follows a trend apparent for the last year.Every quarterly review we manage to convince ourselves that things have reached thebottom and will start to upturn. It is time we stopped kidding ourselves and admit that ifwe do nothing differently, in 3 months time we will be drowning in a sea of red ink. “There are two proposals on the table that have arisen out of the discussions we have had this morning. “The first is cancel QUIP – our manufacturing project aimed at improving quality. “The second is to cut significant costs out of our marketing and sales area.” Gail: Director of Strategy facing the facts
  6. 6. the upside and the downside Gail continued: “Combined, these decisions appear to offer the benefit of reducing costs by almost $25 million. But there are significant possible downsides: “Firstly if our quality does not improve, our gross margin is going to shrink further - to say nothing of our reputation in the market. Scrapping QUIP could have that effect. “Secondly, cutting back on advertising and our sales force could also impact on the top line significantly. And what it would do to morale does not even bear thinking about.“My rough calculation is that if we get these decisions wrong, thereis a potential net downside of $10 million – and frankly a hit likethat would leave us on the verge of bankruptcy.“I know time is of the essence, but are we really ready to makethese decisions today?”
  7. 7. the value of the decision “Thanks Gail, that feels like a sensible summary. Could you maybe pull that together into one of those insightful sketches of yours”Genesis “improving livesManagement Consulting through better decisions”
  8. 8. Chapter 2 decision value Gail: the stakes are high!Genesis “improving livesManagement Consulting through better decisions”
  9. 9. the possible outcomes of the decision “We seem to have been forced into hurrying these two decisions – and frankly, I am not sure if the decision process we have taken has been optimal. “Sorry if this sounds like Decision-Making 101, but any decision can be made well or poorly. Both of these options may have two possible results: a good outcome or a poor outcome. Schematically it could be depicted like this:” Good outcome Good decision process Poor outcome Decision Good outcome Poor decision process Poor outcome
  10. 10. the mathematics of the decision Seeing that most of the team were nodding, the Director of Strategy pushed on: “Now, using some rough estimates, let me throw some stats around: •The probability of us having followed a good decision process is about 70% •The probability of us having followed a poor process is 30% …. Gail could see she was losing Greg with her numbers so she moved back to her drawing Greg: Operations Manager confused
  11. 11. the mathematics of the decision Gail apologised: “Sorry, that was not a good way of getting my message across. “Let me simply apply some rough probabilities to my drawing. “For instance, let us say there is a 70% chance of us following a good decision process and a 30% possibility of being less thorough and getting the process wrong … we can depict that as follows.” 80% Good outcomeProbabilities Good decision 70% process 20% Poor outcome Decision 5% Good outcome 30% Poor decision process 95% Poor outcome
  12. 12. decision value calculation Then if we apply my earlier estimates where • a good outcome would result in an improvement of $25 million and • a poor outcome would result in a deterioration of $10 million, and multiply the outcomes by the probabilities then our decision value can be estimated to be about + $10,1 million. Calculation example 70% x 80% x 25m = 14,0m 80% Good outcome + $14,0m Good decision + $25m + 70% process Poor outcome 20% - $1,4m - $10mDecision + 5% Good outcome + $0,4m Poor decision + $25m 30% + process Poor outcome 95% - $2,9m - $10m Value of decision calculated by Decision value = summation of all possible outcomes + $10,1m
  13. 13. Chapter 3 making it complicated Maria: That is too simplisticGenesis “improving livesManagement Consulting through better decisions”
  14. 14. simplistic thinkingThe ambitious Maria, who had received a PhD in statistics at MIT before changingcareer to a more exciting marketing role (and was blatantly maneuvering for Gail’sjob), was shaking her head.“Gail, you are over-simplifying the situation. I question your use of discretenumbers as possible outputs. Plus we should be considering running Monte Carlosimulations to really get proper estimates.” Maria : Marketing and sales (Wants Gail’s job.) Greg: WTF ?
  15. 15. simplistic thinkingGail replied:“Maria, you are theoretically correct and I would love to get into that level ofsophistication. However, I only wish to show how, with a little more effort, weshould be able to be more sure of a favorable outcome.“In fact I would like to make it even simpler.”Maria decided she had proven her technical knowledge and so nodded in consent. Maria : Point made. Smiles sweetly at Brad, the CEO.
