The performance of business leaders and the rewards relating to success are under increasing scrutiny. It has never been more crucial to focus on watertight decision-making. Making the right decisions is more of an art than a science. You only have to look at some of our leading entrepreneurs to realise that business ideas that look like madness on paper can sometimes materialise with incredible success.
So, if decisions that initially appear to be wrong sometimes prove to be right, it's worth dissecting the concept of sound judgment. There's no perfect formula for consistently making the right decisions. Sound judgment can be proved only with the benefit of 20/20 hindsight. Decisions are always a combination of fact and feeling: the harder the decision, the more it is based on feelings, intuition and experience.
You may be forgiven for thinking that the boards of big companies are constantly making critical decisions. In reality, few of them are made at board level. Many important fact-based decisions are made further down the management chain. As long as proposals are sensible and well presented, the board will endorse them.
The really big decisions are less to do with factual analysis than with feelings. Leaders need to apply intuition to make the right decisions.
Acting on gut feeling requires strength of character, confidence and nerve.
For example, we recently made a decision concerning RAC's final-salary pension scheme. Like most companies, we needed to address a deficit in our scheme resulting from the stock market downturn. If we'd gone only with the bald facts we might have chosen to close the scheme, as many other companies have done. Instead, we felt that the pension scheme was an important part of the company's relationship with its employees, and we worked hard to find an economically viable way of keeping the scheme open.
Some business people are born with natural intuition. Most learn by experience.
The golfer Gary Player famously said: 'The more I practice, the luckier I get', and in decision-making, never a truer word was spoken. Learning from your mistakes is another of the dull-sounding but essential tools of successful management. Sound judgment often means being honest enough to correct things openly when you get them wrong.
Balancing fact and intuition is critical. Some would argue that the reason serial entrepreneurs often fail is that they rely almost entirely on gut feel, with an implicit desire to break the mould. Of course, every now and then they hit the jackpot. Yet when it comes to running a business with a big brand like RAC, you need to manage the risk much more carefully.
Managers use these principles of experiential decision-making every day in running service companies. The thing about selling service is that much of what we do is intangible. RAC is about knowledge, delivery and brand, rather than physical assets.
When dealing in intangibles, few decisions are based purely on fact.
In large companies, leaders have to work hard to find the facts. After all, when most decisions are made down the line, a filtering process keeps operational detail from leaders, allowing them to concentrate on strategy and growth. The danger, of course, is that they can become remote from the business, making it difficult to exercise well-informed judgment.
From experience, I've found that facts are best heard face to face from colleagues at all levels. There's no substitute for talking directly to the people who deliver service to customers. At RAC, we do this via company briefings, a continual cycle of site visits reaching from Glasgow to Bristol.
This simple process means that I hear what people really think and can consider how business decisions affect them.
Finally, I think a clear set of strong values helps to exercise sound judgment. These are the abiding principles against which we develop colleagues, select new talent and deliver service. In recent years, we've been integrating two companies, Lex and RAC, which have nearly 200 years of operational history between them. Our values encompass that collective experience, giving us a sense of belonging and underpinning our delivery of inspirational service.
The best companies constantly evolve, driving change by reacting to shifting market conditions. Judging the right pace of change is tough. Too slow, and the company loses its competitive edge; too fast, and the organisation suffers indigestion, with knock-on effects for customers. So much is about selecting the right priorities; driving change in the things that will really make the difference.
There is no recipe for sound judgment, but the ingredients list includes working the facts as hard as you can, doing the analysis carefully, using numbers to paint a picture. Inevitably, that picture will require interpretation.
Experience helps, but so does staying close to the people on the ground, who are always well worth listening to. The final ingredient is a clear set of values to provide a framework for exercising judgment. Successful leaders are the ones who can combine the ingredients into a winning recipe.
CV - ANDY HARRISON
Chief executive since 1996, Andy Harrison has overseen considerable changes at RAC, including acquiring RAC Motoring Services in 1999. Previously, he was board director at Courtaulds Textiles and held various business development roles at Bain & Co and Imperial Group. He is non-executive director of Emap and chairman of its audit committee. Harrison has a BA (Hons) in Economics from Cambridge and an MBA from Cranfield.