Does your company rely too much on polls and sleeve constants?

The fifth, and final part of the blog series examines the risks related to the information on which decision-making is based and explains how risk management and growth stories are connected.

 From the point of view of decision-making in a company or organization, it is essential what kind of information assessments of changes in the operating environment and related risks and opportunities are based on. Even expert anticipation can be based on something almost out of a hat. Asking for opinions is one good and at the same time bad way to promote decision-making. Conducting well-conducted opinion polls with in-depth questions, covering a wide range of target groups, and objectively examining their results has initially been an effective way of obtaining comprehensive feedback. This has provided useful background information to support strategic decision-making and operational management.

However, with digitalization, the number of opinion and feedback surveys has exploded, and the quality has deteriorated. Surveys are often created intentionally. The questioning can be leading, and the answer options are limited, resulting in the desired result. If the response rates are too low, the respondents will be attracted to prizes. This provides better coverage for the survey but may not give an objective result. Based on the survey, an expert opinion is drawn up and it is claimed that there is researched information behind it.

It is true that knowledge is researched. However, a similar study can be conducted again with slightly different questions and a slightly different target group, in which case the result is the opposite. These types of surveys are widely used to support marketing and sales. When a company’s management makes strategic decisions, utilizing similar surveys and analyses poses a significant risk to the business. Information may also be distorted when feedback is collected through social media. This is because the target groups of social media channels are very differentiated, and target group segmentation makes a strong profit with the help of different algorithms. Open surveys may also be partly filled with outputs from bots or AI-based applications, which further distorts the result.

The sleeve constant is an established estimate, not a fact.

Sleeve constants are established estimates, typically ratios, that are usually close enough to the truth. Applying them can be a workable and pragmatic solution when a sufficiently good assessment is needed quickly. As a basis for strategic decision-making, they are flimsy. A well-functioning sleeve standard often lives on as a fact, the background of which is forgotten due to personnel changes. Soon no one in the organization will remember what it is based on and will not be able to judge its accuracy. Only by re-examining things can we get to the heart of the matter. Once it is known what the estimate is based on, it can be amended if necessary.

Rapid personnel changes have led to a loss of deep expertise in many organizations. Those responsible for these tasks are unlikely to have time to take on their current duties sufficiently when they are already in the transition phase to a new position. This creates new, hidden risks in business, of which the crystallization of sleeve constants into permanent ones is one.

Using agreed ratios without real data and correct calculations results in approximate estimates. For example, an investment in new technology can be implemented by dividing the investment between the company’s different profit centers as agreed. At the same time, it is agreed that the benefits, i.e., results, will be divided between profit centers according to the same formula. If the results look good, each unit’s return on investment is estimated according to the same initial assumptions. Gradually, companies are being steered towards investment through sleeve constants, shared revenue model agreements, and opinion polls.

Future success is still achievable.

Strategic business goals, key productivity indicators, and KPIs often remain superficial in companies. Selecting and implementing metrics that measure the right things requires too much time, and those who would have known things best are already in new positions. In Europe, companies have largely focused on maintaining what exists, forgetting that the status quo is no longer stable. In Asia and North America, companies have been exposed to a more turbulent operating environment for a long time. They are used to being goal-oriented and taking risks without fear of failure. Risk financing has also been available. This has enabled companies’ growth stories. For these reasons, the leading companies in digitalization almost invariably come from outside Europe.

Companies that wake up to the new situation with strategic ideas will be successful in the future. Future success was created yesterday, but it is still possible to do it today. Information and risk management are the most important starting points for strategic decision-making. It is not enough to assess the risks. Risks must be considered primarily to pursue opportunities.

Targets must be set higher than at present.

Competition is intensifying and the rapidly changing world is causing changes in both companies’ strategic and operational activities that are difficult to predict. Their effects can be assessed and anticipated. The greatest risk for organizations is human activity in unexpected situations, but at the same time, it can also be a great opportunity.

Goals simply need to be set higher and better and more reliable ways of measuring their achievement in the intangible world need to be created. Business continuity and exposure to change must be tested in the most realistic ways possible. The last five years prove that nothing is permanent or impossible in the world. Changes can happen very quickly, causing chain reactions. The more widely risks and opportunities have been assessed and the more thoroughly the organization’s crisis resilience has been tested, the more successful the company will be in the future.

Risk management opens new opportunities that enable new growth stories to be realized in all companies.

The writer’s expertise includes ICT, industrial automation, cyber security, 5G, and new technologies.