Bridgepoint | The Point | May 2021 | Issue 39
Management
Making the right decisions is integral to business success, yet few companies employ formal decision-making processes or assess how to create good decision makers. Those firms that do consider these issues can secure real advantage compared with their peers.
Think
fast
A round half the world’s population has a smartphone today, equivalent to almost 4 billion devices. Just imagine how many decisions were made by manufacturers, marketers, miners and retailers before those phones ended up in their owners’ hands.
How big should the phone be? What materials should be used? What’s the price point and the R&D cap? Which demographic is being targeted? Where will it be assembled? And what about the shape – rounded rectangle or squircle?
Systematic support
Mobile phones are probably the most widely held electronic accessory in society now. But every day, thousands of people are forced to make decisions – some big, some small – that in aggregate determine the success of any given product and the company behind it.
Decision-making is critically important, yet many firms fail to examine it as a business process, or to systematically support their employees so they make better choices. And even those companies that do have formal frameworks for decision-making can find they are no longer fit for purpose in a world where getting the answer quickly often matters as much as getting it right. Radical uncertainty rewards nimbleness: the proliferation of digital technologies means new business models and customer behaviours can rise and fall faster than you can say “five-year plan”.
Unfamiliar terrain
In Deciding How to Decide, a 2013 Harvard Business Review paper lead-authored by Hugh Courtney, professor of international business and strategy at Northeastern University in the US, the problem is linked to an over-reliance on traditional decision-making tools, such as discounted cash flow analysis and quantitative scenario analysis.
“Don’t misunderstand. The conventional tools we all learned in business school are terrific when you’re working in a stable environment, with a business model you understand and access to sound information. They’re far less useful if you’re on unfamiliar terrain – if you’re in a fast-changing industry, launching a new kind of product, or shifting to a new business model. That’s because conventional tools assume that decision makers have access to remarkably complete and reliable information,” Courtney suggested.
Bigger toolkit
In conditions of rapid change and uncertainty, Courtney and his fellow authors recommend tools such as qualitative scenario-planning and case-based decision analysis, somewhat akin to case law, where employees seek out examples analogous to their situation. Other prominent additions to the modern decision maker’s toolkit include design thinking and agile methodology. These eschew lengthy planning in favour of rapidly producing a minimum viable product, which then evolves through real-world testing, new iterations and feedback.
Even those companies that do have formal frameworks for decision-making can find they are no longer fit for purpose in a world where getting the answer quickly often matters as much as getting it right
And there is another, perhaps rather obvious, way to improve organisational decision-making capacity: hire better decision makers.
“In most cases, good decision makers are made, not born, but we definitely look for certain traits in our employees,” says Alain Georgy, head of mid-market sales and partners EMEA North at multinational software group SAP. “Good decision makers are able to integrate several criteria, such as ‘is it urgent or not’, ‘is it important in terms of impact or not’, ‘is it complex or simple’, and ‘should I decide alone and go fast, or shall we take the time to make a team decision’.”
Pulling together
Georgy says these traits are generally found more often in experienced employees, placing an emphasis on on-the-job training and support for younger decision makers. But even companies that hire teams of decisive, clear-thinking people won’t necessarily find that their organisation makes effective decisions. The best decision maker will be useless if they aren’t empowered to take the right decisions, if they fail to receive the right information, or if they cannot ensure that decisions are implemented properly.
And a hundred great executives won’t make an even half-effective organisation if they aren’t all pulling in the same direction. This is a particular challenge in agile organisations, where in the interests of speed, decisions are typically decentralised and a culture of risk-taking is encouraged.
Intelligent risks
There are various frameworks for ensuring that such techniques do not result in an uncoordinated free-for-all. Georgy says that SAP prefers decision makers to make 10 decisions a day, including eight good ones, rather than making just two good ones. “We believe in the 80/20 rule. So long as we’re 80 per cent happy with our decisions, that’s good enough. We cannot work to 100 per cent in such a fast-paced world,” he says, adding that there are special protocols to make sure senior people sign off anything that could have legal implications.
At LinkedIn, employees are encouraged to take “intelligent risks” by applying three tests to any idea. “First, we evaluate the upside compared with the downside – essentially, how much will be gained if we achieve the expected outcome, how much will be lost if it doesn’t work, and is the upside considerable compared with that of the downside,” explains Josh Graff, LinkedIn’s managing director for EMEA and Latin America. “Second, we assess the expected outcome versus the cost – how likely is it to happen, and what does that mean in terms of time and resources. And third, we consider balance – how many other risks are being taken at any given time.”
Critical thinking
Crucially, Graff adds, this culture of risk-taking is baked into LinkedIn’s performance management structure: “Staff are recognised for their ideas, whether the outcome they expected was achieved or not.”
Another essential element of effective decision-making frameworks is clarity. How do firms decide which decisions need to be made, and who should make them, particularly when they involve multiple business functions that may have conflicting priorities?
One popular technique is the “RACI” responsibility assignment matrix, where parties are formally designated as responsible, accountable, consulted or informed. Multibillion-dollar office furniture manufacturer Steelcase goes into more detail with its critical thinking framework, which it developed in the early 2000s, following a major product launch that was beset by problems and where no one could subsequently agree what went wrong.
When anyone even thinks of making a decision, they need to ask themselves and each other who has responsibility, what’s the central question and what are the expected upsides and downsides?
Central question
As a result, all decisions at Steelcase now follow a clear structure, which starts with
writing down a central question that goes to the heart of what the decision actually is, and that aligns with the company’s defined purpose and strategy.
“For example, during Covid, the central question was how to operate our factories without negative lead time, service or quality consequences for our clients, but also without endangering the health of our workers,” says Guillaume Alvarez, senior vice president EMEA at Steelcase.
“A bad central question would have been, ‘How can we keep our factories working?’, because someone, somewhere would have said, ‘We don’t have time to wait for the masks, let’s just get going’. It has to be really clear.”
Four steps
The central question needs to be asked by a single “point of view owner” who has responsibility for the whole process. “The tendency is to say the big boss needs to decide, so it’s up to the big boss to push it back down again,” says Alvarez. But he cautions that, often, the person best suited to this is not always the most senior. “I may be running British Airways, but I cannot fly your Boeing 777,” he explains.
The point of view owner then follows four distinct steps. First is the “think phase”, where information is gathered, which could take hours or months, depending on the nature of the decision.
They then reach a point of view on what to do and how to do it. Take the pandemic, for example. “We saw that we could keep the factories running, but we would need to separate our workers by two metres. That meant redesigning our work processes and closing the cafeteria, which meant we’d need to provide packed food to our workers,” says Alvarez.
The point of view is discussed with stakeholders before the “plan to implement” stage, where the point of view owner assigns specific responsibilities, retaining oversight of the final “implementation monitoring” stage.
Clear processes
Whether firms adopt a formal framework, such as Steelcase’s critical thinking model or LinkedIn’s intelligent risks, the key is that processes are simple to understand and championed often enough by leaders that they become part of an organisation’s common language.
When anyone even thinks of making a decision, they need to ask themselves and each other who has responsibility, what’s the central question and what are the expected upsides and downsides?
It’s not one-size-fits-all, and the emphasis will necessarily differ by company sector, size and culture. The key thing is that managers should take the time to think not just about what decisions they need to make, but also about how to make them.
Paradoxically, the faster things are moving, the more important this becomes n