Decisions, Decisions

Whenever you see a successful business, someone once made a courageous decision. –Peter Drucker

Corporations are essentially giant decision-making machines. The quality of an enterprise’s decisions largely determines its success in its chosen market. In his book, Decide and Deliver, Michael Mankins, a partner with management consulting firm Bain & Co., measures decision-making capability in four ways:

• Accuracy of decisions- what percentage of your decisions was correct;
• Speed- how quickly are decisions made;
• Decision yield- what percentage of decisions led to the desired actions to bring the decision to life;
• Effort and cost of decisions- how much time, money and effort goes into making decisions.

This is a useful lens to view decision-making capability, but I would add some qualifying comments and a few more key dimensions.

Accuracy of decisions may be the most deceptive measure of all because it assumes a steady state environment for decisions to play out. As such, the key assumptions that affect a decision should be clearly enumerated so that should a key assumption change, the enterprise can monitor the situation and correct course as necessary. The goal of management should necessarily be to make good decisions, but post-decision monitoring will allow leaders to “make decisions good” by adjusting on the fly.

Speed to decision may have a correlating effect to accuracy of decisions, but perhaps not. That would be a great study for a PhD Thesis. Until such work is done, I would suggest that the best approach is deciding at such time as the marginal value of more information falls below the marginal value of waiting. Easy to write, but hard to do. In my experience, people wait too long for more information to decide because they long for “perfect” information. To have that “perfect” information is a rare state and devalues the information that is available. I often tell my team that “There are six billion people on earth and no one knows this topic better than you, so make your best decision and be done with it.” That perspective frees people from the burden of waiting for the last piece of information.

Decision yield is more an operational concept. How often do your decisions yield their intended results? Perhaps a decision is too complicated to execute, is beyond the resource capability of an organization or relies on too many uncontrollable variables. A decision that cannot be carried out is not a good decision. Problems in this area may relate less to decision making, than to self-awareness.

Decision effort and cost seems to be an expansion of the concept of decision speed. Time is a resource, as is money and human effort. Is too much being spent on the process of reaching a decision? Or worse yet, is too much being spent on the process of not reaching a decision?

Beyond these four metrics, I see some additional ways to gauge decision-making quality.

One other factor is decision velocity- by this, I mean the sheer number of decision that an organization makes. As a company surveys its ecosystem, it should be continually assessing new opportunities to incorporate into its chosen strategy. This assessment of the new often falls to the wayside when dealing with the day to day routine, but is of critical importance to maintain adaptability in a changing business environment. Essentially, velocity measures not how a company decides, but the size of the universe that it makes decisions on. Narrowing the field of decision making is itself a sort of decision.

Another factor to measure decision-making adeptness is option preservation. In other words, does the decision preserve operational flexibility to make subsequent related adjustments if the original assumptions change? Leaders should make decisions that maximize future options.

Other operational aspects of good decision-making include ease of communication and consistency. Both of these attributes should contribute to an increased decision yield.

In life, decisions usually appear binary, “I do this or that,” but looking at decision-making in a deeper way makes one realize that decision outcomes are often more variable, multi-faceted and nuanced than expected. As corporate counsel, our role is to bring that nuance to corporate decision practices, and in so doing, improve the quality of the organization’s decisions and actions.