Decision making is perhaps the most critical of the various managerial processes. An organization which is able to take purposive, focused and timely decisions is likely to fare better than organizations which are unfocused, dysfunctional and slow in decision making. Decision making has its pitfalls regardless of the size of the organization. Smaller companies have typically fewer stakeholders for decisions and tend to be adventurous and hasty in decision making. Larger companies have multiple stakeholders for decisions and tend to be conservative and complacent in decision making. As businesses become larger and more complex with increased competition, decision making emerges as a source of competitive advantage or disadvantage for the corporations depending on how well or how poorly decisions are taken.
Decision making has been a fertile domain for consultants and practitioners to operate in. The field has spawned landmark contributions from the 1960s to date. Harvard Business Review became the home for several leading papers such as “The Effective Decision” by Peter Drucker (January 01, 1967), “Interpersonal Barriers to Decision Making” by Chris Argyris (March 01, 1966), “Hidden Traps in Decision Making” by Ralph L Keeney et al (January 01, 2006) and “Who Has the D? How Clear Decision Roles Enhance Organizational Performance” by Paul Rogers and Marcia Blenko (January 01, 2006).
Equally, journals have sprung up dedicated to decision making in different domains: The Journal of Decision Making, Strategic Decision Making, Management Decision, Journal of Behavioral Decision Making, Journal of Cognitive Engineering and Decision Making, The Journal of Financial Decision Making, International Journal of Decision Support Systems, Medical decision Making, The Journal of Financial Decision Making, International Journal of Management and Decision Making, and International Journal of Information Technology and Decision Making to quote a few.
It is no surprise that the field of decision making has spawned multiple schools of thought. Some organizational experts consider that the business structure and the organization structure that a corporation adopts have a significant bearing on the decision making effectiveness. Some others consider that the managerial processes and leadership styles of profoundly influence the decision making effectiveness. A few others consider all the four as critical influencers. Another school of thought segments decisions as strategic, operational or tactical and recommends different decision making structures for the three different types of decisions.
In addition to the above there are administrative, behavioral and informational approaches. Administrative school believes that the decision making capability and authority ought to be aligned to scale up of organizational hierarchy. Behavioral experts link decision making to personality types and conclude that good decision making can be the preserve of only a few types of personalities. They place significant emphasis on intuition and experience, and rank gut over head as a guide to good decision making. Others on the behavioral stream, on the other hand, are concerned about excessive personality-driven influences and biases as well as interpersonal barriers to effective decision making. The information school believes that biases can be eliminated and objectivity ensured by incorporating sophisticated analytics and by deploying stochastic processes to model uncertainties.
Organizations are therefore perpetually in search of structures, formats, processes and tools that enable more effective decision making. In the process, the natural instincts of decision making that could serve as the growth triggers for growth corporations are curbed by complex structural and process solutions seeking to elegantly systematize and analytically speed up decision making. In this attempt, the micro-entrepreneurial element of decision making at employee level is overwhelmed by the macro-bureaucratic systems of organizational engagement. Concepts such as employee empowerment and grassroots leadership remain lofty ideals against a background of structures and processes that make decision making an opaque activity with unclear participation and intangible accountability.
Decisions, and decision making
Decisions are an integral part of organizational life. The biggest folly in organizations, however, is that decisions are treated as ends in themselves. Decisions, however, are only the means to achieve outcomes. The theory of decision making tends to be bipolar. One extreme view is that there are no right decisions or wrong decisions and it is only the quality of execution that determines whether a decision is right or wrong. The other extreme view is that several companies have come to grief solely because of wrong decisions that have been taken. The truth, as always, lies in between the extremes. There are certain fundamental characteristics of decisions that need appreciation as one prepares an organization to achieve effective decision making.
