Untangling your organization’s decision making

Any organization can improve the speed and quality of its decisions by paying more attention to what it’s deciding.

Here is a brief excerpt from an article written by  Aaron De Smet, Gerald Lackey, and Leigh M. Weiss for the McKinsey Quarterly, published by McKinsey & Company. To read the complete article, check out other resources, learn more about the firm, obtain subscription information, and register to receive email alerts, please click here.

To learn more about the McKinsey Quarterly, please click here.

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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.

Growing organizational complexity and proliferating digital communications are a recipe for poor decisions.

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):

The ABCDs of categorizing decisions.
  • 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.

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Here is a direct link to the complete article.

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.

 

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