Developing a Decision Profile
As you ponder which tools are appropriate for a given context, you need to ask yourself two fundamental questions:
Do I know what it will take to succeed? You need to know whether you have a causal model—that is, a strong understanding of what critical success factors and economic conditions, in what combination, will lead to a successful outcome. Companies that repeatedly make similar decisions often have strong causal models. Consider a retailer that has launched outlets for years in one country, or one that has made many small acquisitions of adjacent competitors.
One simple test of the strength of your causal model is whether you can specify with confidence a set of “if-then” statements about the decision. (“If our proposed new process technology lowers costs by X% and we are able to achieve Y% market share by passing those savings on to our customers, then we should invest in this technology.”) You should also be able to specify a financial model into which you can plug different assumptions (such as how much the technology lowers costs and how much market share you are able to capture).
For the vast majority of strategic decisions, executives can’t specify a clear causal model. Some managers have a reasonably good idea of the critical success factors that matter, but not a complete picture—this would generally be true of a company developing a new product, for example. Others don’t even know how to frame the decision—for instance, a company being disrupted by a new technology wielded by a firm outside its industry.
Ask Yourself: Do you understand what combination of critical success factors will determine whether your decision leads to a successful outcome?
Do you know what metrics need to be met to ensure success?
Do you have a precise understanding of—almost a recipe for—how to achieve success?
Can I predict the range of possible outcomes? In choosing the right decision-support tools, you also need to know whether it’s possible to predict an outcome, or a range of outcomes, that could result from the decision.