Strategy. Innovation. Brand.

decision quality

Better Decisions for Your Company – 2

explain it to yourselfYesterday we looked at the first three steps in Decide & Deliver: 5 Steps to Improving Your Organization’s Decision-Making. (The book is here; the white paper is here). Let’s look at the last two steps today.

Step 4 – Build an Organization. The first three steps outline the decision making process. If you do all three of them well, the decision quality will improve. But, in addition to making decisions, you need to create an organization that is tuned for decision making. This especially affects those small but frequent operational decisions.

The authors suggest that the starting point is fairly simple: judge investments based on their ability to improve decisions and execution. You may want to include other criteria as well – competitive positioning, return on capital, and so on. But always be sure to include a decision quality objective as well.

The authors illustrate their point with the war for talent. Here’s the difference:

  • Traditional approach: Are we winning the war for talent?
  • Decision-centered approach: Do we put our best people in the jobs where they can have the biggest impact on decisions?

Looking at your organization from this perspective will change your understanding of how your best people should be deployed. You may find that executive and managerial positions are less “decision-critical” than you thought and many operational positions are more important. You’ll probably want to deploy your best people in different ways.

Step 5 – Embed Decision Capabilities. This one is “about making change stick” and runs in parallel with the other steps. In other words, it’s not the last step in a chronological sequence. Rather, it’s a concurrent step. You build a foundation, engage your best leaders, identify the decision-critical positions, redeploy people, and set audacious goals.

There are obstacles, of course. You may find that important decisions makers (and decision centers) may lose authority as decisions are pushed down and out. Other people may not want to change. They’re comfortable with their current routines. They may not change at all or they may apply the new method of decision making only to the easy decisions. These are all predictable issues. Be prepared for them.

What happens if you successfully complete all five steps? Performance will probably improve on key metrics like customer satisfaction, revenues, and profits. More importantly, you may just set the organization into a virtuous circle (as opposed to a vicious circle). Good decisions produce better decisions which attracts better talent which produce better decisions which … well, you get the idea.

Better Decisions for Your Company – 1

decisionsSeveral years ago Marcia Blenko, Michael Mankins, and Paul Rogers (all Bain consultants) wrote a book called Decide & Deliver5 Steps to Breakthrough Performance in Your Organization. Recently, they converted it into a white paper. Since their research provides important clues for improving decision making, I’d like to summarize it today and tomorrow. I hope it will encourage you to read more – it’s useful stuff.

Step 1Score Your Organization. Most of us don’t give our organizations a grade for the quality of our decisions. But we rate ourselves on most everything else, so why not decision making? The authors suggest a broad survey of managers and employees, followed by face-to-face interviews. Ask four basic questions:

  • Quality — How often do you choose the right course of action?
  • Speed — How quickly do you make decisions versus competitors?
  • Yield – How often do you execute decisions as intended?
  • Effort – Do you put the right amount of effort into making and executing decisions?

These are simple, straightforward questions but I suspect that most of our organizations don’t give much thought to them. Once you’ve gathered the information, Bain has a database of companies to benchmark against.

Step 2Focus on Key Decisions. You can’t evaluate every decision, so identify the critical ones in two different categories: 1) Big, high-value strategic choices – most of these are obvious. 2) Operating decisions that “are made and remade frequently and generate a lot of value over time.” These are less obvious but might include things like merchandising decisions. Companies often make millions of merchandising decisions; shifting even a small percentage from “bad” to “good” can make a huge difference.

To identify the most important decisions, consider two key attributes:

  • Value at stake – don’t forget to multiply value by frequency. Doing so will help you identify high-value operating decisions.
  • Degree of management attention required – can the decision be pushed down the hierarchy and out toward the customer or does it percolate upward? Decisions that require a lot of attention often provide “greater scope for improvement.”

The authors also suggest using the Decision X-Ray. When a decision goes bad, don’t just fix it. Study how the decision was made and identify the factors that caused it to fail. Then apply the lessons to future decisions.

Step 3Make Decisions Work. Four elements here: What, Who, How, and When.

  • Clarify the What – don’t just focus on “whether-or-not” decisions – as in, “We need to decide whether or not to buy Company X”.  Expand the decision, as in “What’s the best way to invest our capital?”
  • Determine the Who – consider the acronym RAPID and identify people who need to Recommend, others who provide Input, others who need to buy into or Agree to the decision, someone(s) to make the final Decision, and others who Perform or execute the decision.
  • Understand the How – how will you make the decision … by popular vote? By consensus? By a key executive?
  • Make the When explicit – “A schedule ensures that decisions are quickly followed by action so that things can happen rapidly and the hurdle to reopen the decisions is high.”

Tomorrow: Steps 4 and 5: Build an Organization and Embed Decision Capabilities.

Groups Get It Wrong (All Too Often)

The right answer is obviously B.

The right answer is obviously B.

Why do decisions go wrong? Many times, it’s because the decision is made by a group, not by an individual. Individuals tend to look at the evidence and make a decision. It may not be the right decision but it’s often based on an assessment of the facts.

Groups may assess the facts as well but they also assess the politics of the situation. The issue may be decided on group dynamics rather than a dispassionate review of the evidence.

Bain & Company recently published a white paper (Decision Insights: How Group Dynamics Affect Decisions) that provides a useful summary of the issues. Here are four ways, for instance, that group dynamics can lead to debacles.

Conformity – if you’re a team player, you may go with the team’s decision even if you realize it’s wrong. The graphic above shows Solomon Asch’s classic experiment. Which line – A, B, or C – is the same length as the line to the left? Working alone, you’ll probably figure out that C is the right answer. However, if you’re in a group that says B is the right answer, you’re quite likely to go with the group. Many companies say they want team players, but they need to be aware of the implications. (See also Group Behavior – The Risky Shift.)

Group Polarization – let’s assume for a moment that you belong to a politically conservative group. You talk to conservatives regularly. Indeed, you talk only to conservatives. You reinforce each other and the group gets more and more conservative. In many cases, the group becomes more conservative than any of its individual members. (See also, Will The Internet Cause Dementia? and Where You Stand Depends on Where You Sit.)

Obedience to Authority – the quickest way to stifle innovation is to let the boss speak first. We all want to please our bosses, so if the boss expresses a preference for X over Y, we often begin to find reasons why X is indeed better than Y. It’s hard to argue with your boss … unless you’re specifically asked to play the role of devil’s advocate, which is often a good idea. Note to bosses: keep quiet. (See also, Want A Good Decision? Go To Trial.)

Bystander Effect – when we’re not sure what to do, we often look to others to see what they’re doing. If they’re panicking, we get panicky. If they’re cool, calm, and collected, we calm down (even if we think we should panic). Individuals often understand a situation better than groups do which is why you should never have a heart attack in a crowd.

So, what to do? Diversity in a group often helps overcome groupthink and polarization, so pull people together from different backgrounds and risk profiles. Playing roles can help. You might stage a mock trial or ask someone to play the devil’s advocate. You can also ask each individual to write down his or her recommendation anonymously, put them all in a hat, and then discuss all of them. You can also prime the team by discussing what it means to be a team player. Emphasize the need to make the best decision, not just the most comfortable one.

And, if all else fails, just ask the boss to leave the room.

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