  16. 16. even simpler … Using one of Brads favorite expressions, Gail said: “To get everyone back on the same page, let’s make it even more straightforward. There are two ways this can turn out: “Get it wrong and bust the company”Genesis “improving livesManagement Consulting through better decisions”
  17. 17. even simpler … “Get it right and save the company, our jobs and all the other people who are depending on us !”Genesis “improving livesManagement Consulting through better decisions”
  18. 18. Chapter 4 the wider consequences Linda: Think broaderGenesis “improving livesManagement Consulting through better decisions”
  19. 19. wide-ranging consequencesLinda the CFO, looking slightly disheveled after her earlier discomfort, rejoined thediscussion.“I would like to add to that thought. The other day, I was talking to some peoplefrom a company called Genesis, who are experts on decision making. They werespeaking about the wide-ranging impact of decisions beyond just finance andused this picture to explain their point.”She pushed a colorful picture of ripples and dropping water into the centre of theboardroom table.The decision ring “My point is we should consider of influence other possible consequences of the decision. “ Linda : CFO Disheveled, but still engaged
  20. 20. many can be impacted by poor decisions … Reputation Customers Employees Shareholders Community
  21. 21. was this a good decision? “ … and here is a good example of a decision that may have been financially sound, but did they think of the consequences?”Genesis “improving livesManagement Consulting through better decisions”
  22. 22. back to order … Brad tried to bring the meeting back to order: “OK Linda. You are absolutely right and it is imperative we bear these consequences in mind.“But Gail, you really got our attention with your lastfew diagrams.“I think you were about to tell us how we might do abetter job with these decisions.”
  23. 23. Chapter 5 improving decision value Greg: Prefers it simpleGenesis “improving livesManagement Consulting through better decisions”
  24. 24. Gail continues … Gail responded: “Thanks Brad. While Maria and Linda were making their valuable contributions …” Maria visibly flinched at Gail’s delicate sarcasm.The Director of Strategy, with a slight smile playing on her lips, continued:“ … I managed to put my schematics onto my iPad3 as a way of demonstrating wherewe might improve the value of our decision making. ”She plugged her Apple into the projector and the image filled the screen. Maria : Marketing and sales not so happy
  25. 25. improving the value of the decision … “I have run a few numbers to test probabilities and outcomes. Without getting into the calculation …” Everyone heard Greg’s sigh of relief “A relatively small amount more effort in the decision process and planning the execution, would give us a dramatic impact in our probability of success.” “In fact, the decision value would move from $10,1 million to $13,1 million!”Genesis “improving livesManagement Consulting through better decisions”
  26. 26. how much ? $ 13,1 m $ 10,1 m “So by putting a little more effort into our decision process we can increase the probable decision value by 30%?” Brad sounded incredulous.Genesis “improving livesManagement Consulting through better decisions”
  27. 27. yes, but how … Brad, becoming animated, encouraged Gail to continue. “That’s interesting theory and I like where you are taking this. But so far you have told us where we might impact on the decision-making. Do you have any ideas about how?”Gail replied:“Brad, coincidentally I also met with the Genesis chaps theother day and still have part of their presentation to me onmy iPad.“With your indulgence, I would like to flip through some oftheir material as I think it answers your question perfectly.” Brad nodded in agreement. Maria : thinks : “Damn, why did I not speak to Genesis”
  28. 28. Chapter 6 where things go wrong What happened?Genesis “improving livesManagement Consulting through better decisions”
  29. 29. there are two key areas“There are two areas where we must focus: making the decision and executingthe decision.(Here Gail cleverly was able to show some of the errors that had been made,without actually accusing anyone of having made mistakes!)“I first want to take you through what can go wrong, then move to looking at whatcan be done in these areas?” Making the decision Executing the decision
  30. 30. How to improve the probabilities? First understand where things can go wrong in the decision process Good decision processWhat can go wrong? Poor decision process What can go wrong? The next 2 pages are taken from “The 7 Habits of Highly Effective Decision Makers” and show some of the typical pitfalls …..
