Deciding Moments

Should I hire or outsource? Can I expand my business into a new market? Should I buy another company or grow organically? Decisions can be tough for anyone, but for a business leader, a key decision can have major repercussions.

But not all decisions are equal, and different situations call for different considerations. The importance of the outcome, the information available and the personalities involved are just a few of the factors. We asked seven local current and former executives about some of the tough decisions they’ve made, and what advice they have for managers and other business leaders.

“You’ve got to start with, ‘What is it I’m trying to accomplish? What is the objective? And does the objective make sense within the context of the organization’s mission?’” The next step is to collect information from the stakeholders—employees, superiors and peers. “Decision-making in business is a lot like a calculus problem,” he says. “You’re starting with a problem to solve, and then you start piling in information. The more stuff you could put down on paper, the sooner the answer would start to reveal itself.”

Big decision: Whether to contract with Wal-Mart. His company produced kitchenware for the commercial market, and Wal-Mart’s proposal to buy its products for the home market could have nearly quadrupled the size of the company. “We decided not to take the order. We had convinced ourselves—I think correctly—that we were a manufacturing and marketing food-service equipment company. If we sold to Wal-Mart, you take away marketing. And you end up with a capital investment that significantly increases your capital base, but is dedicated to one customer who can jerk the business at a moment’s notice, and would essentially change the entire nature of the company.”

“Gut-wrenching” decision: Whether to hire “the established guy with whom I’d grown another company or the new guy who had all sorts of energy. It’s the kind of decision that doesn’t lend itself to mathematical analysis.” He decided on the new guy. “I started thinking, ‘I don’t need a bunch of guys my current age; I need a bunch of guys like I was 10 years ago, because that really worked. The energy level really counted and the ability to jump in without thinking, ‘Well, we tried that before and it didn’t work.’”

Tip: “Force yourself to make decisions within the context of your overall business strategy and objectives. You have to step back and say, ‘What is our mission, personality, style?’ Take that all into account before you grapple with today’s inputs.”

Decision-making is part of the larger process of strategy and implementation—the primary roles of a strong CEO. “Some CEOs are great strategists but couldn’t implement the programs they tried to articulate. Others had no clue about strategy but were good at operations. They’ve got to have both,” says Antonini. “You need a strategic and sharp tactical CEO who can get the team working in the same direction.”

While strategy comes from the top, implementation involves the team. “The key point would be knowing our team and whether they had the ability and confidence to execute the strategy. Selecting the right people internally and externally is critical.”

Big decision: Whether to expand internationally. The fall of the Berlin Wall created new opportunities for Kmart’s discount retail in Eastern Europe, where there was no competition. “In three short years, we had stores making money internationally,” says Antonini. Once that proved successful, Kmart moved into Singapore and Mexico, where the Super K discount retail concept was new and well received. “You start in one country and move to others once you refine the process. You have to give it time.”

Tip: “The major suggestion I have is in the big picture: Once you feel you have a good strategy, that’s only 10 percent of the formula; 90 percent is in the implementation. That takes the right team, everybody being behind the team, and follow-up.”

Nearly 20 years heading up the global interests of the petroleum, chemical, mining, power and other divisions of Bechtel—a multinational construction and engineering corporation—taught Gunther a simple formula: Good decisions come from good information, and good information comes from building a network of trustworthy, knowledgeable people. “In our company I worked hard to get information—talk to the experts, to staff, do the research and try to come to the right conclusion.”

For Bechtel, revenues hinge on winning bids at the right price. Gunther and his team considered the type of contract required, the relationship with the customer and whether they had the technical resources for the job. “Narrow down the problem, who’s your competition and why is it you thought [you] could do it better?” he says. “I would never bid a job without talking to the customer. When you do that, you find something you didn’t know,” such as the project’s political implications or pressure to finish quickly.

“The decision starts with understanding the problem,” Gunther says. “After I understood enough about it, I’d call a meeting of our people, including our experts [and ask], ‘Do you think we can do it and do a good job with it?’” he says.

Ill-informed decision: “I was placing a big steel order and we thought we had the lowest steel price in the world. I had a great procurement guy who knew the steel market, but he wasn’t available and we decided not to track him down that day,” says Gunther. “It turned out they were producing steel in South Africa for 15 percent less at the time. We lost the job. Had we had that data, we could have won it.”

Tip: “When you make a decision, you’ve got to be willing to take responsibility for it and be accountable. And share the glory when things go well, giving credit to the people who made it happen.”

“It depends on the complexity of the problem or opportunity as well as available data sources,” he says. For instance, building an existing business organically depends on factors you already know, including staff, cash flow and customer base. Growing through acquisition or merger carries more uncertainty, which is why “companies often find it easier to grow without the complications of acquisition,” he says.

But new products or markets—a drug with an untested system or a technology without a proven market, for example—require more information and analysis, not only from existing research, but sometimes from conducting additional studies and market analysis.

“Every investment [decision] you make requires a thorough vetting process,” he says, of management, customer base, shareholders and, in the case of energy and pharmaceuticals, for example, the regulatory environment. Technology investment demands reliable resources and information about the technology, its market potential and competition. But it also takes good intuition. “You need to really make judgments that can’t totally be validated by research, because you’re building a new way to a solution,” he says.

