Business Investment: Too Little, Too Late?The Staff of the Corporate Executive Board
Portfolio-level decisions, such as where to invest scarce resources and whether to acquire or divest businesses, are always challenging, but even more so in today's environment.
Despite the good intentions of companies to build and refine processes that ensure these types of decisions are based on an appropriate level of diligence and rigor, executives will not always make the right call. In fact, Corporate Executive Board research of more than 50 strategists at Fortune 500–size companies indicates that the primary sources of decision regret for organizations are being too late to act and investing too little in opportunities. In addition, corporate strategists are 1.5 times more likely to regret doing too little or being too late than investing too much or too early.
While aiming to help executives achieve 100% decision accuracy is an unrealistic goal, companies do have significant room for improvement in helping to increase the quality of the decisions being made.
There are, of course, many different approaches that companies can employ to prevent mistakes in future decisions and improve overall decision quality. However, Corporate Executive Board analysis points to four distinct drivers that can specifically help organizations avoid acting too late and investing too little in business opportunities:
1. Surfacing biases in the decision process—Reveal and remove emotional and political factors that have impact on decisions.
2. Systematically cataloging assumptions—Consistently capture presumptions that underlie decisions.
3. Scoping options into investments—Assess the future potential moves or investments opened by near term decisions.
4. Calculating Opportunity Cost of Decisions—Consider the value of the next best alternative forgone as the result of making a decision.
Improving these competency areas can help organizations to act more quickly, decisively, and fully on business opportunities as they emerge. In fact, the Corporate Executive Board has found that moving from low effectiveness to high effectiveness in these competencies can mitigate almost 30% of decision regret across the two categories.
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