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It’s the best and worst of times for decision makers. Swelling stockpiles of data, advanced analytics, and intelligent algorithms are providing organizations with powerful new inputs and methods for making all manner of decisions. Corporate leaders also are much more aware today than they were 20 years ago of the cognitive biases—anchoring, loss aversion, confirmation bias, and many more—that undermine decision making without our knowing it. Some have already created formal processes—checklists, devil’s advocates, competing analytic teams, and the like—to shake up the debate and create healthier decision-making dynamics.
Now for the bad news. In many large global companies, growing organizational complexity, anchored in strong product, functional, and regional axes, has clouded accountabilities. That means leaders are less able to delegate decisions cleanly, and the number of decision makers has risen. The reduced cost of communications brought on by the digital age has compounded matters by bringing more people into the flow via email, Slack, and internal knowledge-sharing platforms, without clarifying decision-making authority. The result is too many meetings and email threads with too little high-quality dialogue as executives ricochet between boredom and disengagement, paralysis, and anxiety (Exhibit 1). All this is a recipe for poor decisions: 72 percent of senior-executive respondents to a McKinsey survey said they thought bad strategic decisions either were about as frequent as good ones or were the prevailing norm in their organization.
The ultimate solution for many organizations looking to untangle their decision making is to become flatter and more agile, with decision authority and accountability going hand in hand. High-flying technology companies such as Google and Spotify are frequently the poster children for this approach, but it has also been adapted by more traditional ones such as ING (for more, see our recent McKinsey Quarterly interview “ING’s agile transformation”). As we’ve described elsewhere, agile organization models get decision making into the right hands, are faster in reacting to (or anticipating) shifts in the business environment, and often become magnets for top talent, who prefer working at companies with fewer layers of management and greater empowerment.
As we’ve worked with organizations seeking to become more agile, we’ve found that it’s possible to accelerate the improvement of decision making through the simple steps of categorizing the type of decision that’s being made and tailoring your approach accordingly. In our work, we’ve observed four types of decisions (Exhibit 2):
- Big-bet decisions. These infrequent and high-risk decisions have the potential to shape the future of the company.
- Cross-cutting decisions. In these frequent and high-risk decisions, a series of small, interconnected decisions are made by different groups as part of a collaborative, end-to-end decision process.
- Delegated decisions. These frequent and low-risk decisions are effectively handled by an individual or working team, with limited input from others.
- Ad hoc decisions. The organization’s infrequent, low-stakes decisions are deliberately ignored in this article, in order to sharpen our focus on the other three areas, where organizational ambiguity is most likely to undermine decision-making effectiveness.
These decision categories often get overlooked, in our experience, because organizational complexity, murky accountabilities, and information overload have conspired to create messy decision-making processes in many companies. In this article, we’ll describe how to vary your decision-making methods according to the circumstances. We’ll also offer some tools that individuals can use to pinpoint problems in the moment and to take corrective action that should improve both the decision in question and, over time, the organization’s decision-making norms.
Before we begin, we should emphasize that even though the examples we describe focus on enterprise-level decisions, the application of this framework will depend on the reader’s perspective and location in the organization. For example, what might be a delegated decision for the enterprise as a whole could be a big-bet decision for an individual business unit. Regardless, any fundamental change in decision-making culture needs to involve the senior leaders in the organization or business unit. The top team will decide what decisions are big bets, where to appoint process leaders for cross-cutting decisions, and to whom to delegate. Senior executives also serve the critical functions of role-modeling a culture of collaboration and of making sure junior leaders take ownership of the delegated decisions.
Big bets
Bet-the-company decisions—from major acquisitions to game-changing capital investments—are inherently the most risky. Efforts to mitigate the impact of cognitive biases on decision making have, rightly, often focused on big bets. And that’s not the only special attention big bets need. In our experience, steps such as these are invaluable for big bets:
- Appoint an executive sponsor. Each initiative should have a sponsor, who will work with a project lead to frame the important decisions for senior leaders to weigh in on—starting with a clear, one-sentence problem statement.
- Break things down, and connect them up. Large, complex decisions often have multiple parts; you should explicitly break them down into bite-size chunks, with decision meetings at each stage. Big bets also frequently have interdependencies with other decisions. To avoid unintended consequences, step back to connect the dots.
- Deploy a standard decision-making approach. The most important way to get big-bet decisions right is to have the right kind of interaction and discussion, including quality debate, competing scenarios, and devil’s advocates. Critical requirements are to create a clear agenda that focuses on debating the solution (instead of endlessly elaborating the problem), to require robust prework, and to assemble the right people, with diverse perspectives.
- Move faster without losing commitment. Fast-but-good decision making also requires bringing the available facts to the table and committing to the outcome of the decision. Executives have to get comfortable living with imperfect data and being clear about what “good enough” looks like. Then, once a decision is made, they have to be willing to commit to it and take a gamble, even if they were opposed during the debate. Make sure, at the conclusion of every meeting, that it is clear who will communicate the decision and who owns the actions to begin carrying it out.
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.
It’s also important to develop tracking and feedback mechanisms to judge the success of decisions and, as needed, to course correct for both the decision and the decision-making process. One technique a regional energy provider uses is to create a one-page self-evaluation tool that allows each member of the team to assess how effectively decisions are being made and how well the team is adhering to its norms. Members of key decision-making bodies complete such evaluations at regular intervals (after every fifth or tenth meeting). Decision makers also agree, before leaving a meeting where a decision has been made, how they will track project success, and they set a follow-up date to review progress against expectations.
Big-bet decisions often are easy to recognize, but not always (Exhibit 3). Sometimes a series of decisions that might appear small in isolation represent a big bet when taken as a whole. A global technology company we know missed several opportunities that it could have seized through big-bet investments, because it was making technology-development decisions independently across each of its product lines, which reduced its ability to recognize far-reaching shifts in the industry. The solution can be as simple as a mechanism for periodically categorizing important decisions that are being made across the organization, looking for patterns, and then deciding whether it’s worthwhile to convene a big-bet-style process with executive sponsorship. None of this is possible, though, if companies aren’t in the habit of isolating major bets and paying them special attention.
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Aaron De Smet is a senior partner in McKinsey’s Houston office, Gerald Lackey is an expert in the Washington, DC, office, and Leigh Weiss is a senior expert in the Boston office.