Big decision: Whether to back some scientists who had developed a lighting-type material. He did, and the initiative produced Cree Inc., a leader in the light-emitting diode (LED) market. A reliable source assured him the science was correct and could potentially lead to a technology that would replace incandescence, von Arx says, but he also leaned on intuition.

Tip: The best managers can “think outside the box and think intuitively,” he says; they are not “static thinkers” who rely on set decision chains.

A big decision: To leave a 14-year career to start a new bank. Whether to make a loan or adjust a CD rate are “data-driven decisions based on historical data and what’s going on in the economy,” says Botthof. His decision to launch a new bank, however, had a lot to do with his gut feeling.

Once regulations were loosened in the mid 1970s to allow multibank holding companies, says Botthof, “I figured it wouldn’t be long before the advent of interstate banking.” He decided to take a gamble and start a new bank. He was well informed, involved with the state bankers association, up-to-date on the industry with strong connections, “but at the end of the day it was based on what I saw developing in the industry, and a lot of it was intuitive; I thought this was going happen,” he says. “My assumption was correct; we started a bank, and four and a half years later we were bought out by a large North Carolina bank.”

Tips: Do your due diligence, maintain your passion and do a “360 investigation”—gather opinions from people with a variety of viewpoints—for and against—and then decide. “You do have to make a decision; indecision is crippling,” he says. Once the decision is made, “execute it and don’t let anything stop you from doing it. You’ve got to lead.”

“I’m a big believer that a bad decision is better than no decision. If you know it’s bad, you can change course,” Gates says.

Tough decision: Letting valued employees go. “This is the first time I’ve had to lay people off that didn’t deserve it,” he says. “Knowing they have families and no other job options here, it’s really difficult. But once the decision’s made, it gets easier,” he adds. “When you have difficult decisions to make, the stressful part is making the decision. Once the decision is made, all the stress is gone and energy is on the [implementation and result].”

Tips: “Surround yourself with smart people, synthesize everyone’s input.” Even if you don’t take their advice, your decision will be better informed. “You have to have appropriate amount of input; if you wait until you have it all, it’s too late.”

“Whenever you’re talking about business decisions, the first answer is: Don’t do any damage,” he says. “The downside-risk harm is usually greater than the upside-risk gain.”

Big decision: Looking to expand Mr. Coffee’s product line, Eikenberg invited a prospective customer in to see an automatic coffee machine. The customer was “totally unimpressed,” but at his suggestion, the company reworked the machine to make iced tea. “He came back and bought 25,000 at $40 a piece,” says Eikenberg. “We sold $75 million of them in 16 months. That made the difference to let Mr. Coffee go public.” And that was the big payoff for the investors.

Tips: Know when to decide “not to,” he says. “If the pressure’s on but it’s not clear what the problem is, you can build damage into it just to be an action-oriented guy. Let it ride for a while and then change it—bit by bit rather than in one big sweep; most organizations can’t handle radical change.”

Unlike in the military, business decisions are not usually instant. “You have time to hear other people out.” He advises assembling a “kitchen cabinet” of people you trust, who aren’t beholden to you and don’t stand to gain or lose from your business decisions. “You need someone who will say, ‘Jack, that’s the dumbest idea I’ve ever heard,’” he says. “Find three to four guys and pay them, just so you can pick up the phone anytime and ask, ‘What’s your gut reaction?’”


Decision-making basics

The best way to make a decision hinges on the situation, says Jerry Schoenfeld, chair of the management department in Florida Gulf Coast University’s Lutgert College of Business and associate professor.

A program decision—one that happens regularly—is typically guided by a set process or policy. For non-program decisions, which involve more uncertainty, determine how much information you need to make a decision and whether buy-in from stakeholders is important.

In some cases, the leader relies on the information he has and makes an authoritative decision, expecting others to abide by and implement it.

If he needs additional information, a consultative style involves requesting information and perspectives from other stakeholders. However, says Schoenfeld, “You don’t lose control. You get their input and you make the decision.”

For a facilitative decision, a manager shares the problem with a group, allowing everyone to contribute equally.

For a delegative decision, the leader describes the problem to stakeholders and then turns it over to them to come up with a solution.

Most organizations have moved from autocratic to more participative decision making, “because of globalization and increased competition and more demanding customers,” says Schoenfeld. Managers have to be flexible, empowering and encouraging employees to participate so better information can be available faster. “You don’t have time to allow information to work its way up [the hierarchy].”

Group decisions can be better because more people have more information. Groups also tend to make riskier decisions, so if the decision fails, blame is diffused. “But you have to have a group that is committed to making a decision and that has diversity.” Without a range of experience and perception among members, you can get group think, in which acceptance is more important to the group members than the decision, and voices of dissention are stifled.

Failing to involve employees in decisions that affect them could lead to low morale and pushback on a decision—as small business owners often find as their business grows and they have to rely on staff, says Schoenfeld. “That can be difficult as the founder of a business to change their function. What made them successful initially isn’t what it’s going to take to grow the business as a successful organization.”