How to lead the company strategy and operations in a crisis situation or period of change
The current pandemic, the supply problems it has led to, rising energy costs, plus the shift toward sustainability place a variety of demands on companies – on a number of levels, and sometimes in conflicting ways. If you follow financial indicators, short-term financial and operational measures are required – “flying on visual” with paying customers. By contrast, sustainability commitments necessitate strategic decisions of a medium- and long-term nature, including regulatory and normative decisions – “off the radar” for stakeholders in other areas. Support with this is offered by the OODA model, which helps companies make the best possible decisions in any given situation. Steinbeis expert Dr. Peter Meier explains the benefits offered to companies by the model.
The planning scenarios currently used by companies range from worst-case threats – posing short-term risks to the existence of the company due to financial insolvency – to best-case opportunities to add long-term value in response to all of the demands and expectations of other stakeholders. Faced by uncertainty regarding future developments, companies try to identify relationships between the causes and effects of value-adding activities – in all areas of value creation, for all stakeholders. They also seek to plan for different scenarios, make the right decisions, introduce the right measures, and evaluate outcomes. It is therefore still about the decisions and actions of business leaders, partly taken in situations of ignorance, tinged with a great deal of uncertainty.
To make such decisions, companies need different types of information. This forms the basis of all “intelligent” and “intuitive” activities at companies. Currently, information can be supplemented with AI techniques and tools, but the eternal dilemma between intelligence- and intuition-based decisions remains.
Theory: The four cornerstones of the OODA model
The OODA model is used to define quick and best-possible decisions and actions in a state of uncertainty and missing information. It was developed as a military concept for the U.S. Air Force during the Korean War in the 1950s, and since then it has been adapted as a business and public sector model. [1], [3] The OODA model has four parts:
- OBSERVE: Identify information regarding internal and external correlations affecting the organization.
- ORIENT: Examine, evaluate, and describe the situation faced by the organization.
- DECIDE: Select a scenario for the preferred future situation of the organization.
- ACT: Add value for the shareholders and stakeholders of the organization.
Practice: Use OODA to reorganize information management
How the OODA model can be used by companies is shown by a project conducted by the Steinbeis Transfer Center for Risk Management on behalf of Suthor, a paper processing company from Nettetal, west of Dusseldorf. A family-owned, mid-sized company, Suthor uses an integrated management system – spanning two areas of its multiple-link value chain according to ISO requirements – to manage quality processes (ISO standard 9001) and environmental issues (ISO 14011).
Given the current situation, the company makes daily decisions on short-term and operational changes, versus medium- and long-term strategic plans. There are major deficits with the current ISO standards when it comes to information management and translating this into reality. As a result, the company has been working with Steinbeis expert Dr. Peter Meier and has turned to the OODA concept to place greater emphasis on information management. Meier transfers the formal methods and models used by large companies to the actual situation and processes of medium-sized companies.
Applied to Suthor, the four parts of the OODA model look like this:
- OBSERVE: Relevant information is systematically identified and processed using complementary instruments. This is based on the Rumsfeld Matrix [2], which aims to overcome the unpredictability of developments in complex systems.
Information budget
The 2×2 Rumsfeld Matrix
- ORIENT: Up-to-date situational reports based on the information are prepared on an ongoing basis to convey the internal and external correlations between the company and its business environment. Updates are produced in the form of management reports in accordance with Section 289 of the German Commercial Code.
- DECIDE: Actions are decided upon, giving priority to one of a number of virtual scenarios. This quick decision is made under relative uncertainty and in partial ignorance. It is based on the current (actual) situation and the future (target) scenario. This is based on thinking and actions with a focus on threats and opportunities, as outlined in the ISO 9001:2015 standard for quality management. The two sides of management – leadership and followership – converge. Actions of the business leaders are based on demonstration (as a role model), argumentation (based on reason), discussion (to persuade), and imperatives (issuing instructions). Use is made of natural intelligence, natural intuition, and – if possible – artificial intelligence. The process only involves a small number of managers and specialists; during a crisis, only a minimal crisis management team is formed.
Decision-making
- ACT: Determined actions are carried out. Responses and feedback loops work immediately, because implementing decisions affects the entire organization and the aim is to take the organization on a journey into the future.