As businesses become established they tend to become more complex internally. They also have wider options open to them, and experience increasing competition.
But there is another, more pervasive change that can take place. This change can undermine the quality of decision-making, and therefore have a negative effect on shareholder value. This is a tendency to become embroiled in ‘group think’.
‘Group think’ can start because of the need to reconcile a greater diversity of opinions around the board table. This may in part be to avoid conflict, and not wanting to rock the boat. But it can escalate to a point whereby the directors actually start to think alike, because they become overly accustomed to the thinking styles of their fellow colleagues.
This can have a negative effect when difficult decisions need to be taken. For example, around the launch of a new product, or the acquisition of another business, and similar bounded issues. In the words of General Patton, ‘If everyone is thinking alike, then somebody isn’t thinking.’
To avoid this scenario, we recommend the development, implementation and regular review of a robust vision of the direction the business should be taking.
What is the optimum size, what level of risk is the business happy with? Which markets should the business move in or out of, and what should the mix of products be? How should the business be funded, and how does the business protect and enhance shareholder value?
We find that by introducing a fresh perspective, the fundamental nature of a business can even be challenged and then changed. We often encounter the issue of a company knowing what it does, but not necessarily the business that it is or should be in.
For example, one of our clients, a London leisure operator, defined themselves as principally a transport business and wrongly benchmarked its activities in relation to the transport sector. We persuaded them that the business was actually in the business of ‘experiencing London,’ and should therefore be competing in the leisure and attractions market. This change in thinking enabled them to redefine their market and start operating in a much bigger area of opportunity.
External challenge can also help address the ‘group think’ standards of ‘we’ve tried this before and it didn’t work’, and ‘we have to compete on price’. The former is normally a euphemism for ‘we implemented it poorly’ and the latter for ‘we do not have, or cannot articulate, a clear client ROI argument’.
Managing directors need to ensure that their planning processes develop to meet the changing needs of their businesses, and not be afraid to use an external point of view to break through inertia. This will help avoid the poor decision-making that can arise from ‘group think.