Armed with extensive analytics, and being mindful of the many biases that affect our perceptions, business leaders should be better equipped to make decisions than ever. However, business complexity has also increased such that decision-making accountability has become too messily dispersed. The final result is a tangle. In an article for McKinsey, Aaron De Smet, Gerald Lackey, and Leigh M. Weiss comprehensively address how to clean up decision-making processes in your business.
Piercing the Impenetrable
The authors first address four types of decision-making seen in businesses:
- Big-bet decisions, which set the future of the company and incur significant risk
- Cross-cutting decisions, which are series of interconnected decisions that “are made by different groups as part of a collaborative, end-to-end decision process”
- Delegated decisions, low-risk decisions that may be safely made by individuals or teams
- Ad-hoc decisions, small, “low-stakes” decisions that the authors do not address in their writing
How decisions are categorized also involves your perspective in the business; it is noted that what is a delegated decision for the organization could be a big bet for an individual business unit, for example. At any rate, a series of recommended practices for each of the first three types of decisions is laid out.
For big-bet decisions, start by appointing an executive sponsor who works with a project lead to craft a one-sentence problem statement. This statement—and what develops from it—will frame decisions in a way that is useful to senior leaders. Furthermore, you will want to break big decisions down into their component parts, analyze their dependencies, and then put those components back together in a way that still works as intended. There may not be all the time in the world to collect pertinent data though, so leaders will have to come into agreement with how “good enough” decision-making looks.
The authors continue to say that, with big-bet decisions, you should use a standard decision-making approach:
An example of a company that does much of this really well is a semiconductor company that believes so much in the importance of getting big bets right that it built a whole management system around decision making. The company never has more than one person accountable for decisions, and it has a standard set of facts that need to be brought into any meeting where a decision is to be made (such as a problem statement, recommendation, net present value, risks, and alternatives). If this information isn’t provided, then a discussion is not even entertained. The CEO leads by example, and to date, the company has a very good track record of investment performance and industry-changing moves.
Next up are cross-cutting decisions, which occur much more often than big bets and incur much risk themselves. The authors argue that the challenge of cross-cutting decisions lies not in the decision itself, but rather in coordinating all the parties involved in the decision. As such, the most effective approach is to simply identify all the points of collaboration and coordination; this clears a path to making an effective decision. It may literally clear a path if you take the effort to map out and then test the business’s decision-making process. You can further bolster a map’s effectiveness by getting clear on which decision-making bodies own which roles and protocols.
Finally, there are delegated decisions, which start to have a dramatic effect on business by virtue of just how often they occur. These days, delegated might not even mean delegated to people; it can also mean delegated to analytics. In any case, McKinsey says you should delegate a decision any time you can answer these three questions with a yes:
- Is this a reversible decision?
- Does one of my direct reports have the ability to make this decision?
- Can I hold that person accountable for making the decision?
Try not to let decision-making power overlap, and along those same lines, create a clear escalation path for decision-making.
Once you implement these simple 50 or 60 tips across every level of your organization, you will surely never make a poorly-informed decision again. Yeah… Good luck with that. You can view the original article here: http://www.mckinsey.com/business-functions/organization/our-insights/untangling-your-organizations-decision-making