Internal data often provides the first warning signs that something isn’t quite right at a company. But even then, human nature is such that these warning signals might still not be enough for a call to action—or worse, they can also be a call for the wrong action. Additional information— especially external data—is often needed to truly understand the nature and magnitude of a problem, make the right kind of decisions and build a plan to tackle those issues.
A company’s board will sometimes push for the right response. In theory, board directors have access to many external insights a CEO often may not have or is blind to. The board should, in theory, have a broader view of the situation. But in recent years, a rise in stakeholder and proxy-analyst pressures has made directors sensitive to any decision that might provoke a negative reaction from the media, proxy-advisory firms, institutional analysts, and/or activist investors. In addition, directors too often put self-preservation ahead of shareholder interests. They like their board seats—it gives them some prestige. In short, many boards are just too risk-adverse to stomach a major disruption that could put them at risk.
The need for change can bubble up from within an organization, especially when business unit heads, internal strategy teams, and/or marketing folks clearly demonstrate a need for disruption.
Unfortunately, many employees have the same attitude as some boards of directors—they want to keep their jobs. Leaders of small and medium-size businesses often find it just as difficult to make decisions as their counterparts at larger institutions and to gain the necessary insights into their businesses, their competitors, and customers. But the difficulties are significantly different and go beyond the comparative sizes of the businesses.
With luck, some SMBs can survive for years without access to significant amounts of internal or external data, relying instead on the charisma of their leaders, weak competition, or extensive and supportive networks, for example. Thus, employees at most SMBs are not trained in or even aware of the basics of management reporting, analysis, and transformational thinking.
In addition, many of the resources and highly developed ecosystems available to large corporations, which help leaders and their employees learn valuable skills, find the right experts, and pay for external data and literature, are not available to small business. And unlike the more business-like cultures at bigger companies, the family-like environments that small company leaders and entrepreneurs tend to develop and foster can sometimes pose a unique challenge to making significant change.
Many clients come to me with only a vague sense of what’s going on in their companies. They often know there’s a big problem: usually, they can’t grow their business, they’re losing money, or they’re having problems with their employees. But they find it difficult to understand the root cause of the problem and wonder why nothing seems to work.
Others state emphatically that they know exactly what they need to do, and yet they just don’t do it.
When data is scarce, expensive to obtain, or not available in digital form, the only alternative left is to rely on oneself or others who have experience gained through the years. In such cases, leaders rely on intuition, which is the label given to this style of inference and decision making.
Unfortunately, as often as intuition can be right, it can also lead to wrong decisions.
I often use simple illustrations like the one below to help my clients understand the difference between decisions that can be made using basic business instinct and decisions that require sophisticated judgment capabilities and multiple perspectives. The more complex and important the decision is, the more a CEO needs to think through a variety of factors, inputs and points of view to come to the right conclusions.
However, in disruptive environments where new ground is forged every day, and time and money can run out quickly, there are two additional factors that complicate decision-making: urgency and the high level of uncertainty about the outcomes of many important decisions.
CEOs who don’t have to rush to make particularly important or complex decisions and who have a high degree of certainty about the outcomes of those decisions are probably not living in disruptive worlds. In fact, they run a high risk of becoming complacent and being disrupted themselves.
It’s often very hard for a business leader to tell if his or her prior experience or fine-tuned executive judgment are of any help in highly disruptive environments. In high stress situations, where every decision seems important, complex, urgent, or uncertain, reverting to past paradigms can even be potentially harmful.
Related reading:
Disruption Starts with You
The Learned Skills of Successful Entrepreneurs (podcast)
Making Great Decisions in a Disruptive World™ SELF-ASSESSMENT (PDF)
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