US firms make up a third of world's strongest decision-making companies
Global professional services firm Crowe has released a study examining what makes firms the best in the arena of strategic decision-making. The firm conducted quantitative and qualitative analysis across the categories of growth, diversity, boldness, and innovation to construct an index of the strongest decision-making companies. Two Swedish firms topped the 100-company list, while a third of the top-100 were US firms.
Strong and effective decision-making at the C-suite level is what separates the successful companies from the also-rans, and is key determinant of future success, according to business analysts. Fear of messing up the big, organization-altering strategic decision is why big firms will often bring in prestigious strategy consulting firms to help them out. But how do we parse out which companies are the best at making decisions, aside from just looking at revenue growth?
Professional service firm Crowe delves a little deeper into the examination of what makes a firm rank among the most effective decision-makers. In its 2018 Crowe 100 Decision-Making Index, the accounting firm lifted the top 100 profitable companies in manufacturing, healthcare, and real estate from the Forbes Global 2000 list (omitting ones that recently experienced major scandals). Crowe then ranked the firms using objective data and subjective evaluation in the four key categories of growth, diversity, boldness, and innovation in the five-year period from 2013-2017. By combining the equally-weighted scores, the firm came up with a ranking that tries to illuminate the measurable aspects of the art of effective executive decision-making.
US firms performed very strongly in the index, accounting for a third of the top 100 companies with 33. Japan and China also had strong showings, with 16 and 13 companies respectively. Seven US firms (Apple, Cisco Systems, Becton Dickinson, Northrop Grumman, Lockheed Martin, Thermo Fisher Scientific, and Stryker) cracked the top-20. China was next closest, with six firms buoyed by especially high growth scores. Sweden’s Atlas Copco and Volvo Group stood atop the heap, tied for first as the world’s best decision-making firms – in Crowe’s estimation.
Growth was chosen as a metric because companies that make better decisions will likely perform better than their peers, according to the report. As such, Crowe scored the companies’ market capitalization growth from 2013 to 2017.
China and Hong Kong firms in the top-20 were especially strong in the growth category, with each having a score of 9 or above. They also had good scores in boldness and innovation, though their overall rankings were ultimately dragged down by their scores in the diversity category, which topped out at 5 points and bottomed out at 2.
The strongest US firms on the growth metric were gaming company Electronic Arts (#65), and managed healthcare firm UnitedHealth (#36), which both scored 10.
Diversity was the second metric chosen to form the index. Drawing on multiple experiences and viewpoints allows decision-makers to avoid mistakes and see opportunities that might be missed with a single homogeneous perspective. A growing body of research points to a correlation between a firm’s financial performance and workforce diversity. In a study of over 1000 companies across 12 countries, consulting firm McKinsey & Company found that companies ranked in the top quartile of diversity were 21% more likely to achieve above-average profits than those in the bottom quartile. Thus, Crowe decided to measure gender and nationality diversity at firms over the five-year period.
French real estate investment trust ranked highest on the diversity metric, with a 9 point score owing to the fact that female executives and non-French nationals made up 36% and 80%, respectively, of its board and C-suite.
High-ranking US firms like General Motors (#39), UnitedHealth (#36), and Johnson & Johnson (#39) had high diversity percentages because of a large percentage of female members on their boards.
Overall, companies from Japan had the lowest diversity scores (many with a score of 1-2), owing to a history of low-to-non-existent immigration, as well as marginal female representation in their boards and C-suite.
The boldness metric was measured through an audit of major business news, with scores for industry-relevant parameter of ‘bold action.’ As companies grow and mature, there is a danger that decisions may take longer to make. Risk aversion and decision paralysis may creep in, preventing a firm from realizing strategic opportunities. Therefore, Crowe prizes ‘boldness’ and swiftness in decision-making, which doesn’t necessarily mean a lack of analytical rigour. A Stanford study from the 1980s found that quick decision-makers considered more information and developed more alternatives that slow decision-makers, and that fast decisions were correlated with better company performance.
The innovation metric compared companies’ advanced in management in technology. Like with the boldness metric, Crowe audited and scored relevant news stories for ‘innovative action.’ Investments in Big Data and AI are giving more relevant info for decision-makers to make more informed decisions. Therefore, there is the uncontroversial notion that accurate and well-analyzed data can help point firms in the right direction.
The best-scoring US firms in the boldness and innovation categories – Apple (#3), Johnson & Johnson (#39), UnitedHealth Group (#36), Cisco Systems (#5), Boeing (#39), and Lockheed Martin (#15) – also were among the largest firms by market capitalization. Instead of having slow bureaucracies, the large firms averaged one-and-a-half points higher in ‘boldness’ than the smallest 10 companies by market capitalization; the big firms also were also an average of two points more innovative than the smallest firms. Though they benefit from economies of scale, big firms have to maintain bold and innovative actions to sustain their places at the top, according to the report. This has often resulted in the strategic acquisition of firms, innovative or otherwise.
In sum, firms can look to improve their decision-making through a bolstering of diversity, boldness, and innovation measures, and hopefully growth will follow. “In making any significant decision, all companies face a range of variables and carry a host of unforeseen biases,” commented David Mellor, CEO of Crowe Global. “By learning more about the process of decision-making, companies can make smarter decisions and create lasting value.”
