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Business

Poor decision making hurting businesses’ bottom line

By Jack Campbell | |5 minute read

The ability and effectiveness of a business’s decision making can separate growth from decline. Research has shown that poor decision making severely impacts organisations and can be a detriment to profitability.

In fact, businesses risk losing 40 per cent in profits through poor decision making, according to a Decision Design report.

Decision Design founder Dr Johann Ponnampalam commented: “In recent years, Australian businesses have faced significant challenges. From navigating a once-in-a-lifetime pandemic to the highest consumer price index in more than 30 years and the highest cash rate in more than 12 years, there have been relatively fewer opportunities for growth.”

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“With further challenges anticipated this year, the nation’s 2.5 million businesses will need to focus on productivity and invest in the areas that drive business outcomes as they strive to achieve more with less.”

The research revealed that on top of the profit losses, poor decisions could see a 39 per cent loss of customers, a 45 per cent decline in employee retention and engagement, a 59 per cent increase in business costs, and 44 per cent less overall effectiveness.

“Economic conditions are putting pressure on businesses, and the data shows the profound impact better quality decisions within the business can have on revenue, productivity and retaining top talent, with 95 per cent of respondents saying better decision quality will lead to better outcomes for their organisation,” explained Ponnampalam.

Employees are yearning for better decision making from their employers, with 84 per cent agreeing that better quality decision making would increase business profits. Meanwhile, another 84 per cent noted it would increase sales, 82 per cent said costs would be reduced, 85 per cent said retention and engagement would improve, and 84 per cent said it would upskill employees.

So, what is causing poor decision making? According to the report, bias is a major factor (84 per cent), followed by excessive optimism (62 per cent) and overconfidence (62 per cent).

Ponnampalam continued: “During times of transition and recalibration, businesses often rely on familiar strategies for stimulating growth, like boosting sales, trimming expenses, streamlining operations and seeking funding. However, it’s essential that organisations also explore non-traditional avenues to maintain agility and competitiveness.”

Brett Ward, general manager of marketing at Brickworks Building Products, noted that there’s a science to making effective decisions: “Having the evidence to challenge assumptions and strongly held opinions, allows my team to make better quality decisions about what will make an impact and actually change behaviour.”

Ponnampalam agreed: “Adopting a scientific approach to how decisions are made is critical to ensure they are informed, objective, aligned with organisational goals and debiased of hard-wired decision-making errors. In today’s ever-evolving business landscape, investing in the organisation’s decision-making muscle is a must, alongside traditional tactics – to unlock new growth opportunities and foster long-term sustainability.”

Jack Campbell

Jack Campbell

Jack is the editor at HR Leader.