According to research from McKinseys, only 20 per cent of business owners believe their businesses excel in decision-making1 – and that was before COVID!
So, what steps can business owners take to improve their confidence in decision-making while they are operating in an environment of uncertainty?
Understand trading conditions
Inflation rates can give us a good indication of how the macroeconomic environment is evolving – and what we are seeing across the globe could provide some insight.
Annual inflation rates are beginning to rise significantly across the more developed economies. The US recently hit an annual rate of 5.4 per cent and New Zealand is also experiencing its highest rate of inflation since 2011.
The annual rate as at the end of June 2021 jumped to 3.3 per cent, which more than doubled the annual rate posted in the March 2021 quarter results.
While inflation in Australia has been relatively subdued to date, with the record high levels of stimulus, combined with the record low interest rates and trends we are seeing internationally, speculation is rife about what will come next.
Throw in another COVID outbreak with lockdowns across our two major cities, and that spells ongoing uncertainty for trading conditions across the country.
In times of uncertainty, traditional approaches to decision making can be dangerous. Business owners with a strong bias for action, and a ‘just do it’ approach to management, can inadvertently lead their businesses astray.
On the other hand, business owners that are more risk adverse, and slower to act, can find themselves in a state of decision paralysis.
While both approaches have merit under normal conditions, effective decision making in times of uncertainty needs to be more calculated, informed and timely than usual.
What sets the better performing businesses apart?
In our experience, the best performing businesses are realistic and acknowledge the conditions they are trading in. They consider the alternative scenarios and then focus on themselves and the things that are in their control. They will generally have a strong understanding of the key drivers within their business, will monitor them closely and will act both quickly and decisively when required.
Obviously, a lot will depend on the industry you are in and the financial strength of your business, which can often dictate your hand.
But having said that, you would still be wise to consider the alternative scenarios and be prepared to act either way.
If you find yourself in a position where things are turned upside down, you should be ready to take the steps required to protect your position.
Conversely, there can also be real opportunities amongst the chaos for some businesses to position themselves for longer-term success.
How should I respond?
You should respond by acknowledging the reality of your current circumstances and preparing yourself either way.
As Jim Collins says, sometimes in business we need to confront the brutal facts before they confront us!
Some of the key questions you should be asking yourself include:
- What are the key drivers of demand within our sector?
- How are the needs of our clients changing throughout this period?
- How are we positioned against our competitors and what makes us different?
- Do we have forecasts on key metrics to provide us with foresight?
- Have we considered the worst-case scenario?
- Can we improve operational efficiencies?
- Are there any opportunities within the uncertainty?
- Do we need help?
At the end of the day, you want to be ready to make informed decisions if you are forced into action by circumstances outside your control.
The businesses that can answer these questions above will almost certainly be best placed.
This article first appeared in the September/October issue of INCLEAN magazine and was co-authored by Andrew Ash, director at HLN Mann Judd, and Tom Roberts, director at HLN Mann Judd. They can be contacted at aash@hlbnsw.com.au and troberts@hlbnsw.com.au
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