  31. 31. Research has revealed many areas where we can stray from being rational decision-makers: Decision process errorslike unclear decision rules Data errors as in forgetting underlying assumptions Uncertainty problems such as miscalculation of risks But even greater challenges are …
  32. 32. …the errors that arise from things buried in theunconscious of the decision-makers … or at least onthe periphery of their consciousness:Mental process faults Communicationas in missing the challengesinter-relatedness of such as not recognizingissues different perspectives Ignoring decision psychology like seeking confirmatory evidence only
  33. 33. How to improve the probabilities? Understand where things can go wrong in the execution Why might a good decision process still end up with a poor outcome? Unexpected Bad implementation Unforeseen eventcompetitive reaction “handoff”
  34. 34. so what should we do?The potential benefits We know things can be are significant! improved. So what are they type of things we should be doing here to increase the probability of success?
  35. 35. Chapter 7 how to improve Genesis: Taking and executing decisionsGenesis “improving livesManagement Consulting through better decisions”
  36. 36. there are two key areas Gail continued: “Genesis have some great images summarizing, in the form of check-lists, how those problems may be overcome and how decision taking and execution may be improved.”Making the decision Executing the decision
  37. 37. taking the decision There are 4 broad areas that should be considered when improving the taking of decisions: Process People Tools and technology Behavior and psychologyGenesis “improving livesManagement Consulting through better decisions”
  38. 38. how to take the decision use this checklist… Detailed check- list in appendix all of the scenario data visualisation steps development rigor techniques correct tools & systems process frame technology thinkingappropriate risk timing assessment right aware of inputs heuristics role behavior & role of people clarity psychology intuition challenge & communication group mental governance clarity dynamics models
  39. 39. executing the decision When considering execution of decisions, the planning of the execution may be as important as the implementation itself. Much research shows that decisions, like strategies, fail in their implementation. What the research fails to mention is that often the “seeds of (implementation) destruction” are sown in the development phase.Genesis “improving livesManagement Consulting through better decisions”
  40. 40. how to execute the decision Detailed check- use this checklist … list in appendix use of real options key performance programme change eg limit the downside indicators governance managementimplementers in executivedecision process sponsorship Pre Execution execution scenario resources assessment match effort contingency benefits programme review decision planning tracking management process
  41. 41. Chapter 8 review the decisions Brad “Form a task force”Genesis “improving livesManagement Consulting through better decisions”
  42. 42. positive reaction Brad had obviously liked what he had seen: “Gail, it seems you and Linda have picked up a lot from these guys. Although my initial reaction was that I am already an expert decision maker (that’s why I am the CEO), I now really believe that as a team we could go about this task a little better.” Gail replied almost humbly: “To be honest, I had also believed that there was not a lot these consultants or coaches or whatever they call themselves, could do to improve my decisions. “But on reflection, I realized that decision making is a skill that can be learnt and continually enhanced and that can only help me in career and life!”Genesis “improving livesManagement Consulting through better decisions”
  43. 43. task force required “So Gail, I agree with your initial assessment that we must do something different to survive and we need to do it urgently. “But the message I have picked up is that we must review these two decisions in the light of the material we have just seen.“Would you please compile and lead a task force that rapidlyundertakes that review; and then lead us through a betterdecision process within the next week?“ This is critical to our survival – so get whatever resource youfeel is necessary.” Maria : “I’d better get on that team too ! ”
  44. 44. the task team Gail, using her strong emotional intelligence involved both Greg, Linda and Maria in the task team. Given the short time-frame and the importance of the decision, she also called in Genesis to facilitate the process and bring in their technologies and expertise. Together they developed a short, but intense intervention.Genesis “improving livesManagement Consulting through better decisions”
  45. 45. the process undertaken by the task team Insights from market and other perspectives QUIP decision Decisions Decision Greater rigor reviewed execution and structure Sales & concurrently assessed marketing decision Application of process and tools from Genesis Decision process and best practicesInsights gained using available at THOUGHTstream GenesisMC Decision Shop
  46. 46. Chapter 9 the critical factors Gail: Key insightsGenesis “improving livesManagement Consulting through better decisions”
  47. 47. looking back ….. A year later, Gail was interviewed by the prestigious Wall Street Times and asked what had been the critical factors that had resulted in Marcon’s success. She recalled: “In that week of intensive review, challenge, digging and searching for creative answers, there were two key insights that convinced Brad to change his decision and put us on the road to success. “They may look straightforward, and even obvious, but the key to great decision making is identification of those few critical issues among the mountain of interesting, but less useful data.”Genesis “improving livesManagement Consulting through better decisions”
