You can’t afford poor decision-making, here’s what you can do to improve

You can’t afford poor decision-making, here’s what you can do to improve

It is the case for many organisations that growing organisational complexity has clouded accountabilities. It has become increasingly difficult to delegate decisions cleanly and the number of decision-makers has grown, compounded by the rise of cheap digital communication as more people have been swept into the flow without clarifying authority (McKinsey, 2017). Getting your decision-making processes right will help you reach better outcomes, and reach them faster. 

How much could a bad decision cost me?

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Decision effectiveness and financial results correlate at a 95% confidence level, or higher, for every country, industry, and company size, with companies in the top quintile generating average shareholder returns nearly 6 percentage points higher (Bain & Company, 2013). Chronic poor decision-making by mid-level managers can cost firms upwards of 3% of their profits (Gartner, 2018a) and not making decisions in a timely manner can amount to around 530,000 days of managers’ time per year, equivalent to $250 million in wages (McKinsey, 2019a).

With the potential costs of poor decision-making so steep, it becomes crucial that processes are clear so that quality outcomes can be achieved effectively and efficiently. 

How Widespread is the Problem?

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In a global survey of senior decision-makers and finance executives, 61% had noted an increase in operational decision volume, and 57% indicated that these types of decisions materially impact profitability (Gartner, 2018b).

Despite the importance of sound decisions to financial performance, 60% of senior executives report that bad strategic decisions are about as frequent as good ones in their organisation, and a further 12% think they are the prevailing norm (McKinsey, 2010).

More recently, just 20% of respondents to a McKinsey survey (2019b) thought that their organisation excelled at decision making and only 37% said that decisions were high in both quality and velocity.

Decision-Making Processes Are Broken

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Frustration with broken processes is growing amongst management teams, along with the slow pace of deliberations and the uneven quality of outcomes. They view them as inefficient and that the time spent making decisions is ineffective: fewer than half say decisions are timely at their organisation and 61% report that at least half the time spent making them is ineffective (McKinsey, 2019a).

The procedural causes of dissatisfaction include convoluted processes, lack of real debate, overreliance on consensus, death by committee, unclear organisational roles, information overload, and a lack of empowerment in company culture.

No One Wants to be Responsible for Being Wrong

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An article that featured in McKinsey Quarterly (2019c) stated that poor clarity around decision rights and blurred accountability can have immediate repercussions in a world where speed and agility are a competitive advantage, situating it as possibly the biggest challenge for decision-makers and businesses. 

Decisions that get escalated to where they don’t belong waste time and effort, often resulting in poorer outcomes, and may also reflect deeper issues surrounding company culture. Unclear processes surrounding decision rights and a lack of psychological safety leads to reluctance to be seen as responsible for an “incorrect” decision, so escalation becomes the norm.

Not Everyone Needs a Seat at the Table

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Conversely, “tourists” (i.e. those that have no decision rights but attempt to involve themselves in the process anyway) are driven by the desire to be included in a decision that they feel may impact them in the future and/or feel that their input is valuable.

Tourists can become disruptive forces in the decision-making process because they lack clarity and have not been given a sense of how their roles fit into the decisions being made without them needing to be present.

These employees need high-quality internal communications that expand on more than just the outcome of a meeting to include details of what it means for their specific roles (McKinsey, 2019c).

The Importance of Self-Awareness

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In her book, Insight: The Surprising Truth About How Others See Us, How We See Ourselves, and Why the Answers Matter More Than We Think, organisational psychologist Tasha Eurich revealed that 95% of people think they are self-aware (an essential skill which becomes the foundation of high performance and smart choices), but in reality only about 12-15% actually are

This lack of self-awareness causes inherent cognitive biases to negatively influence decisions made by an individual when they are left unchecked and unchallenged. Self-awareness is also correlated with financial performance, with poor-performing companies 79% more likely to have low overall self-awareness and 20% more blind spots than financially strong companies (Korn Ferry Institute, 2013).

Decisions that are initiated and approved by the same person generate the worst financial results, highlighting the importance of good discussion and additional inputs, where appropriate (McKinsey, 2009). However, whilst an individual is likely to be missing vital information and is at risk of making bad choices through unchallenged inherent biases and blind-spots, group decision-making is not without its problems.

