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Thursday, March 11, 2010

Six Steps of CEO Decision Making

by Mike Myatt

Six Steps of CEO Decision MakingYou cannot separate leadership from decision making, for like it or not, they are inexorably linked. Put simply, the outcome of a CEO's decisions can, and usually will, make or break them. Those CEOs who avoid making decisions solely for fear of making a bad decision, or conversely those that make decisions just for the sake of making a decision will likely not last long. The fact of the matter is that senior executives who rise to the C-suite do so largely based upon their ability to consistently make sound decisions. However while it may take years of solid decision making to reach the boardroom, it often times only takes one bad decision to fall from the ivory tower. As much as you may wish it wasn't so, as a CEO you're really only as good as your last decision.

"CEO Decision Making" is a skill set that needs to be developed like any other. As a person that works with leaders on a daily basis I can tell you with great certainty that all CEOs are not created equal when it comes to the competency of their decision making skills. Nothing will test your metal as CEO more than your ability to make decisions. I happen to be the type of person that would rather make the decision than have to live with someone else's decisions. In fact, I absolutely love to make decisions, and whether it is in my role in the business world, or my role as a husband and father, I want to be the one making the tough calls. That being said, nobody is immune to bad decision making. We have all made bad decisions whether we like to admit it or not. Show me someone who hasn't made a bad decision and I'll show you someone who is either not being honest, or someone who avoids decision making at all costs, which by the way, constitutes a bad decision.

For more than 25 years I have either served in the capacity of a principal owner, senior executive, or professional advisor, and have generally been well regarded for my decision making ability. However like everyone else, I have also made some regrettable decisions along the way. When I reflect back upon the poor decisions I've made, it's not that I wasn't capable of making the correct decision, but for whatever reason I failed to use sound decision making methodology. Gut instincts can only take you so far in life, and anyone who operates outside of a sound decision making framework will eventually fall prey to an act of oversight, misinformation, misunderstanding, manipulation, impulsivity or some other negative influencing factor.

The complexity of the current business landscape, combined with ever increasing expectations of performance, and the speed at which decisions must be made, are a potential recipe for disaster for today's executive unless a defined methodology for decision making is put into place. If you incorporate the following metrics into your decision making framework you will minimize the chances of making a bad decision:
  1. Perform a Situation Analysis: What is motivating the need for a decision? What would happen if no decision is made? Who will the decision impact (both directly and indirectly)? What data, analytics, research, or supporting information do you have to validate the inclinations driving your decision?

  2. Subject your Decision to Public Scrutiny: There are no private decisions. Sooner or later the details surrounding any decision will likely come out. If your decision were printed on the front page of the newspaper how would you feel? What would your family think of your decision? How would your shareholders and employees feel about your decision? Have you sought counsel and/or feedback before making your decision?

  3. Conduct a Cost/Benefit Analysis: Do the potential benefits derived from the decision justify the expected costs? What if the costs exceed projections, and the benefits fall short of projections?

  4. Assess the Risk/Reward Ratio: What are all the possible rewards, and when contrasted with all the potential risks are the odds in your favor, or are they stacked against you?

  5. Assess Whether it is the Right Thing To Do: Standing behind decisions that everyone supports doesn't particularly require a lot of chutzpah. On the other hand, standing behind what one believes is the right decision in the face of tremendous controversy is the stuff great leaders are made of. My wife has always told me that "you can't go wrong by going right," and as usual I find her advice to be spot on. Never compromise you value system, your character, or your integrity.

  6. Make The Decision: Perhaps most importantly you must have a bias toward action, and be willing to make the decision. Moreover as a CEO you must learn to make the best decision possible even if you possess an incomplete data set. Don't fall prey to analysis paralysis, but rather make the best decision possible with the information at hand using some of the methods mentioned above. Opportunities and not static, and the law of diminishing returns applies to most opportunities in that the longer you wait to seize the opportunity the smaller the return typically is. In fact, more likely is the case that the opportunity will completely evaporate if you wait too long to seize it.

If you develop the appropriate blend of a bias to action with an analytical approach to decision making your stock as CEO will surely rise. Good luck and good decision making...

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Mike MyattMike Myatt, is a Top CEO Coach, author of "Leadership Matters...The CEO Survival Manual", and Managing Director of N2Growth.

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Blogger Warren said...

Decisioning is not a word. What is wrong with the grammatically correct "Decision Making"?

6:13 AM  
Blogger Blogging Innovation said...

Fair enough. I've changed the title on this article by Mike Myatt.

6:40 AM  
Anonymous Peter A. Mello, Weekly Leader said...

Good post that got me to thinking about my own comfort with decision making.

I was trained as a professional mariner at a pretty young age; at 19 I received my US Coast Guard masters license and ran a ferry boat during my college summers. The sea presents a dynamic, physical environment that requires constant analysis and decision-making. Today there is actually an internationally mandated course called Bridge Resource Management that is required of ocean going masters. As it's name suggests, it helps them assimilate all of the diverse information streams that the captain or watch officer encounters on the bridge and helps create systems to process it and make better decisions.

My second career was as an insurance/reinsurance underwriter. In that job analysis is important but, as you suggest, you can only review the data so long before you must make a decision. You have to make that quantum leap from data to decision. Most often it is a "leap" because there is rarely a bridge between the 2.

So, try to train yourself to be comfortable accepting (being open to) lots of data inputs and accept that you will have to make a leap from the data to the decision.

Easier said than done, but leadership is never easy.

7:46 AM  
Anonymous Mike Myatt said...

Decisioning is a word - it's the transitive verb form of decision. While decisioning may not have been in the dictionary 10 years ago, it is commonplace today.

de·ci·sion (d-szhn)
1. The passing of judgment on an issue under consideration.
2. The act of reaching a conclusion or making up one's mind.
3. A conclusion or judgment reached or pronounced; a verdict.
4. Firmness of character or action; determination.
5. Sports A victory won on points in boxing when no knockout has occurred or in wrestling when no fall has occurred.
6. Baseball A win or loss accorded to a pitcher: has four wins in six decisions.
tr.v. de·ci·sioned, de·ci·sion·ing, de·ci·sions Sports
To defeat by a decision, as in boxing: decisioned his opponent in the third round.

10:49 AM  

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