  48. 48. key factor 1: re-framing the decision “We decided to frame the decision differently which resulted in an important shift in focus from internal to internal AND external.” Reduce costs by $25 million (Internal focus) Increase profit by $25 million (Internal and external focus)Genesis “improving livesManagement Consulting through better decisions”
  49. 49. key factor 2: systemic problem “We discovered a very important systemic problem that linked market dynamics to our manufacturing activities. “Basically, we were losing share as we tried to cover the entire market. Our sales force, unable to meet quotas kept demanding more products. This added cost and complexity to our manufacturing – eventually driving us to try and manage the complexity with better technology – hence the QUIP project. “At the same time, marketing this ever increasing product range to wider audiences pushed our promotion costs ever higher too. “The diagram on the next page gives a little more detail … but you can see the vicious cycle that we were propagating!”Genesis “improving livesManagement Consulting through better decisions”
  50. 50. key factor 2: systemic problem“We discovered a very important systemic problem that linked marketdynamics to our manufacturing activities.” •Marcon competing across all market segments, but competitors have narrower focus •Confusing value proposition makes Marcon products harder to sell •Sales force push for even more products to achieve quotas •Increased product range increases complexity of manufacturing & increases cost and quality problems •Quality and product range make it harder to sell and so market share shift to competitors •Competitors able to drive down costs and enhance value proposition – further gains in share •Meanwhile Marcon launches QUIP to handle manufacturing complexity and reduce quality problems Insight gained while using EIDOS software
  51. 51. women in decision making In her closing remarks to the interviewer, Gail made an important point: “As a member of ‘Woman in Leadership’, I would like to emphasize how our balance of men and women in the task team was incredibly helpful. I do not wish to be overly-provocative or to stereotype but many women are far better at seeing the big picture and how issues inter-relate than men – who tend to be better at breaking things down into their sub- components. “I believe it was the blend of this different type of thinking that contributed greatly to our success. One of the outcomes of our working with Genesis is my agreement to cooperate with them to investigate the power of gender balance in a decision team.”(Note: a real investigation on this theme is commencing in March 2012, if you are interested in taking part, orreceiving the results, drop us a line at )
  52. 52. Chapter 10 a happy endingGenesis “improving livesManagement Consulting through better decisions”
  53. 53. happy ending …. The review of the decisions resulted in QUIP still being scrapped, but with an agreement to cull 40% of the product line that significantly reduced manufacturing complexity resulting in both lower unit costs and improved quality. The marketing and sales decision was changed. The advertising budget was reduced by 10% and the sales resource was spread across a narrower target market and so ensuring greater focus.Genesis “improving livesManagement Consulting through better decisions”
  54. 54. even happier ending … The company saw a miraculous turnaround with profits rebounding substantially. Brad was head-hunted and moved to a new, larger organisation (where it is rumored he has called in Genesis to assist him in improving the decision making competency in the company). Gail is the new CEO and has appointed Maria to Director of Strategy.Genesis “improving livesManagement Consulting through better decisions”
  55. 55. Chapter 11 The moral of the story We can improve lives through better decisionsGenesis “improving livesManagement Consulting through better decisions”
  56. 56. the moral of the story … Few Business Schools, Directors Courses or even Universities give specific training on taking critical decisions in complex environments. Management are expected to learn by trial, error and observation. That can be expensive! Decision process and best practices available at GenesisMC Decision Shop Or click here for sample Decision coaching (individuals and teams), training and development can all help to build the competency within your team. Contact Simon Gifford at for a no-obligation discussionGenesis “improving livesManagement Consulting through better decisions”
  57. 57. the story and acknowledgementsAlthough loosely based on a true story, names and faces have been changed to ensure appropriate privacy.Marcon is a fictional company – the name arising from a merger of the names of my sons: Marc and Devon Thanks to all who contributed advice and input to the development of the theme and design – especially: Rhonda Stewart, Heinz Weilert, Karola MacArthur, Nic Labuschagne, Judy Martin and Mandy Conidaris. Movie rights are up for auction to the highest bidder! Fictional characters
  58. 58. Appendix Check lists for taking the decision and executing the decision. Calculation of decision value.Genesis “improving livesManagement Consulting through better decisions”
