Business Decisions

We all know that cognitive biases affect nearly every decision we make or are going to make. And in the world of business, managers or CEOs make important choices every day. Often these choices must be made in a snap and have broad, far-reaching consequences in near future. So, how can we make sure that the choices we make remain rational and objective, and free from our potentially harmful cognitive biases?

There is a system as it turns out, but it’s a lot more like a process or a habit. Some of the researches shows that the world’s best managers can overcome biases and reliably make effective decisions. The approach is called a diligence-based strategy.

In the 21st century, business isn’t easy. Whatsoever the industry is, most organizations eventually face a crisis in terms of new competitors appearing out of nowhere or an existing brand trying to take a slice out of your customer base. Today’s competitive environment is forcing organizations to make strategies and act quickly. Thus, it is easy to understand why companies try to create revolutionary new strategies. This is to cope with crisis by conducting market research, analyzing trends, evolving the core business model etc.

There is another approach too. Instead, organizations can use a diligence-based strategy by giving their attention to a small number of ordinary business activities which include sourcing inputs, managing customer relationships, and developing the right people. Focusing on the fundamentals is what diligence talks about. By optimizing organization operations, they can promote the conditions that allow for better, thoughtful, long-range strategies to emerge effectively.

Developing diligence requires a different way of thinking. The best executives make every attempt to what they can control. They rely more on measurement and empirical evidence and less on opinions or persuasion. Many companies now know that big data can reliably improve their decision-making. As an executive, our primary task is to know the levers that drive business performance and to control those levers. To identify fundamental activities, we need to ask ourselves.Does mastery of those activities contribute significantly to the performance of the company and the activity can be reliably measured and monitored?

Organizations should try to have a handful of fundamental activities like “sourcing inputs,” “Managing the supply chain,” or “serving customers”. It is only after isolating the organization's fundamental activities that the optimization can occur. Most importantly, managers should use every latest available technology and data source to compile information on the company’s activities. It’s easy to go astray when decisions are made based on emotional responses or incomplete information which is natural during a competitive crisis. The diligence-based strategy allows companies to systematically focus on what matters most improving the fundamental operations that lead to success.