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Investing in Decision Strategy
The importance of decision-making to US corporate success seems to have been suddenly rediscovered, given the spate of recent front page articles appearing in major business magazines like Fortune and Harvard Business Review. Executives across the corporate landscape are loudly complaining about what I call their "decision quality problem" - needed decisions that don't get made; decisions that are not based in reality; non-decisions that merely create only more non-decisions.Corporations are waking up to the fact that what they ultimately produce they produce by way of their decisions. How well corporations decide over time - i.e., the quality of their decision making - ultimately determines their ultimate fate, as we are seeing playing out, for instance, among GM, Ford and Toyota.
A decision, as my decision analyst friend and expert Brian Hagen puts it, is a commitment of resources to an activity that cannot be undone without some cost being incurred. Nowadays, too many so-called corporate decisions resemble what Brian calls the "GM nod." This is when everyone in a meeting agrees on some decision - you can see people nodding their heads in agreement - but the result is never implemented.
The current decision quality problem plaguing corporations is one that these same complaining corporations set the stage for about a decade ago. Remember the reengineering fad that swept across the country in the mid-1990s? Reengineering, among other accomplishments, ruthlessly eliminated layers of corporate middle management, which was seen at the time as a value-sucking, bloated corporate wasteland.
Unfortunately, in eliminating its middle management, corporations also successfully eliminated the opportunities for future senior managers and executives to first learn and then hone their decision-making skills. Furthermore, a critical decision safety net was eliminated, one which often kept scarce corporate resources from pursuing impractical ideas.
The resultant flattening of corporation hierarchies wrought by reengineering forced critical decisions to devolve to ever less experienced personnel. The situation in some corporations was the equivalent of the U.S. Army deciding to get rid of all of its captains and majors, and by default, putting junior lieutenants in their place. This might even have been barely tolerable if these same corporations had compensated for the situation by providing training and other opportunities for learning decision-making skills, but they did not.
Exacerbating the situation was the zero defect mindset that many corporations developed during the reengineering wars. Mistakes were not to be tolerated, thus encouraging whatever decisions made to be "safe" ones. In fact, the appearance of making decisions became just as good as making decisions - hence the GM nod. Decision-making became divorced from taking action.
While the quality decision problem has taken some time to appear on the public scene - magazine cover stories report after the fact events - it has been readily apparent to those of us in the risk and decision management space for several years. Critical decision-making skills at senior levels of corporations are increasingly missing, and this does not bode well for the future of US corporations.
So, here we are in a very competitive and risk-filled global market, with corporations realizing that they increasingly cannot make quality decisions. What, if anything, can be done about it?
* First, US corporations need to understand the direct connection between their decisions and the products or services they produce. Very few corporations I work with inherently view their products as results of decision processes. For instance, the chair you are sitting on or the building you work in is the result of hundreds, thousands or even millions of decisions. It is not overstatement to state that all man-made artifacts are merely physical representations of a set of decisions. Corporations would do well to conduct decision audits of their products to understand how well their decision processes are functioning, and how well they are serving the products or services they offer.
* Second, since the quality of a corporation's products reflects the quality of its decisions, corporations need to concentrate on how to improve the processes they use to make decisions. Corporations, being in effect decision factories, must pursue the improvement of their decision-making processes with the same vigor as they have their manufacturing processes. For example, corporate decision processes are part and parcel of a corporation's manufacturing process. Toyota's lean manufacturing process did not become truly successful until it integrated the decision processes of finance, marketing, engineering and production into a comprehensive whole.
* Third, corporations need to ensure that their employees are decision qualified. Decision-making is a very learnable skill that everyone in a corporation should be routinely trained in and becomes a corporate habit.
* Fourth, few would argue that any corporation's operating environment is becoming less risky every year. Incremental process improvement efforts alone are not sufficient to survive in risky competitive markets. To do so requires innovation - the creation of something original, something different - which requires the taking of sometimes very substantial risks. Innovation is impossible to foster in zero-defect environments where risk taking - and the eventuality that an innovation does not pan out as expected - leads to someone's punishment. If corporations want to become more innovative, they need to create a culture that at least tolerates innovation and the occasional failure that will surely occur.
The most innovative corporations have decision processes that support quality risk taking, and make decisions in an environment where risks and rewards are well thought out and agreed upon. In these corporations, risk tolerances and appetites are defined, and responsible risk-taking - even if failure does occur - is rewarded.
Finally, to create a quality decision-making process requires a decision - a commitment of resources to make it happen. Unless there is someone in the corporation who is willing to make that commitment, all of the above are merely wishes.
Corporate success is increasingly about making not only sound strategic and tactical decisions, but also about making the fewest decision mistakes. Not to make a concerted effort to improve decision-making is the biggest mistake many corporations are making today.
Charette's Recommended Reading
Winning Decisions: Getting It Right the First Time by J. Edward Russo and Paul Schoemaker [Currency Books:2002].
Will Your Next Mistake Be Fatal? Avoiding the Chain of Mistakes That Can Destroy Your Organization by Robert E. Mittelstaedt, Jr., [Wharton School:2005].
Predictable Surprises: The Disasters You Should Have Seen Coming and How to Prevent Them by Max Bazerman and Michael Watkins [HBR:2004].
Judgment Calls: Making Good Decisions in Difficult Situations by John C. Mowen [Simon & Schuster:1993].
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