  59. 59. How to make the decision check-list (part 1) All of the steps Are all the steps in the decision making process being followed? Correct frame Is the decision framed correctly? (are you asking the right question?) Appropriate timing Is the decision being made at the optimal time (too late, too early) & are you allowing the proper focused time Right inputs Are all the relevant facts, statistics, opinions, etc available Role clarity Are you clear of the roles eg who is advising, who is deciding, who can veto, etc Challenge & governance Has sufficient challenge been brought into the process? Are negative views allowed to be aired? Communication clarity Are the communications within, and after, the decision sufficiently clear Group dynamics Is the leader of the group aware of the group dynamics at play and knowledgeable how to handle them Mental models Have all mental models been sufficiently surfaced? Have the underlying assumptions been tested?Genesis “improving livesManagement Consulting through better decisions”
  60. 60. How to make the decision simple check-list (part 2) Role of intuition Have intuitive inputs and judgments been given appropriate weight (too little, too much, ..) Aware of heuristics Are the team members aware of the heuristics their minds may be using to make judgments – and how to combat them where necessary Risk assessment Have the underlying risks been accurately assessed and are there contingency plans in place Systems thinking Is the context of the decision clearly understood – including the inter-relationship of all the factors Visualisation techniques Have visualisation techniques been used to combat complexity ,catalyze creativity and clarify communications Data rigor Has the data been rigorously analyzed and challenged? Has raw date been converted into new insights? Scenario development Were future scenarios developed that describe the possible futures within which the decision will be enacted? Have strategic options been tested within those different futures?Genesis “improving livesManagement Consulting through better decisions”
  61. 61. How to execute the decision simple check-list (part 1) Use of real options Has real option thinking been used to better manage risk and increase the upside, or decrease the downside, of the decision? Implementers in Have those people who will be responsible for implementation been involved in decision process the decision process Scenario assessment Is the unfolding context being checked against the possible scenarios that were developed ? Contingency planning Are contingency plans in place and are the indicators being checked to know if they should be actioned? Benefits tracking Is there a benefits tracking system in place to ensure that the expected value is being achieved? Programme Are the individual initiatives arising from the decision being managed within a management coherent programme?Genesis “improving livesManagement Consulting through better decisions”
  62. 62. How to execute the decision simple check-list (part 2) Review decision process Are decision processes reviewed AFTER implementation to assess the success of the process and learnings incorporated into future decisions? Resources match effort Are sufficient resources available, and being applied, that are appropriate given the importance and value of the decision. Executive sponsorship Has the implementation programme got sufficient, and obvious, senior management support Change management Are the change requirements sufficiently understood and are they being tackled? Programme governance Is the programme being overseen by the appropriate team; and are governance processes in place to allow for flexible implementation Key performance Are the performance indicators (results and leading indicators) clear and being indicators measured and managed?Genesis “improving livesManagement Consulting through better decisions”
  63. 63. decision value calculation Then if we apply my earlier estimates where • a good outcome would result in an improvement of $25 million and • a poor outcome would result in a deterioration of $10 million, and multiply the outcomes by the probabilities then our decision value can be estimated to be about + $10,1 million. Calculation example 70% x 80% x 25m = 14,0m 80% Good outcome + $14,0m Good decision + $25m + 70% process Poor outcome 20% - $1,4m - $10mDecision + 5% Good outcome + $0,4m Poor decision + $25m 30% + process Poor outcome 95% - $2,9m - $10m Value of decision calculated by Decision value = summation of all possible outcomes + $10,1m
  64. 64. the result of improving the probabilities? “Let us say we could improve the probability of undertaking a good decision making process by 10% (from 70% to 77%) and we can improve the odds of a good decision having a good outcome by 5% (from 80% to 84%). “The impact would be a new value of $13,1m – a 30% improvement!” Calculation example 77% x 84% x 25m = 16,2m 84% Good outcome + $16,2m Good decision + $25m + 77% process Poor outcome 16% - $1,2m - $10mDecision + 5% Good outcome + $0,3m Poor decision + $25m 23% + process Poor outcome 95% - $2,2m - $10m Value of decision calculated by Decision value = summation of all possible outcomes + $13,1m
  65. 65. Genesis Management Consulting Limited Genesis is a strategy consulting firm with a mission of “improving lives through better decisions” We do this by building individual and organizational competency through: • Decision coaching • Decision consulting • Decision training • Decision support For queries on in-house presentations or further information, please contact Simon Gifford at or visit our blog at and our web-site at www.genesis-esp.comGenesis “improving livesManagement Consulting through better decisions”