Making smart decisions is central to the success of any organization. It is the compass through which corporate leaders can guide their business in pursuit of growth and is a key marker of what sets apart good leadership.
But decision-making has always been an inherently imperfect art. There’s no concrete template or algorithm for every scenario, and leadership style might skew such a formula even if one were to exist.
However, analyzing approaches to decision-making that have led to lasting value creation does provide lessons that help leaders shift their own decision-making process from a misunderstood art toward a mainstream science.
Although it is an area filled with challenges, at Crowe we have distilled the process into four key strategic indicators of good decision-making: growth, diversity, boldness, and innovation. These pillars provide a framework for measuring smart decisions, and for bringing greater structure to corporate decision-making methodologies.
The path to making a good decision is littered with potential wrong turns. Reaching an ultimate goal can feel like a game of snakes and ladders, where you take a step forward only to fall three steps back.
Some of these pitfalls are easily avoided if decision-makers embrace the four themes above.
In Crowe’s Art of Smart 2019, which analyzed company performance with these factors in mind, companies that scored highest on diversity also achieved strong growth. They have harnessed diversity as a driver of performance by fostering inclusive cultures that provide an array of viewpoints on which to base well-founded strategic and operational decisions.
As with any decision-driven initiative, confirmation bias, groupthink, and echo chambers are very real risks. They are exacerbated when decision-makers are homogenous. Embracing and prioritizing diversity is the most powerful and effective way to ensure that the decision-making process takes in an appropriate range of views.
Diversity — in all forms, not just gender diversity — is a major driver of innovation and change. Corporate leaders should consider how best to disrupt their business with diversity. Even companies that are already successful should look at this. They may never know the value of the opportunity cost if they don’t take a bolder approach and challenge the status quo.
The most forward-thinking businesses are realizing that this is mission-critical. Even those that may be lagging behind in taking action to drive diversity largely acknowledge the theoretical benefits.
Diversity does not, in itself, determine business outcomes. No single factor does. But research, including Crowe’s own, shows that there is a strong correlation between increased diversity (particularly among leadership groups) and improved performance.
A more inclusive culture will feed into, and draw from, a wider talent pool. Most businesses operating today must grapple with myriad, sometimes competing forces and influences. For those that operate across jurisdictional borders, or across sectors, this challenge is more overt. To navigate it, a diverse mix of professional backgrounds, personal skillsets, cultural viewpoints, and academic grounding is essential.
Diversity of thought can even be applied to an organization’s approach to diversity itself. The benefits stem not only from improved gender diversity; the c-suite should be thinking about age diversity, cultural and racial diversity, and neural diversity (or diversity of thought), among others.
Look back on the history of innovation and it’s clear that boldness and an appetite for risk lie at the heart of most of humankind’s breakthroughs.
Take space exploration. Television show “Star Trek” emphasized the importance of boldness when explaining the mission of the Starship Enterprise: “to boldly go where no one has gone before.” Similarly, Aldous Huxley may have found rather less success in piquing readers’ interests had he written about a “mundane new world.”
Take another example: the lightbulb. Nowadays synonymous with the notion of a breakthrough or new idea, the lightbulb itself is taken largely for granted as a vehicle for transmitting light. Before its invention, however, the idea of such an object being invented could not have been bolder.
Thomas Edison was a prolific innovator, but he may never have become a successful one if he hadn’t been willing to fail. It was his attitude toward risk that stood him apart. Having run through around 10,000 prototypes for his lightbulb, Edison famously said, “I have not failed. I have just found ten thousand ways that won’t work.”
Our research shows that bolder companies are often operating in more challenging business conditions. This means they, too, often need to fail — before learning from their mistakes and adapting their approach en route to success. Challenging conditions dictate the need to adapt or innovate, but at the same time present the opportunity to set a proposition apart.
In the same way that “necessity is the mother of invention,” a quick flick through the phrasebook also tells us that “smooth seas do not make skillful sailors.” Again, the same is true for corporate innovation. Without tough conditions and external pressures, innovation suffers and those diamond-in-the-rough ideas cannot be formed.
Innovative companies tend to be more prevalent in sectors where growth is sluggish, because there is a greater need for boldness and innovation to overcome growth-stalling headwinds.
However, perhaps more counterintuitively, our research also shows that younger companies do not necessarily innovate more. Despite the image of disruptive start-ups and the entrepreneurial exuberance of youth, this is down to a number of factors, including “older” companies being more resilient to the (initial or temporary) failure that attempted innovation can often bring.
All of this shines a light on the theoretical best practice approach to decision-making. But where is this being done well?
The biotech sector serves as a good case study for corporate decision-making: It’s a high-growth field that has seen private funding surge in support of R&D initiatives. It is also inherently innovative, in part because of its patent-driven nature.
Ultimately, Biotech’s success has been driven by a focus on identifying needs that were not previously being met, or by developing next-generation processes. Here again, necessity is the mother of innovation.
Our research also showed that Biotech companies typically have diverse teams that “tackle problems in parallel,” so the compound effect of scoring highly on two of the four key pillars of smart decision-making also sets it apart.
Problem-solving in teams, and looking at an issue from multiple perspectives at once, is another way of unlocking innovation. While the approach requires resources and can be expensive in the short term, it allows products to be brought to market much faster, returning profit to shareholders as quickly as possible.
There is a cyclical nature to this, in that shareholders seeing returns will be more likely to enthusiastically reinvest or support future innovation, even in the face of risk.
Regardless of the sector that a business operates in, changing the approach to decision-making can breed massive improvements in its growth trajectory. For the most part, there is no need for a complete overhaul of processes; small changes that allow for a greater appreciation of nuance can be just as effective.
External factors will always have an impact, and this includes luck, as good and bad fortune can clearly be influential in determining success or failure. But a sound internal approach to decision-making will insulate the business from this, while also mitigating the stress attached to making decisions.
Decision-making is easy. But smart decision-making is all about nuance. Diversity breeds a greater appreciation of nuance, while boldness and innovation allow a company to leverage that nuanced approach in a way that will translate to growth.
David Mellor is CEO of accounting and advisory firm Crowe Global.