In a flat world, strategic decisions are more complex, involve greater risk and must be made faster and better. Strategy used to be synonymous with long-term planning, spanning years, even decades. The problem is that today's business strategies must be stable, yet flexible enough to respond to sudden changes in the marketplace.
As in the past, many of today's strategies come from intuition. However, the preponderance of quantitative data demands balancing gut feeling with reality. Reconciling real data with intuition is difficult. Yet, that is exactly what is needed for making strategic decisions in a rapidly changing, unforgiving world.
In the past, data and intuition could be treated separately. Not so in the enterprise of the future. In a flat world, you might get only one shot at a strategy, so it better be right. That means finding a way to synthesize the quantitative and the qualitative. The Analytic Hierarchy Process (AHP), first introduced in the 1970s by Dr. Thomas L. Saaty, provides an excellent approach for achieving a synthesis. Leaders of the enterprise of the future should give serious consideration to incorporating sound measurement approaches such as AHP in their strategic business decisions.
The strategic decision-making process
Many firms have established formal business processes for critical areas such as operations, finance and even sales and marketing. Yet strategic decision-making, which is more critical than ever in today's world, remains a loosely defined boardroom ritual. That will not work in the enterprise of the future. Instead, an approach is needed that takes into account:
- multiple stakeholders,
- competing objectives,
- expert knowledge,
- limited resources, and
- speed and complexity.
Making knowledge-informed decisions consists of three steps:
- listening to the voice of the customer,
- knowing your business, and
- aligning resources with strategy.
In a flat world, customer needs and loyalties are in a continual state of flux. Staying closely attuned to those changes, while ensuring that your own resources are aligned with the needs of your customers, is a serious challenge. That's a characteristic of what Stephan Haeckel calls the "sense-and-respond organization." AHP allows you to develop a common language for representing and aligning customer and stakeholder needs with internal resources.
Listening to the voice of the customer
To what extent does your market survey identify how well your products or services align with your customers' needs?
Surveys are a popular instrument for measuring needs and wants. Yet their use of oversimplified measurement techniques, such as ordinal scales, presents an incomplete picture of the market. The AHP process derives priorities using ratio scales, which results in a proportionate and more consistent measure of reality. In particular, the AHP methodology helps reveal the critical linkages between perceived customer needs and corresponding strategic objectives.
Knowing your business
To what extent does your digital dashboard synthesize quantitative data with expert judgment from a collective brain trust?
Digital dashboards have become a popular tool for monitoring enterprise performance. However, they tend to take a rear-view-mirror approach, using mostly quantitative data. By not including management insight, such approaches are ineffective in a sense-and-respond organization.
The digital dashboard for the enterprise of the future must not only show where you have been, but where you are and where you are going. And where you are going depends greatly on knowing where the market is headed, which requires business intelligence that is anticipatory, rather than reactive, obtained by applying expert knowledge to quantitative data.
Aligning resources with strategy
Do you have a comprehensive and persistent process for making and executing critical business decisions and learning from them?
Aligning your resources with the needs of your customers requires making difficult choices:
- What market needs do you respond to and how quickly?
- Which ones do you ignore?
- Do you choose to lead or follow?
- Do you acquire new resources, develop them organically or sell the ones you have?
Such decisions are usually made by a board or executive team. Emotions can easily become entangled with rationality, as opposing parties engage in a battle of wits for scarce resources. An enterprise of the future cannot afford that type of behavior. Instead, every dollar must be clearly aligned with organizational goals. That can only be done when decision-makers understand the key linkages across all components of the enterprise.
Synthesizing the qualitative with the quantitative
The chart on this page (Page 19, KMWorld February 2007, Vol 16, #2) shows how synthesis comes about. AHP allows stakeholders with competing objectives to collaborate and reach consensus, by using a technique known as pairwise comparison to produce ratio scale priorities (illustrated by the PRTY ratings in the chart). Decision-makers weigh objectives and alternatives on a relative scale, rather than against an absolute scale. That derives more meaningful and consistent priorities. The priority ratings are combined with qualitative and quantitative performance measures (labeled as PERF). The result is greater alignment, buy-in and confidence in group decisions.
Best of all, the AHP methodology includes an embedded learning process. Through iteration, decisions are continually refined and improved, allowing each subsequent decision to be made faster and better.
Co-creating new, innovative products is a defining paradigm of the enterprise of the future. Customers, partners and stakeholders, using the same language, define a common set of goals and formulate a joint strategy for achieving them. AHP provides a framework for collaboratively synthesizing qualitative and quantitative elements in a way that allows all partners equal visibility into the risks and rewards of any joint undertaking. Given the complex problems and rapid response demands of a flat world, this approach greatly increases your chances for success.
(For more information on the Analytic Hierarchy Process, see www.expertchoice.com.)