Leaders must make decisions on a daily basis. Some decisions are simple, require little thought and can be made using experimental data, learned knowledge and gut instincts. Contrarily, other decisions can have long-term consequences on the future direction of the company and thereby demand deeper strategic thinking and analysis.

Unfortunately, too often leaders do not distinguish the level of analysis that must be performed based on the future impact of the decision. This results in a negative impact to the company, as decisions that should have involved in-depth analysis are made with more of a “shoot-from-the-hip” mentality and the consequences become evident as hindsight proves invaluable. This is especially true in middle market companies, which characteristically are void of executive boards that assist in the vetting process.

In larger corporations key decisions require upper management sign-off and possibly board or committee approval. With such policies in place, in theory, the outcome has a greater chance of success since the various angles are considered and the people who have the greatest knowledge or impact on a decision are included in the process. In middle market companies however, a solo process is often involved and decisions are commonly made sporadically, without adequate contemplation or sufficient data. In doing so, these decisions are often misguided and result in unintended consequences.

It is crucial that company owners and leaders first identify the level of thinking the decision requires and recognize their strengths and weaknesses in the process. Through such acknowledgement the leader can establish proper decision making methods that predetermine the level of strategic thinking and outside expertise that it requires. Given the fact that middle market companies inherently lack board structure and review, company leaders need to become self-disciplined, employing an internal policy that guides the process of decision making.  Such internal checks and balances can ensure that the right amount of data is collected prior to execution. The key in employing such ideology requires a well-defined threshold on what can be decided upon immediately using past knowledge and gut instincts and what requires further investigation, analytical assessment and possibly outside guidance and expertise.

Development of such thresholds is unique to the company and the decision maker. It depends on the leaders’ expertise and the potential impact the decision can have on future company operations. For example, execution on a new product line requires marketing, operations and financial acumen. A leader with a strong sales background may be capable of defining market demands but should consult outside expertise when forecasting profitability. Commonly middle market companies make the fatal mistake of responding to the market demands at the expense of profitability, as true cost accounting is not employed. On the flip side, financially minded leaders may have thoroughly calculated ROI only to realize that the selling price point required to satisfy the financial model is not market centric. In this case, the decision makers would have been well-served if they had defined their threshold in advance, and consulted with others in the company or gained outside expertise prior to making the final decision. By employing a “decision strategy” a middle market company can emulate the board-like structure of their large corporate counterparts and in theory, make better decisions.

This blog could not be complete without heeding one warning about corporate “board emulation”. Lately we have heard about corporate boards that have been “asleep at the wheel”. Perhaps middle market companies can use the decision making threshold concept, as expressed herein, to set a new standard of effective decision making. In this they can demonstrate true and effective cooperation between thought leaders, experts and company decision makers in a way that someday large corporations will be looking down market to emulate their smaller counterparts.