Competitive decisions are generic, yet need to be differentiated. The types and classes of decisions have been the same from the very early days of business and industrialization; so much so all decisions can be considered generic. Even strategic decisions have become generic; for example decisions such as the businesses to enter, the scale and scope of business to target, the functional strategies (from research and manufacturing to sales and finance) to deploy, the geographies and markets to enter, the businesses or products to acquire, outsourcing options, integration compulsions, and so on, have become classic generic decisions. The challenge to decision makers is, therefore, not the decisions per se but the differentiation that defines and achieves exciting outcomes. Decision makers who combine the power of decision making with the responsibility of aligning decisions to desired outcomes build enormous value for their companies.
India offers many interesting examples of differentiated generic decisions. For example, large Indian business groups such as Future, Bharti, Tata and Reliance groups took a common generic decision to enter the retail business in India but each, despite being in the first wave, endeavored to develop a differentiated strategy of its own to create unique strategic propositions. Future group leveraged the potential of ready-made garments and household goods required by the growing Indian middle class under two brand and retailing formats (Pantaloons and Big Bazar). Bharti decided to benefit from the retailing and supply chain skills of WalMart through a joint venture under an Indian brand name. Tata decided to focus on electronics and household necessities through Croma and StarBazaar respectively, also drawing on retailing expertise of an overseas retailing major, Tesco. Reliance, on the other hand, created distinct retail entities for several product lines, as varied as textiles, apparel, grocery, footwear and electronics, all with local supply chain and retail management capabilities. It is a moot point whether a shared focus on the middle class is balanced by the above level of differentiation. Decision makers have to be strategic thinkers, besides being functional specialists, to enable differentiated decisions and outcomes even under common generic umbrella.
Effective decisions are contextual and not absolute. Decision makers, and consequently organizations, oftentimes become prisoners of the decisions they have taken. The longer the lead times involved in executing decisions the more risky and more inflexible decisions become. Yet it becomes important for organizations and decision makers to constantly reappraise the decisions as environment, competition and markets change, even if decisions are under execution. Recessionary conditions in advanced markets left Indian companies who structured themselves only to operate for such countries were caught flat-footed. On the other hand, companies with more diversified strategic and geographic portfolio weathered the storm better. Emerging markets in particular are characterized by a changing mosaic of regulatory and market dynamics. Decision makers need to have their finger on the pulse of markets to course-correct.
Indian industry has many examples of contextual decision making that served to revitalize the earlier decisions at current risk. Two striking examples are relevant. Tata Motors had its most prestigious Nano micro car planned at Singur in West Bengal. Faced with a serious political campaign that virtually stopped the project in its tracks, the company had the option of minimizing delays by down-sizing project by returning a part of the land. Instead, the company chose to move to a new site in Gujarat to protect the project in its original integrated scale and scope. But for the openness to re-site rather than compromise, despite the short run costs, the delivery would not be taking place to the envisaged long term economies. Reliance Anil Ambani group which faced an adverse Supreme Court decision in its gas pricing dispute with the Reliance Mukesh Ambani group has been quick to abandon its contentious posture and make peace with the Mukesh group. Decisions revisited contextually by the Ambani industrialist-brothers are helping their groups unlock greater value from current and future businesses. Decision making needs to be value-centric rather than ego-centric.
Successful decisions are conviction-driven, and often contrarian and/or proactive. Conviction is a professional capability that comes from intuition, experience, knowledge, and application that one has. Conviction, therefore, enables a professional take tough and challenging decisions that have appropriate risk-reward equations. Conviction enables leaders take decisions that are contrarian to current trends, such as having the gumption to invest in times of recession. Conviction also propels the decision makers to be proactive rather than reactive in decision making. Conviction enables the decision makers to see beyond the obvious and the immediate term, appreciate their own organizational strengths in a holistic perspective and take value building decisions for the future.
