Consulting group McKinsey has released the results of its recent global survey [November 2008] of over 2000 corporate executives on their decision making processes and outcomes. This included questions pertaining to:
- Decision makers involved
- Drivers of the decisions
- Depth of analysis
- Openness of the discussions
- Impact of Politics on process and outcomes
- The financial and operational outcomes
- Hard business benefits
The results of the survey highlighted the benefits of decision making disciplines, ensuring the right people are included and adopting organizational-wide approaches to risk and outcome analysis. It also highlighted flaws in strategic decision making, especially around the impact of irrational thinking on corporate planning
Good Decision Process
Process steps strongly associated with good outcomes included:
- Including people with the right skills and experience in decision making
- Clearly defining decision criteria
- Making decision on facts, not personal assumptions
- Managing contributing politics, such as some consensus and alliance building
Types of Decisions Made in Organizations
More than 75% of investment decisions were aimed at revenue growth rather than cost savings and just over half [57%] of decisions related to human resources were aimed to improve efficiency or productivity:
- Organization Change – Expansion [New products, services, markets] 34%
- Organization Change – Other 21%
- Growth – Existing products, services, markets 15%
- Growth – Infrastructure 12%
- Growth – M&A’s 11%
- Maintenance – Infrastructure 5%
Most decisions were driven by the executive team, most of these outside the annual planning process.
Whilst the survey showed that overall, outcomes for decisions were good, it also supported other findings that execution is too often overlooked when making decisions, with operations executives only being consulted in less than one third of the most financially unsuccessful decisions. Decision outcomes were assessed in terms of met or exceeded executives’ expectations for revenue growth and cost savings, speed, implementation cost, and gains in market share or efficiency. The expected payback period of decisions was less than 2 years.
Successful decision outcomes result from:
- Strong relationships linking financial success to goals set around benchmarks
- Clarity about who is responsible for implementation
- Involvement of implementers in the decision-making process
- Appropriate level of analysis, discussion, and corporate politics for the decision type
Common Decision Making Mistakes
- Decisions initiated and approved by the same person – generate the worst financial results. This indicates the value of good discussion.
- Decisions made without any strategic planning process are twice to fail or deliver substandard results
- Lack of or insufficient risk and impact analysis
Good Decision Making Principles
- Sensitivity analysis and financial-risk models
- Implementation speed of project completion, cost to implement, impact on whole organization not just area of implementation
- Outcomes – benchmarking expectations for both financial and productivity improvements
A concise analysis and understanding of what constitutes:
- Financial success
- Completion of the project in less time than expected
- Encouragement of participation on the basis of individuals’ skills or experiences
- Reliance upon transparent approval criteria for the decision
- Having an understanding of how the decision will impact the whole organization allows for relationship and alliance building ahead of implementation, positively impacting the success of both the speed of implementation and the outcome.
One interesting paradox emerging from the results was that the most successful and the most unsuccessful projects were those where the CEO was highly involved. Certainly, the CEO has a major impact in managing the internal politics of a program and ensuring that impact and risk are assessed at organizational levels, not departmental. This ensures that departmental goals remain aligned with the overarching organizational goals.
For detail results of the survey.
The survey closely followed a previous McKinsey survey [October 2008] on strategic thinking and how companies make good decisions. This survey revealed the error in relying on decision makers using rational thinking even when highly strategic outcomes were at stake. Irrational thinking adversely impacts both individual economic decisions and corporate strategic planning.
Both surveys support the premise of The Logical Organization™, that in spite of the perception held by executives that they alone are capable of solid, rational decision making, it is merely a perception, not the reality. The time in which executives today are pressured to make decisions fails to provide sufficient time for human driven collaboration and analysis. The use of business intelligence tools is critical if this vital part of the decision making process is executed well. BI tools also help ensure that decisions are tied to high level strategic goals and how the decision may impact them.