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Senior leaders say big data, misaligned incentives and bureaucracy lead to bad decision making PDF Print E-mail
Tuesday, 02 February 2016

Senior leaders are struggling to make the right decisions, with 72% of organisations admitting to at least one strategic initiative failing in the last three years as a result of flaws in their decision making process, according to research out today from the Chartered Institute of Management Accountants (CIMA) and the American Institute of CPAs (AICPA).  Information overload, excessive bureaucracy, lack of trust and incentives that aren’t aligned with goals were all cited as contributors to poor decision making in businesses globally.


The ‘Joining the Dots: Decision making for a new era’ report surveyed board-level executives at large organisations from 16 countries and revealed that not only do executives admit to poor decision making, more than three quarters (80%) say flawed information has been used to make strategic decisions, with 42% admitting their organisation lost a competitive advantage because they were slow to make decisions.

The top causes of poor decision making identified in the report are:
- Information overload: 36% say their organisation is not coping with information overload, and 32% say big data has actually made things worse, while 37% say it has helped. For those that can gain greater mastery of big data, there is a significant opportunity to gain a competitive advantage. Among high performing organisations, 86% are already assessing the management information they need by focusing on the key value drivers of the business model.
- Bureaucracy: nearly a third, 29%, say the single biggest barrier to more effective decision making is coordination problems caused by organisational silos and bureaucracy.
- Trust and collaboration: 43% say their level of trust in fellow executives needed improvement and 57% said more active collaboration was required to improve decision making.
- Incentive structures: 61% of bosses admit their organization’s incentive structures aren’t encouraging the right sort of decisions for short, medium and long-term value.

Charles Tilley, FCMA, CGMA and Chief Executive of CIMA commented: “Bad decisions make for bad business, so these findings are a cause for great concern. Organisations need to treat decision-making as a business-critical process to be professionalised then continually improved.

“Above all, leaders need to think in an integrated way. This means having a clear and defined business model and relating all decisions back to it; quickly gathering and analysing all relevant information from all parts of the business; and focusing on key performance indicators rather than gut instinct or hearsay.”

Barry Melancon, CPA, CGMA and President and CEO at the AICPA said: “We are in the age of big data, and the common wisdom has been that the more, the better. However, our research found that big data is actually making life harder for those charged with decision making in many organizations because they are unable to extract relevant information and turn it into insight. With a deep understanding of the financial and non-financial value drivers of the business, the accounting and finance function plays a critical role in connecting the right information with the right people to achieve a competitive advantage for business.”

The report also included in-depth interviews with C-suite executives from companies such as Diageo, Rothschild and EY to uncover the most effective decision makers, and the traits that characterized them, and propose solutions to the decision making challenges facing organisations globally.

Organisations that reported they were well equipped to make the decisions necessary to performance and bottom line results were found to follow integrated thinking principles similar to those outlined in the Global Management Accounting Principles (GMAPs). The GMAPs were designed to create a principles-based framework to help the public and private sectors join the dots, make better decisions and be able to respond effectively to the risks and opportunities they are presented with.

This report also outlined best practices guidelines for companies seeking to improve their decision-making. These include:
Build greater trust between leaders and employees to improve sharing of information
Balance financial and non-financial information to capture a broader understanding of key value drivers
Share relevant and insightful data so leaders can extract meaning
Drive greater collaboration between business units to ensure the right people are involved in the business decisions
Establish incentive structures to encourage decision-making that will create value for the short, medium and long term
Place greater emphasis on engagement with external stakeholders to ensure sustainability of organisational strategy
Share outcomes of previous decisions to allow adjustment of review processes and metrics
Create greater transparency to align employees with the organisation’s wider strategy
 
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