India Inc, in its globalization quest, has proved to the world what conviction-driven decisions could achieve. Just ahead of the global meltdown Tata Steel acquired the Anglo-Dutch steel company, Corus and Tata Motors acquired Jaguar-Land Rover assets from Ford Motor in some of the most expensive and daring globalization investments made by the Indian industry ever. The decisions were contrarian to the need for the Tata companies to conserve cash for future protection. On the other hand, the conviction of Ratan Tata and other Tata executives in the Indian capability to not only turn around the ailing facilities and assets but also create new synergies stands vindicated by the improved performance of these acquisitions, a few years later. Bharti, India’s leading telecom player had the conviction that it needed to be a global telecom player, and despite regulatory hurdles and market inhibitions won ownership of the African Zain telecom assets. Decision makers need to be driven by conviction rather than by mere positional power or analytical guidance to be able to fare significantly better in terms of successful outcomes.
Decision making needs to be encompassing and diffused for organizational competitiveness. Successful organizations make decision making the competitive capability of each employee. This happens through creation of organizational units that are networked and collaborative on one hand, and identification of key themes for the organizations to succeed. Such organizations also imbibe a culture where ideation is visibly encouraged and empowerment is actually practiced. This approach recognizes that successful decision making is a pyramid-like effort; thousands of creative decisions at grassroots level support successful execution of one breakthrough decision at the apex level. Many organizations speak of employee engagement but such initiatives fail to generate desired impact as most often these are one-way efforts from managers to employees. On the other hand successful engagement empowers ordinary employees reach out to higher echelons with creative inputs for effective decision making.
The remarkable growth of many Indian companies in the highly competitive global environment is directly related to the flow of creative ideas and decisions from the laboratory benches, drawing boards or machining centers. Glenmark, an Indian pharmaceutical major succeeded in global pharmaceuticals space because of the ability of the bench chemists and biologists to choose the right therapeutic targets and create the right new molecular entities. It was virtuous ground-level decision making that created value for Glenmark in global drug discovery space. Similarly, it is the engineering decision making at product-project level that helped Tata Motors build new indigenous automobile product portfolios such as Sumo, Safari, Indica, Indigo, Ace and Nano successively. Employees need to be developed and empowered not only for execution but for decision making as a cultural embodiment of forward looking organizations.
TIEDES, a decision making framework
Companies need a framework to generate and institutionalize positive and constructive decision making capability across their organizations. The author proposes a simple, six component TIEDES (pronounced “Tides”) framework to achieve that. The framework enables organizations to Theme, Ideate, Evaluate, Decide, Execute and Synchronize as a comprehensive integrated decision making system. The framework is outcome driven rather than structure driven. The framework is contextual rather than historical. It is conviction driven rather than compliance driven. Most importantly, it provides a tool in the hands of all employees to feel, experiment and imbibe the art and science of effective decision making. Each of these components is elaborated below.
Theming. Companies need precise and purposive themes for employees to be aligned and coalesced across the organization. Growing revenues and profits, cutting costs, increasing market capitalization and driving growth are no longer special themes. Every corporation pursues these generic objectives, which are often nebulous for the employees on the shop floor, in the laboratory or in the field. Companies need to granulate the macro objectives into tangible themes, which every employee can relate to. Suzuki did an exceptional theming initiative across the organization when it unveiled “one component-one gram” program, which exhorted that each employee should contribute to reduction of one gram in each component to make its cars lighter, faster and cheaper. Theming represents a unique way to engage, challenge and inspire all of its employees to a corporate goal in a meaningful manner.
Ideation. Companies struggle to generate ideas from employees on a sustainable and participatory basis. Human dynamics which tend to reject ideas not from their silos or not aligned with their biases constitute a major dampener for employees brimming with ideas. Companies, as a result, fail to realize the potential of their employees. On the other hand, Toyota and IBM have emerged as idea-friendly companies that purposefully encourage their employees to contribute ideas for betterment. Toyota’s Kaizen (continuous improvement) philosophy seeks ideas from employees on a perpetual basis. IBM uses software called ThinkPlace and provides online chatting rooms to connect employees and generate ideas from employees. Toyota and IBM as well as other companies with similar idea-friendly philosophy are role models for idea generation.
