BY THOMAS H. DAVENPORT
IN RECENT YEARS DECISION MAKERS in both the public and private sectors have made an astounding number of poor calls. For example, the decisions to invade Iraq, not to comply with global warming treaties, to ignore
Darfur, are all likely to be recorded as injudicious in history books. And how about the decisions to invest in and securitize subprime mortgage loans, or to hedge risk with credit default swaps? Those were spread across a number of companies, but single organizations, too, made bad decisions. Tenneco, once a large conglomerate, chose poorly when buying businesses and now consists of only one auto parts business.
General Motors made terrible decisions about which cars to bring to market. Time Warner erred in buying AOL, and Yahoo in deciding not to sell itself to Microsoft.
Why this decision-making disorder? First, because decisions have generally been viewed as the prerogative of individuals – usually senior executives. The process employed, the information used, the logic relied on, have been left up to them, in something of a black box. Information goes in, decisions come out – and who knows what happens in between? Second, unlike other business processes, decision making has rarely been the focus of systematic analysis inside the ﬁrm. Very few organizations have “reengineered” their decisions. Yet there are just as many opportunities to improve decision making as to improve any other process.
Useful insights have been available for a long time. For example, academics deﬁned
“groupthink,” the forced manufacture of consent, more than half a century ago – yet it
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Best Practice Make Better Decisions
still bedevils decision makers from the
White House to company boardrooms.
In the sixteenth century the Catholic
Church established the devil’s advocate to criticize canonization decisions – yet few organizations today formalize the advocacy of decision alternatives. Recent popular business books address a host of decision-making alternatives
(see “Selected Reading”).
However, although businesspeople are clearly buying and reading these books, few companies have actually adopted their recommendations. The consequences of this inattention are becoming ever more severe. It is time to take decision making out of the realm of the purely individual and idiosyncratic; organizations must help their managers employ better decision-making processes. Better processes won’t guarantee better decisions, of course, but they can make them more likely.
A Framework for
Focusing on decisions doesn’t necessarily require a strict focus on the mental processes of managers. (Though, admittedly, the black box deserves some unpacking.) It can mean examining the accessible components of decision making – which decisions need to be made, what information is supplied, key roles in the process, and so forth. Smart organizations make multifaceted interventions – addressing technology, information, organizational structure, methods, and personnel. They can improve decision making in four steps:
1. Identiﬁcation. Managers should begin by listing the decisions that must be made and deciding which are most important – for example, “the top 10 decisions required to execute our strategy” or “the top 10 decisions that have to go well if we are to meet our ﬁnancial goals.”
Some decisions will be rare and highly strategic (“What acquisitions will allow us to gain the necessary market share?”) while others will be frequent and on the front lines (“How should we decide how much to pay on claims?”). Without
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IDEA IN BRIEF
In many organizations, decisions are left up to individuals and the process for making them receives little if any scrutiny. The recent plague of poor ﬁnancial decisions is…