The finer art of decision-making

How people reach decisions is just as important as how they carry through

With the downturn in the world economy, the importance of good decision-making comes into stark relief. Bad assumptions and sloppy decisions by many market participants and regulators seem to have contributed to the calamitous situation in the credit markets. The economic situation also forces professionals and organizations to make decisions that allow them to do more with less in the months and years ahead.

Many of the important decisions that organizations make are complex and involve multiple stakeholders. Research has consistently shown that when faced with complex decisions, groups outperform individuals. Groups with experts outperform single experts. However, managing such complex, decision-making exercises is a challenge.

All organizations, whether they are businesses, government or nonprofits, are created to achieve certain outcomes. The domain of operations and broad strategic goals are set by an organization’s board of trustees or, in the case of government, by legislation and oversight committees. The organization must therefore make choices, set up processes to get things done, and contend with the uncertainties and vagaries of the real world.

Although the execution and efficiency of processes have seen dramatic improvements in recent decades with the help of computers, most organizations have not experienced similar improvements in the way they make decisions and manage risk. Subsequently, many organizations can improve their outcomes by fixing the outdated decision processes they use.

Decision-making at a glance
So how do successful organizations make decisions? Are approaches available now that improve collaboration, bring out our creativity and pool our collective reason? The accompanying chart shows a simple matrix. On the vertical axis is the importance of the decision. On the horizontal axis is the number of stakeholders involved in the decision.

The bottom left corner is a decision that is not important and involves a single stakeholder. When the importance of our individual decision increases, we begin to abandon simple intuition in favor of employing reason. Similarly as the number of participants grows, we move from using individual intuition to polling the group about how they feel.

The upper right hand corner represents important decisions that involve multiple stakeholders, such as setting a department budget. Most professional decision-making can be found in the top right-hand quadrant— Shared Understanding.  Not surprisingly, this is often the decision-making domain where organizations fail.

When faced with complex, important decisions that involve multiple stakeholders, managers face the challenge of integrating the reasoned arguments from each of them. Without a structured way to focus on underlying issues, participants often revert to appeals to emotion and get frustrated with their inability to articulate their points of view. This is the bane of collaborative decision-making, enabling internal politicking to hijack decision-making and create misalignment with desired outcomes.

Improving group decisions
We have seen that decisions matter. Improving collaboration is a powerful way to improve decisions, but the process of sharing reasons and insights is a significant challenge. Managers must implement methods and processes that make such collaboration successful and standard.
There are five ingredients critical to collaborative success:

  • A focus on objectives.
  • Transparency.
  • Inclusion.
  • Speed.
  • Forced trade-offs.

Focusing on objectives is a fast and proven way to build trust among stakeholders that involves establishing the collective criteria and the priorities each participant attaches to those criteria. This is where the alignment comes into play. When a group of stakeholders focuses on objectives and understands each participant’s priorities, they can then have a meaningful conversation about how these objectives and priorities align with the broader organizational strategic goals. Without this, stakeholders revert back to an intuitive — not shared —sense of priorities. This leads to confusion, frustration and resentment when the conversation proceeds to specific alternative courses of action.

Transparency means all stakeholders have a global picture of the decision being made. It does not mean they all have total access to every part of the decision, but that the process is clear and owned by all stakeholders. When decisions are made, who makes them, and how they are communicated is every bit as important as the decision itself.

Inclusion might seem obvious, but remarkably it is often missing in the process. In general, inclusion does not mean that all viewpoints are equal, but that all viewpoints should be considered and included. However, inclusion is also an important end. If the correct stakeholders are not included, the credibility of the decision process, the decision itself, and ownership of the execution all suffer.

Speed is not an obvious criterion for successful collaboration, but its importance is underestimated. A slow and ponderous collaborative decision-making process has a few notable side effects, all of which are toxic to shared understanding. Assumptions, both implicit and explicit, do not age well and subsequently need to be constantly re-evaluated. This can lead to confusion and a sense that the deck is being stacked in favor of predetermined outcomes.

The cost of slow decision-making is enormous. Tying up too many resources in analysis and evaluation of options instead of deploying those resources in the pursuit of measurable results often leads to a backlash and a reversion to “seat-of-the-pants” decision-making. It is worth noting that speed is of course relative to the importance of the decision.

Speed is also critical because windows of opportunity close. Running out the clock on a decision favors the status quo and, as such, frustrates those who believe change is necessary. 

Finally, employing forced trade-offs is a major step in achieving shared understanding. Without forcing stakeholders to trade off among both criteria and alternative courses of action, we cannot truly understand the relative importance of the components that make up a strategy. Forced trade-offs can be achieved by collaboratively comparing each of the criteria in pairs, and, with the help of software, impute their relative importance.

Change is possible
With all things being constant, good decisions lead to better outcomes, and successful organizations are constantly identifying ways to improve the effectiveness of their decision-making. As the importance of the decision and the number of stakeholders grows, good decision-making practices become more difficult and imperative.

By focusing on objectives, making the process transparent, including all stakeholders, moving the process along in a timely fashion, and forcing stakeholders to understand and make trade-offs, a shared understanding can be reached before significant resources are deployed.

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