Evaluation. The first ingredient of successful evaluation is “trust”! Everything else, including analytics comes only next. Evaluation needs to be carried out by employees prior to submitting the ideas, with trust in themselves. Evaluators, taking up evaluation as a part time activity, tend to be pressured and often dismissive of others’ capabilities to generate ideas. Such evaluators, without doubt, destroy potential value for their companies. As with mentorship, evaluation is an artful science that leverages knowledge not only to accept or reject an idea but synthesize nuggets of wisdom from even only partially helpful ideas. Evaluation needs to integrate the ability to prioritize acceptable ideas based on techno-commercial factors and ultimately integrate them into the corporate planning process.
Deciding. Decision making is not an end in itself but is only a step towards outcomes. Decision making oftentimes is a positional or authoritative power granted by organizations to higher level managers and leaders. Decision makers need to be mindful of their power distorting the objectivity of decision making. Similarly, decision makers need to be conscious that their responsibility does not end with signing off the decisions but extends well into the ultimate phase of successful outcomes. This holds good even though execution tends to be the responsibility of a different set of personnel. Decision makers need to combine the power of exercising choice with the responsibility of owning outcomes. Decision makers, regardless of their functional or business affiliations, need to possess end-to-end thinking with a perspective of long term competitiveness.
Execution. Execution is often seen in organizations as a step by step implementation exercise. However, unless there exists a well documented transfer from decision making to execution, execution could get mired in the hidden traps that were considered but dismissed as of low risk in the decision making process. Execution is essentially a line responsibility; project or program management keeps execution on track but is not a substitute for employee-owned passionate execution. As a company encourages ideas potentially employees would have involvement and stake in seeing their ideas through execution for fruition. Entrepreneurial startups, technology companies and research laboratories are role models of achieving successful execution through collaboration and participatory passion.
Synchronization. Typically companies would have decisions defined as several projects under execution across product lines, manufacturing sites, field operations and businesses. These tend to get viewed as individual projects as time progresses. Continuous synchronization is required to relate the status of each project to the other, with the authority and responsibility for execution heads to detect and report asynchronous movement of interconnected projects. When major environmental, regulatory and market changes take place it becomes necessary to pass even the approved and under-execution projects through processes of synchronization. Korean companies, ever mindful of opportunities and risks, are role models of timely synchronization as a DNA of refinement in decision and execution management.
Decision making needs distinct perspectives and accessible platforms to engage all employees to their full potential. Highly visible breakthrough decisions of companies are often a resultant of a specific organizational culture that encourages and enables grassroots decision making. Differentiation, flexibility, conviction and diffusion shape a holistic outcome-driven timely decision making culture in organizations. Employees, in addition, need also a purposeful and participatory decision making platform to build value and add speed to decision making. Theming, Ideation, Evaluation, Deciding, Execution and Synchronization are six components of effective decision making organizations.
Posted by Dr CB Rao on July 11, 2010
Sunday, July 11, 2010
Decision Making: Perspectives and Platforms
Posted by cb@strategy at 10:01 AM
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Great article, really like the TIEDES mnemonic! All decisions carry an inherent risk and successful companies evolve both processes and capabilities to help nurture prudent risk taking at all levels. Recent recession has served as a good lesson on the downside of excessive reliance on analytics at the expense of good judgment. Although this blog has alluded to it, more extensive discussion on the role played by cognitive bias and its impact on both productive and non-productive behaviors, especially at Sr Mgmt level is worth a discussion. One additional concept that deserves mention is the role of premortem at the Proj Mgmt level (courtesy:Gary Klein) to help anticipate risks and the need for rigor in the decision making process. More often than not, the latter is sacrificed at the altar of expediency further reinforcing the futility lifecycle of organizational decision making as in "those who do not learn from history are condemned to repeat it".
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I really liked the article.Its awesome and very useful!
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