The Decisions You Shouldn't Rush
There are two types of decisions. The first type can be called 'everyday decisions'. They rely on a manager's experience and expertise and account for the majority of decisions made each day.
The second type can be called 'one-off decisions'. These are decisions that are outside the manager's everyday experience and expertise. Although far less frequently made than everyday decisions, one-off decisions can have a disproportionate impact on business performance and a manager's reputation.
Eric Daniels, the chief executive, of the recently merged Lloyds-HBoS group, made a critically bad one-off decision when he acquired HBoS last autumn.
As part of the acquisition Lloyds acquired £165bn of high-risk HBoS loans, and the group has been forced to seek extra government protection for these assets. The price of this protection is that the government now owns over 50 per cent of the banking giant's shares.
The purchase of HBoS highlights the danger of entering into opportunity-led, one-off decisions, particularly one that is made against impossibly tight deadlines.
It's not just the big banking bosses who are liable to err in these circumstances. Many effective business managers make one-off decisions at pace using the experience and gut instinct that serves them so well with their everyday decisions.
A couple of weeks ago I was facilitating a strategy retreat for a client. I asked the team when they wanted to settle on their refreshed strategy. "Today!" replied one of the executives, "We need to focus on making it happen, not contemplating our navels."
The director's motives were sound but his thinking was flawed. Any strategic decision worth its salt is a one-off decision. As a result there will be many unknowns and the decision requires a structured approach, not a rushed gut-feel judgement.
One-off decisions benefit hugely by following these five steps:
- Clarify your objective. What do you intend to achieve in making the decision? How will you and your business be better off?
- Identify alternative solutions. What compelling options do you have to achieve your desired objective? If, for example, Lloyds' objective was greater long-term profitability what other alternatives to achieve this did they have?
- Understand the risks and rewards of each alternative. What's the best and the worst that can happen as a result of this decision?
- Use facts to verify opinions and hypotheses. While it is sensible to start with opinions, major one-off decisions should be supported by relevant evidence whenever possible.
- Ask trusted colleagues to questions your proposed decision. This may be a formal part of your organisation's governance procedures or a more ad hoc exercise. Either way, seeking and responding to others' legitimate concerns with an open mind will help you reach a much better decision.