What a ride we’ve had in the last 12 months: Brexit. Trump. London suffered four terror attacks. Bitcoin’s value increased by 500%. And in the last few weeks Amazon.com bought Whole Foods and North Korea successfully tested an intercontinental missile. What’s going to happen next?

It is probably no exaggeration to say that businesses today operate in a context of greater uncertainty, greater complexity and faster pace of change than ever before. And, it is in this swirling context that business executives are charged with making strategic decisions.

And make decisions they must, because decisions are the only means they have to change the future of their organizations [1].

So, in this complex, uncertain and fast-moving world, how are executives making strategic decisions?

At the two ends of the spectrum, executives can employ professional decision-making methods that include the modelling of uncertainty, or they can rely only on their gut and/or experience. In my time as a strategy consultant, I have seen limited use of good decision-making methods. And, if the decision maker is not employing good methods then chances are that they are gambling and, worse, they are gambling without knowing the odds.

Sometimes the gambles pay-off, but, in the long-run, the house always wins. It seems that the pace of gambling is picking up, and the gamblers are starting to lose faster than before. For some jaw-dropping evidence see the recent summary findings below from three respected consultancies:

· Innosight: The 33-year average tenure of companies on the S&P 500 in 1965 narrowed to 20 years in 1990 and is forecast to shrink to 14 years by 2026 [2].

· BCG: Businesses are disappearing faster than ever before. Public companies have a one in three chance of being delisted in the next five years, whether because of bankruptcy, liquidation, M&A, or other causes [3].

· Innosight: Half of S&P 500 companies are expected to be replaced over the next 10 years [2].

· Bain & Co.: Two out of three large companies (worth $5 billion or more) will stall out, go bankrupt, be acquired or break into pieces in the next 15 years [4].

The Economist explains the exodus: “About a third of departures are involuntary, as companies get too small to qualify for public markets or go bust. The rest are due to takeovers” [5]. And Innosight believes that this is happening because “… frequently, companies miss opportunities to adapt or take advantage of change. For example, they continue to apply existing business models to new markets, fail to respond to disruptive competitors in low-profit segments, or fail to adequately envision and invest in new growth areas” [2].

With the very survival of your organization at stake, my view is that it has never been more important to get deliberate and professional about strategic decision making.

Analysing what goes wrong (see Diagnosing where our decisions go wrong) leads me to propose a set of requirements for driving quality improvements in our strategic decision making.

· By recognizing the importance of process, we will invest in defining and following a good process. (see Five Myths of Strategic Decision Making and Reward good effort, not outcome)

· By being value-centric we will avoid solving the wrong problem and have clarity on what we are deciding.

· By focusing on ideation, we will not settle for what easily comes to mind, rather we will create compelling, diverse and executable alternatives.

· By embracing uncertainty and counteracting biases, we will evaluate strategic alternatives logically and with appropriate rigor.

· By applying “living strategy” concepts, we will plan realistically and execute with agility.

· By segmenting decisions, we will apply our efforts in proportion to the scale and complexity of our decision problems.

· By engaging effectively with key decision makers, we will stop efforts early that don’t have support, and continue and refine those that are supported.

· By being deliberate about learning from past decisions, we will improve our capabilities for future decisions.

These are not some ivory tower requirements; all of them can be practically applied. In fact, there are proven tools and techniques for meeting these requirements and thereby making good strategic decisions. For excellent coverage of these tools and techniques see [6] and [7], or reach out to me.

Founded in the 19th century, IBM was a pioneer in this world and in 1990 had its most profitable year ever. But, by 1993 the computer industry had changed so rapidly the company was on its way to losing $16 billion and IBM was on a watch list for extinction. Under Lou Gerstner’s leadership IBM was remarkably transformed [8]. That mindset of the need to transform lives on in IBM: “The only way you survive is you continuously transform into something else”. Ginni Rommety (IBM CEO)

References:

[1] “Foundations of Decision Analysis”, Howard, Abbas

[2] “Corporate Longevity: Turbulence Ahead for Large Organizations”, Innosight, Spring 2016

[3] “The Biology of Corporate Survival”, Martin Reeves, Simon Levin and Daniel Ueda, Feb 2016

[4] “Why Leaders Should Write Their Company’s Obituary”, Bain & Co., March 2017

[5] “Why the decline in the number of listed American firms matters”, The Economist, April 2017

[6] “Decision Quality: Value Creation from Better Business Decisions”, Spetzler and Winter

[7] “Decision Analysis for the Professional”, Peter McNamee, John Celona

[8] “Who Says Elephants Can't Dance?”, Louis V. Gerstner, Jr.