How to design organizations in which decisions are well made
Companies are the result of the decisions they make. This is why reviewing the way in which decisions are made in an organization is critical to achieving the objectives and attaining the desired results. What are the key levers to design an organization that decides well? How to ensure that decisions are made on time in a context of so much uncertainty?
Of all the activities in which we participate every day, decision-making is probably one of the most important and, paradoxically, the one for which our organizations are least prepared. In contexts like the current, where speed and adaptability determine who stays in the game, it becomes increasingly necessary to encourage quality decision-making.
There are many studies showing the value of making more robust decisions. Among them, a survey conducted by the management consultancy, Bain, of more than 750 companies found a 95% correlation between the effectiveness of decision-making and financial results. However, more than 6 out of 10 executives consulted in the same survey believe that at least half of the time they spend making decisions is ineffective. Why is it so difficult? What factors threaten a decision-making process?
Based on our experience and the work carried out together with our clients, at Tandem we observe that many companies accumulate bureaucracy that unnecessarily slows down and complicates the decision-making process; that decision-making is too centralized or too little delegated; and that the opinion of the person in the highest hierarchy usually wins over arguments based on the analysis of reliable data, to name a few conditioning factors. In times of uncertainty, it is essential to avoid these deviations and for this, it is convenient to review five aspects of the decision-making process with a focus on strengthening the quality, adaptability and agility of our decisions.
- Strategic direction
If we speak about more dynamic environments with a higher level of uncertainty, the planning traditionally done once a year to make the most of a company’s relevant decisions is no longer enough. Today, much more agility is needed and this requires a continuous planning system that considers the business before the budget, and allows decisions to be made at the right time.
Along this path, it is necessary to achieve strategic clarity in order to communicate priorities and principles at all levels of the organization, which will give people confidence to make decisions in line with the desired objectives and metrics. This vision also implies addressing the variables of the context and therefore constitutes an exercise in anticipation of uncertainty that ensures the company’s ability to react.
- Organizational architecture
In recent years, organizations have had to create more interconnected organizations and have needed to adapt their designs to respond quickly in a context that is changing at an ever-increasing speed. We have gone from traditional hierarchical structures to matrix, organic or network structures, where the connections between people from different functions with expertise in different areas interact more directly, with fewer intermediate links.
To ensure the responsibility for decisions is not diluted in these new structures, a recommended path is to organize based on the most relevant decisions, those that move the needle of the business. Once identified, the most convenient structure should be defined, taking into account that the number of layers determines the speed of decisions. In the same sense, to gain organizational effectiveness, roles must be clearly established: not only must it be known who decides, but also who recommends and who provides information, as well as the requirement of ‘vetoes’ to eliminate unnecessary approvals.
Finally, it is necessary to refine the routines -understood as a set of meetings-, adjust their frequency and participants, among other variables, and prioritize those that really ensure that decisions are made at the right time.
- Methodologies and processes
Not having methodologies that guarantee the quality of decisions is as bad as having processes that, because they are cumbersome and bureaucratic, hinder decisions and discourage those who have to make them. The challenge is to install the most appropriate methodology for each decision, so that it is made in the most reliable way, in the shortest possible time and with the most pertinent information, generating unified decision criteria in the company.
Evidence-based analysis is another key factor in decision making. For many years, companies had to decide with limited access to data, but the situation today is clearly different. In fact, we have an excess of information that, far from solving the problem, has created new challenges. In this sense, it is necessary to practice a robust approach that guarantees an effective analysis of the data, such is the case of the approach proposed by Decision Intelligence, to cite an example.
Culture serves as a reference for the members of the organization and gives guidelines on how people should behave. Within this framework, there are companies that are distinguished by their decision-making culture: there are cases in which we can see that decisions are made by a single person and empowerment or delegation are not promoted; in others, there are different ‘ladders’ that make it difficult or impede decision making; and in some, decisions are directly not made for fear of exaggerated punishments in the face of poor results.
Clearly, these characteristics break with the need to gain agility or incorporate error in order to learn and experiment. And, while it cannot be inferred that one culture is better than another in absolute terms, one culture is expected to be more effective than another in terms of adapting to its environment. Those companies that put into practice delegation, the creation of spaces to fail in a controlled manner and implement an incentive system that reinforces the expected behaviors, among other initiatives, will surely manage to empower their employees for more effective decision-making and will achieve a competitive advantage.
Decision-making skills are just as important as knowledge about the specific task. Specialists must know the process to decide and allow themselves to review it. Gone is the ‘intuitive’ decision-maker on whom everyone depended in organizations. Today, companies that want to succeed need to be able to leverage best practices and replicate their way of doing things in all key positions. It’s about giving people the ability to analyze data to inform their decisions, regardless of their position in the organization.
A good decision maker must have skills developed in at least three very different and complementary areas: analytical skills, to analyze and process information; emotional skills, to understand and manage the impact of emotions on decision making; and social skills, which allow confidence in the delegation of tasks, understanding the mechanisms that motivate people to generate commitment and knowing the keys to effective communication.
Approaching the most difficult and complex decisions in the appropriate way is not easy, but it certainly brings the best results. It requires confronting high-conflict issues as soon as they arise, rather than waiting for them to fade over time. It is about ensuring that each collaborator understands the impact of making decisions and implementing them correctly, especially in times where uncertainty can compromise the quality of the decision-making process.
Partner at Tandem.