Barriers to Effective Group Decision-Making

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Reliance on a complete consensus encourages a “group-think” mentality. Both unintentional and intentional dislike/discomfort with debate (therefore subsequent avoidance) shuts down disagreement and suppresses dissent. Taking the devil’s advocate position, even if the person taking the stance doesn’t agree with it, encourages alternate viewpoints to be considered and inherent individual biases to be challenged. 

Similarly, “sunflower management” (i.e. the tendency for groups to align with the views of the leaders, whether expressed or assumed) can also be avoided by leaders by taking an active role in encouraging healthy debate. Their objective should be to explore assumptions and alternatives beyond what is presented and seek information that might disconfirm the original hypothesis. 

It is still worth noting that, although a team does make better decisions than an individual, these benefits stop at seven people, with each additional member reducing decision effectiveness by 10% (Blenko, Mankins and Rogers, 2010). Only those most appropriate for the decision should be the ones invited to ultimately make it.

Identifying Decisions and How to Get Them Right

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McKinsey (2017) claims that it is possible to accelerate improvement of decision-making by categorising types of decisions and tailoring your approach to each. They describe four different types of decisions that they have identified over the years whilst working with global companies: 

Big-bet decisions are infrequent and high-risk and have the potential to shape the future of the company. They should be, and are usually, handled by the top team and the board.

  • The most important way to make high-quality big-bet decisions is through the right kind of interaction and discussion, including quality debate, competing scenarios, and devil’s advocates. It is also important to develop tracking and feedback mechanisms to judge the success of decisions and, where required, course correct for both the decision and the decision-making process.

Cross-cutting decisions are a series of small, interconnected decisions that are made by different groups as part of a collaborative, end-to-end process. They are frequent and high-risk and usually handled by business-unit leaders or senior managers.

  • The challenge is the choreography needed to bring multiple parties together to provide the right input, at the right time, without breeding bureaucracy that slows down the process and can diminish decision quality. Effective cross-cutting decision making can be a great way to tackle other organisational problems, such as siloed working.

Delegated decisions are frequent and relatively routine elements of day-to-day management. They are generally low-risk and handled by an individual or working team, with limited input from others.

  • Placing responsibility for these decisions in the hands of those closest to the work typically delivers faster, better, and more efficiently executed decisions, whilst also enhancing engagement and accountability at all levels of the organisation. It is essential to establish clarity around roles and responsibilities in order to craft a smooth-running system of delegated decision making.

Ad-hoc decisions arise episodically and are usually infrequent and low-risk.

  • These are not discussed in the literature due to their relative unimportance and low impact.

However, only 30% of respondents to a more recent McKinsey (2019b) survey reported familiarity with the first three decision types. 

Purposeful Can Help

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The most simple way Purposeful can assist in decision-making at your organisation is to act as a poll in group decisions. Users can cast their vote for pre-set outcomes secretly and simply with a click of a button. Outcomes are then presented clearly on a data-rich dashboard with the option to export to a PDF for documentation and reporting purposes. 

Adding only those who are responsible for a decision to a custom group and delegating the decision through Purposeful also clarifies roles, affirms decision rights, and empowers people to decide in the knowledge that the delegation and the ultimate decision is irrefutably recorded. Having a dedicated channel for information sharing and voting on decisions also makes it easy to revisit previous decisions without the need to search through email chains or instant messaging chats.

Whilst Purposeful is not a platform designed for the high-quality debates required for big-bet decisions, we are a valuable tool to help establish clear lines between information sharing, discussing, and deciding in decision-making meetings. McKinsey (2020) suggests that attendees should be provided with a short, focussed, and well-prepared pre-read to minimise time spent information (over-)sharing. Purposeful can not only facilitate sending these pre-reads to the relevant decision-makers but enables them to attest to their understanding of the content ahead of time.

We can also connect teams involved in cross-cutting decisions where the coordination involved in collaborating and making a series of smaller decisions can be difficult (or unnecessary) to arrange in person. By separating these decisions and recording the information provided to achieve the outcome of each, Purposeful can help pinpoint where in the chain something might have gone wrong to learn from mistakes and refine processes.

The number of people involved is recorded through the sending of the group messages, as are the number of alternatives discussed, which are not limited to just a yes/no or an A/B choice. Records of who voted for what, how committed people were to the decision, and how aligned the decisions were with company goals can all be gathered and committed to record using Purposeful messages.

Contact our team today to see how we can help you refine your processes and speed up decision-making at your organisation.