Running a business or managing teams means making decisions on a daily basis. Having to make the right decisions all the time, one after another, is overwhelming, right? It gets even harder when you are on top because the higher your role, the more responsibilities you have and the bigger the impact each decision has.
Effective decision making is integral to an organisation’s health and wellbeing. A survey by McKinsey & Company of Fortune 500 companies showed on average, managers spent more than a third of their work time making decisions. This share of time increases with seniority with C-Suite executives spending up to 70 percent of their time making decisions.
So, if you are in one of these roles, where you are making big decisions for the organisation, what is the best thing to do? Making the right decision is about understanding the environment your business is in.
The importance of business environment
Identifying your environment means knowing and understanding your surroundings. Identifying your environment helps you understand what you want to be as a business. Before you can do that, you need a deep understanding of where you are now and all the factors (both internal and external) that influence your surroundings. For example, are there processes in place to ensure success? Are your people trained to deliver results? Is your organisation’s culture healthy? Or is it toxic? Do you have strategies to outperform your competition? Can your business deal with unexpected threats or rapid change? Have you identified the opportunities for growth?
Going through these questions one at a time gives you clarity and helps you make the right decisions to move your business from A to B. A – being where you are now and B – being where you would like to be in the future.
How to identify your business environment
Business environment is all the internal and external factors that can influence your business activities. The business environment impacts the business on every level: success, scale, vision and development strategy. Bear in mind that external factors can influence internal factors and vice versa. Also, some external factors that impact your business may be beyond your control. For example, the recent pandemic is an external factor that affected many businesses. Even the best planned companies in the world were caught by surprise. But two years into the pandemic, companies now know how to make better decisions to protect their businesses if a similar health crisis hits the world again.
Internal factors refer to everything within your organisation that is under your control whether tangible or intangible. An element that brings positive results is a strength and one that brings a negative impact is a weakness. I have highlighted several key internal factors and how they can impact your business performance.
People and culture
In today’s global economy, ideas and skills rather than physical assets are some of the most important assets for growth and success. The people in an organisation – their attitudes, mindsets and behaviours – have a profound impact on the company’s image, performance and profitability. For example, a business with skilled and motivated workers is more likely to perform better than one that has staff that are poorly trained or have negative work habits and attitudes. In short, decisions at the senior leadership level that consider employee wellbeing and development are more likely to translate into positive outcomes and results.
Attracting talent is not easy. Retaining them is even harder. Talented individuals are in demand. They can pick and choose where they want to work. If they do not like where they are, they leave. Understanding your talent pool can help you make better human resource decisions at a senior leadership level. If, for instance, your organisation has a superior training and staff development plan that can upskill your workers, you may want to complement this with a staff engagement plan that keeps people happy in your employ. The last thing your organisation needs is upskilling your staff for others to reap the rewards.
A suitable organisational structure requires a carefully set up system to manage workflows. An important thing to remember when designing an organisational structure is how effective will it be when implemented? Is there information sharing and clear accountabilities across all levels? Are there policies in place that can ensure smooth workflows?
I recently consulted for a large private education institution that was having problems with its student recruitment. The college employed 155 people of which more than a third were marketing and sales personnel. The marketing organisational structure was a flat reporting line with two directors and eight portfolio managers reporting directly to the CEO. Below this first line of reports, there were sales and marketing specialists who reported to the directors and some of the portfolio managers. Some portfolio managers had no staff. The problem with the structure was that there were too many chiefs and no Indians. Too many people were giving orders. No one was executing these orders. The company was structured to fail.
Operational efficiency directly affects the company’s success in the marketplace. Operational efficiency encompasses all the company’s activities leading to the end product or service. Knowing and following these processes can help you identify bottlenecks or problems that may be preventing them from performing optimally. Operational efficiency is also about identifying the processes that are working well for the company and seeing how you can leverage these strengths to grow the company. For example, if one division is performing better than another, learning what makes it successful and duplicating it across other divisions may make the business more efficient.
Leaders make decisions that impact the business. Great leaders are role models that staff look up to for direction and guidance. They have the ability to galvanise the people and respond to rapid change. If your leaders are falling short, it is time to consider seeking some external help to coach them to become better.
External factors are factors that are outside the control of the business. External factors can be micro factors like customers, suppliers, public image and so forth. They can also be macro factors for example economy, technology, political and legal and most recently, a global health crisis. It’s important to remember that external factors can have a positive or negative impact on a business. Factors that can be leveraged for better results and growth are opportunities while the ones that can impact negatively on the business are threats. Knowing both are important in decision making.
The economy is one of the most determining factors to success. A positive economy is good for business, a negative economy is not. Good decision making means the ability to take advantage of the good times and mitigate the risks in bad times.
Another important external factor that can affect the business decisions you make is the customer. If your company cannot figure out what your customers want, you cannot align your products or services to give them what they want.
Recent global events have also shown that companies need to be prepared for potential threats that are not anticipated. A good example of this is COVID-19. The once-in-a-century pandemic that hit the world affected many businesses. The consequences of this global health emergency are still affecting the world today. When making decisions for the future, companies nowadays need to take into consideration a survival plan that can address any type of sudden and unexpected threat to the business. It may sound impossible but it’s not. It’s about planning for change. If you have a way to respond to rapid and sudden change, your business can survive most calamities.
By answering all the questions you have about your internal and external environment, you start to understand where your business is and can pinpoint the problem or bottleneck areas that need fixing. You can also identify the processes or people that are performing and develop strategies to duplicate this winning formula to parts of the organisation that may not be performing so well. It may be that you need a system to reward the overachievers or to motivate others to become equally productive. The decisions you make are driven by what you observe in your internal and external environment.
Understanding your business environment gives you a panoptical view of your entire business and helps you produce strategies for both predictable and unpredictable events. Your company’s success rests squarely on the decisions that employees at all levels make. Of course, every business wants a decision-making magic bullet that guarantees success. The most important element of good decision making, however, is the organisation’s working environment. If you can master it, you can make good decisions that will benefit your company.
So, evaluate the environment around you. Understand where you were previously and where you are at now before you take a step forward because you do not want to be walking in the wrong direction as a business. Or worse, walking backwards.
As a business, HR and career strategist, Thai Ngo has worked with some of the biggest businesses in Australia to help people fulfil their professional potential. Thai firmly believes that the biggest barrier to success is often ourselves, but with the right guidance and the right perspective, that barrier can be overcome. Now he works with businesses, leaders and individuals to tap into their existing talent to create the professional and personal life they desire.