KPMG finds businesses are suffering from leaders calling the shots on instincts alone

AI can improve productivity at the top end of town, says KPMG which has found that eight in 10 business leaders report that ‘gut instinct’ has hurt their companies.

Artificial intelligence is being hailed as the answer to sluggish productivity in Australian workplaces and for senior business leaders making poor decisions that are preventing companies from reaching their full potential.

Research from professional services group KPMG indicates a significant number of companies are leaving “value on the table” as a result of decisions made by senior leaders at a time can many are required to navigate economic headwinds stemming from inflation and interest rates.

Ninety-five per cent of business leaders felt “decision distress” in the past year — regretting a poor choice or questioning their decision, according to KPMG.

“The Operational Optimisation: Decision-making beyond human capability” report found that despite 81 per cent of leaders reporting that their businesses have suffered from the actions of poor “gut feel” decision, 41 per cent say most of their business decisions are made on instinct rather than on data or insight.

Business leaders faced an array of difficult decision making current stemming from economic factors such as inflation, interest rates and market volatility, along with competition pressures and customer expectations.

KPMG financial services partner Chris Foster said he was surprised at how much value is being left on the table by business leaders as a result of poor or questionable decision making skills.

“All organisations are trying to use data that they have to make the best decision, but the decisions they’re making from that is leaving a lot of opportunities at the table,” he said.

“Because they are not using sophisticated analysis, leaders are often unaware of the untapped potential and vast opportunities left on the table with every operational decision they make.”

Operational leaders were found to struggle to identify and capitalise on the untapped potential in their existing resources and systems. Efforts to unlock the full potential of business operations can fall short, because decision-making methods are simply not up to the task, according to the report.

Mr Foster added that 75 per cent of business leaders often made decisions with their gut and then looked at the data to justify it.

“They’re making decisions and trying to justify it later. It’s hard to admit and tell everybody that the decision you’ve made maybe wasn’t the best, but equally they probably don’t know what the optimal decision was,” he said.

The report found that 77 per cent of chief executives say that talent acquisition, retention and upskilling were among their hardest challenges this year with many under constant pressure to make decision that will promote a “productive and inclusive” workplace.

However, advancements in AI and advanced mathematics are poised to help business leaders avoid “decision distress” and productivity at a time when Australia is experiencing its biggest annual productivity slump since 1979 (with output per hour falling 4.5 per cent).

KPMG’s new co-venture Elara has been able to bring AI improvements to industries including financial services and healthcare, resulting in a 30 per cent uplift in productivity as it allows business leaders to make more informed decision in a faster time frame.

For one business it was able to improve productivity by creating a new team structure, targeted process improvements and work allocation strategies.

Elara founder and chief executive Campbell Morrison told The Australian that business leaders probably don’t know the precise actions that they can take to realise that full potential.

“When you have hundreds of decisions being made, each one of those individual decisions might not quite reach the full potential and impact to the business wide objectives,” Mr Morrison said.

“AI and mathematics can help because it’s not bound by the same constraints that people are in terms of considering what’s happening in a business, what could happen in the future and all those sort of interdependencies between decisions being made and external factors.”

With AI and advanced mathematics set to reshape corporate Australia in the coming years, Mr Foster said that it would allow businesses to use data in a way that they have not been able to do so previously.

“Because of limitations in spreadsheets, it allows people to maximise the use of data available, both internally and externally. And it gives you that power to provide insights to enable those decision makings by business leaders in a completely new way,” he said.