Making The Right Commercial Decisions

//Making The Right Commercial Decisions

Making The Right Commercial Decisions

In my previous two blogs I discussed how information overload leads to a lack of focus and how we need to persist with asking the important questions to enable better decision making. Yet we still have to talk about the decision making itself. Again, we have seen a marked deterioration in the quality and timeliness of commercial decision making in recent years and this can probably be linked back to the issues of information overload and sticking to the easy questions that I discussed in the two prior posts.

I would like to start exploring this with an example from a relatively small business ($20 million revenue in Australia, but part of a global brand). This business has been in turnaround mode for the last year or so, after a prolonged period of stagnation under a previous management team who neglected the brand and sales channel (which was ignored by the overseas head office). They are now playing catch-up in rebuilding the brand (which is very strong globally), but with severely constrained resources given they had to cut over 20% of staff to restore profitability.

Sounds reasonable, right? Does it still sound reasonable if I tell you that the global business is immensely profitable and that the Australian sales channel has been neglected for nearly a decade? How about if I throw in that from a global perspective Australia should be a $50 million market, not $20 million? If you know all that, shouldn’t the local business be investing in instead of cutting sales representatives?

Yet not one member of the new local management team questioned the decision to cut resources and focus on profitability before sales growth and market reputation. They are trying to deal with thousands of small scale issues on a daily basis, which, when you take two steps back, all come down to a lack of investment and resources in the sales channel. So they are chasing their own tail and spending huge amounts of time arguing over the wrong decisions, instead of tackling the elephant in the room – you can’t grow sales and rebuild reputation if you don’t invest in your sales channel (they sell to dealers, not direct).

Again we feel this goes back to a lack of clarity on what they should be focusing on – sales growth – and a lack of courage to bring up the issue of resources with head office. Or at least pointing out that you can’t achieve both objectives (profitability and growth) at the same time given the poor starting point and the lack of resources.

The quality of decision making depends not just of the right question/issue being tabled for decision, though. It also depends on a few other crucial factors:

  1. The framing of the decision to be made
  2. Negotiable vs. Non-negotiable constraints
  3. Implicit assumptions
  4. The timing of the decision
  5. A proper investigation of the impacts of each decision option

I have explored the question of framing and timeliness in a previous post. So I would like to focus here on constraints, impacts and assumptions. What we find in many instances, as was also the case in the example described, is that next to no time was dedicated to studying the impacts of making the headcount cuts in the sales force and nobody had brought up the question of shared or individual assumptions about what was negotiable and what wasn’t. The team basically focused on timeliness and did not try to reframe the decision to illustrate the contradictory nature of the goal posts.

By default, we mostly take constraints that come ‘from above’ as a given. We make the assumption that someone higher up spent a lot of time coming up with those constraints and setting the targets we now aim to work to (even if they are clearly unworkable). We then have a habit of distracting ourselves with the fallout – having to manage something that can’t evidently be managed – and get lost in the noise and running in circles to make it happen. Whilst this clearly isn’t a universal failing, we have seen it often enough to recognise the pattern.

The question of ‘what would happen if we put our foot down and refused to play along’ is generally taboo. More often than not when we suggest this, managers talk about how this would be interpreted as open revolt or even revolution. Now that’s truly funny – making sound commercial decisions taking into account the real impacts is seen as insubordination whereas playing along and chasing fairy tale targets is seen as the rational course of action. You know that the culture of an organisation has regressed to the point of being unworkable at that stage. And yet people stay and find ways to excuse this so that they can keep going.

Commercial decisions are always difficult and impacts are sometimes equally difficult to predict. So tough calls have to be made for sure and not all constraints can be argued over. I am not advocating that managers need to question each and every directive from above. What we have seen a lot recently, though, is that decisions are made with the wrong frame (growth or profit in the example case, both were not possible simultaneously), under the wrong assumptions (nobody had dared to check) and without knowledge of the most likely impacts (nobody spoke to the territory managers before the decision was made).

If you ask me why this happens, I would say that individuals by themselves have no useful ability to compare upfront cost with downstream effects. Behavioural economists talk about hyperbolic discounting – we happily take $100 now even if we could opt for $200 in 12 months’ time. Equally, the team in this case totally misjudged the relative pain of standing up to head office during the budget negotiation compared to the pain of managing the fallout for the next 12 months and the inevitability of missing the targets in the end.

Maybe the best way to address a situation such as this is to have a (probably facilitated) ‘pain’ meeting when a really important decision is on the cards (or being ignored). A meeting with the sole purpose of examining the constraints, assumptions and impacts and the associated relative pain levels now and down the track. We have seen that work many times, in one case an executive team went from unquestioningly accepting 26 ‘top priorities’ for the year to settling on just one. They didn’t like the meeting, but they did like the result! In fact, they had their best year ever as a result of making the right commercial decision for the situation they found themselves in.

By |2018-02-18T07:28:16+00:00January 27th, 2016|Blog|0 Comments