Flawed Decisionmaking is Dangerous


Every decision that an organisation must make has four broad sets of implications. The obvious three sets of implications are operational, financial and legal.

Namely:

  • Is it legal?
  • How much will it cost?
  • Can we implement it?

The fourth set of implications is generally either ignored, delegated or included in the process only on the basis of the "gut instinct" of one of the participants.

This fourth set of implications is reputational.

The reputational implications of a business decision can be defined as those that impact the way in which an organization is regarded by those with whom it interacts, including shareholders, customers and employees, as well as suppliers, government regulators, the media and even competitors (and any other stakeholder).

Any organisation is dependent on its stakeholders for support and the strategic importance of any stakeholder depends on how dependent the organisation is upon it. And this relationship can change over a period of time or due to indiscretions.

It is important to realise that a decision has reputational implications if it has the potential to affect the relationship between the company and any of these stakeholders. In other words, it is difficult to think of a decision that does not have reputational implications.

Reputation, most managers today would agree, is an asset, even if only a perceptual asset (or, if mismanaged, a liability). It certainly is not optional. Every corporation, organization, institution, individual has a reputation. The only option is whether to manage it or allow it to be inferred.

If it is to add value, it should be managed with the same care and attention as any asset. It should be obvious that if a decision has four broad sets of implications, and only three are formally and routinely considered, the potential exists for flawed decision making.

After all, the role of a manager is to manage all the assets under his or her control effectively. Tangibles and Intangibles.

Research has clearly shown that risk increases in patterns of decisionmaking. Those patterns can often easily observed in a boardroom situation. This risk increases when there is a lack of asking these types of questions:

  • Who are our stakeholders? (This is not a given. Stakeholders change position based on interest or need)j0426621
  • What are our stakeholders’ stakes? (Is it legal, moral, economic, public interest or self – interest?)
  • What opportunities and challenges do stakeholders present?
  • What economic, legal, ethical, and social responsibilities does our organisation have?
  • What strategies or actions should we take to best manage stakeholder challenges and opportunities?
  • Do we have a system for managing relationships with stakeholders?
  • How do we measure results? What metrics do we use to assess and gauge stakeholder relationships?
  • In a crisis how quickly can we communicate with our relevant stakeholders?
  • Do we know the various methods to engage with stakeholders and when not to use it?
  • Do we know how much we are spending on each stakeholder group and what the ROI is?
  • Have we developed a set of rules and guidelines on how best to manage the process of building stakeholder reputation with each stakeholder group?

Unless you can answer these questions, you cannot assess the fourth set of implication of a decision, and your decisions will at best remain skewed.

The question I want to ask is whether managers will make certain decisions if they have been sensitised to the answers to these questions?

(To learn the answers to these questions and many more, attend the Stakeholder Reputation Master Class at the Hotel Apollo in Randburg from the 20th – 21st January 2010. Go to http://stakeholderreputation.invite43.com/ or e-mail reputationeducation@icon.co.za for a brochure and registration form)