For some companies, the outcome of this process will be a program of immediate actions that represent a turbocharged version of business as usual. For others, it will be a painful realization that nothing short of an urgent corporate turnaround will suffice. To stabilize the business, companies must 1 protect their financial fundamentals by, for example, monitoring and maximizing cash flow, managing customer credit risk, reducing working capital, and optimizing their financial structure and financing options; 2 protect their existing business operations by reducing costs, increasing organizational efficiency, aggressively managing the top line, rethinking their product portfolio and pricing, reining in investment plans, and divesting noncore businesses; and 3 work to maximize their valuation relative to rivals by being proactive in their investor relations and favoring dividends over share buybacks.
To seize advantage, companies must make farsighted investments, identify opportunistic and potentially transformative mergers, and consider possible redefinitions of their business models. This recession handbook will help companies not only to survive the recession but also to thrive in its aftermath. Decision making lies at the heart of our personal and professional lives.
Yet the daunting reality is that enormously important decisions made by intelligent, responsible people with the best information and intentions are nevertheless hopelessly flawed at times. Modern neuroscience teaches us that two hardwired processes in the brain —pattern recognition and emotional tagging —are critical to decision making.
Both are normally reliable; indeed, they provide us with an evolutionary advantage. But in certain circumstances, either one can trip us up and skew our judgment. Using a global chemical company as an example, the authors describe the steps leaders can take to counteract those biases: inject fresh experience or analysis, introduce further debate and more challenges to their thinking, and impose stronger governance.
Rather than rely on the wisdom of experienced chairmen, the humility of CEOs, or the standard organizational checks and balances, the authors urge, everyone involved in important decisions should explicitly consider whether red flags exist and, if they do, lobby for appropriate safeguards. Managers regularly implement new ideas without evidence to back them up. They act on hunches and often learn very little along the way. As randomized testing becomes standard procedure in certain settings website analysis, for instance , firms learn to apply it in other areas as well.
That said, firms need to determine when formal testing makes sense. Tests are useful only if managers define and measure desired outcomes and formulate logical hypotheses about how proposed interventions will play out. A shared understanding of what constitutes a valid test—and how it jibes with other processes—helps executives to set expectations and innovators to deliver on them.
The process always begins with creating a testable hypothesis. Then the details of the test are designed, which means identifying sites or units to be tested, selecting control groups, and defining test and control situations. After the test is carried out for a specified period, managers analyze the data to determine results and appropriate actions.
Competing in volatile markets feels a lot like boxing: Punches come from all directions; strategies change constantly; and one powerful blow could knock out your company at any moment. As firms fight their way through tumultuous times, they can learn much from boxing champions. Both capabilities can help companies survive turmoil. Agility, exemplified by Ali, is the ability to quickly spot and exploit opportunities.
It comes in one of three forms: operational agility , the capacity to seize opportunities to improve operations and processes within a focused business model; portfolio agility , the ability to shift resources out of less-promising units and into attractive ones; and strategic agility , the ability to jump on game-changing opportunities. Each kind of agility is enhanced by a distinct set of assets and leadership priorities.
Absorption, exemplified by Foreman, is the strength to withstand punishment and weather sudden shifts. Sull describes 10 ways that companies can build absorption, including capitalizing on size, diversifying assets, and stockpiling a war chest of cash. Balancing agility and absorption is critical. Those customers kept Apple alive until changes in context created its golden opportunity. Ali won the Rumble by maintaining his agility while enhancing his absorption. Companies that follow his lead and cultivate both capabilities increase their chances of emerging from turbulence as new market leaders.
Elizabeth Warren and Amelia Tyagi argue that consumer credit should be made as safe as any other product. How can you recognize them in complex situations?
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We have developed the following seven-step process:. These provide boundaries for the decision. Who is going to be influential in making the judgment calls and the final choice? There may be only one or two people involved. But there could also be 10 or more. Is any option likely to be particularly attractive or unattractive to the decision maker because of personal interests or attachments to people, places, or things? Do any of these interests or attachments conflict with the objectives of the main stakeholders?
What are the uncertainties in this decision? For each area of uncertainty, consider whether the decision maker might draw on potentially misleading memories.
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Think about past experiences that could mislead, especially ones with strong emotional associations. Think also about previous judgments that could now be unsound, given the current situation. In a complex case, it may be necessary to consider many more people, and the process may bring to light a long list of possible red flags. If so, put one or more safeguards in place. In the end, the steering committee proposed an outright sale of the division, a decision the board approved. The price received was well above expectations, convincing all that they had chosen the best option.
The chairman of Global Chemicals took the lead role in designing the decision process. That was appropriate given the importance of the decision. But many decisions are made at the operating level, where direct CEO involvement is neither feasible nor desirable. That was the case at Southern Electricity, a division of a larger U. Southern consisted of three operating units and two powerful functions. Recent regulatory changes meant that prices could not be raised and might even fall. So managers were looking for ways to cut back on capital expenditures.
Division head Jack Williams recognized that the managers were also risk averse, preferring to replace equipment early with the best upgrades available. This, he realized, was a result of some high-profile breakdowns in the past, which had exposed individuals both to complaints from customers and to criticism from colleagues. Williams believed the emotional tags associated with these experiences might be distorting their judgment.
What could he do to counteract these effects? He concluded that he had to find a way to inject more debate into the decision process and enable people who understood the details to challenge the thinking. Williams finally decided to get the unit and function heads to challenge one another, facilitated by a consultant. Rather than impose this process on his managers, Williams chose to share his thinking with them.
Using the language of red flags, he was able to get them to see the problem without their feeling threatened. The new approach was very successful.
The reduced capital-expenditure target was met with room to spare and without Williams having to make any of the tough judgment calls himself. Because we now understand more about how the brain works, we can anticipate the circumstances in which errors of judgment may occur and guard against them.
So rather than rely on the wisdom of experienced chairmen, the humility of CEOs, or the standard organizational checks and balances, we urge all involved in important decisions to explicitly consider whether red flags exist and, if they do, to lobby for appropriate safeguards. Decisions that involve no red flags need many fewer checks and balances and thus less bureaucracy. Some of those resources could then be devoted to protecting the decisions most at risk with more intrusive and robust protections. Twitter: sydfinkelstein. February Issue Explore the Archive.
Executive Summary Reprint: RD Decision making lies at the heart of our personal and professional lives. Leaders make decisions largely through unconscious processes that neuroscientists call pattern recognition and emotional tagging. These processes usually make for quick, effective decisions, but they can be distorted by self-interest, emotional attachments, or misleading memories.
By using the approach described in this article, companies will avoid many flawed decisions that are caused by the way our brains operate. We have developed the following seven-step process: 1: Lay out the range of options. A version of this article appeared in the February issue of Harvard Business Review.
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Only one in five workers is fully engaged in his or her work. Firms older than five years contributed zero net new jobs for the U. This is not a record of success. There is a lack of historical perspective in the writing. The second phenomenon is that minor tweaks are hyped as major changes. Intellectual disciplines that advance systematically keep track of the evolution of the subject. Writers are careful to give credit to predecessors, signal alternative viewpoints and demonstrate sensitivity to the evolution of the subject as a whole. By contrast, journals such as Harvard Business Review systematically eliminate traces of earlier thinking about the subject at hand.
Prahalad in his book, The Fortune at the Bottom of the Pyramid.
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