Effective Organizational Decisions
Unlike personal decisions, organizational decisions may be delegated and focus on furthering the interests of the organization—including revenue, customer relationships, productivity, and values—often without considering individual interests at all. These differences mean that upper management can, for example, delegate firing and hiring to lower management and that the reactions of the job applicants and employees have no bearing on the decisions made. But is that how decisions are and should be made?
The Cost of Decision Making
A Harvard Business Review study found a 95% correlation between revenue and the effectiveness of organizational decisions and execution. They noted that executives who concentrated first on the way decisions are made were much more successful than those who immediately began changing responsibilities, organizational structures, and systems. When changes enabled faster and better decision making throughout the organization, revenue increased; when changes ignored the decision making process, revenue fell and the very existence of the organization was threatened.
Effective decision making, therefore, does not begin with examining a strategy (merger, reorganization, targeting different customers) or tactics (building IT, changing the sales structure) but with the decision making process itself. No matter how logical or rational a decision appears, if it ignores why, how, and who of decision making, it will fail.
For example, if a company decides to separate sales and marketing, will decision making by the two departments result in conflicts, will they argue over resources, and who will decide the differences? If a company off-shores manufacturing, where will future decisions be made and will both parties commit to the decision?
Decision Making Models
Making good organizational decisions requires having a model to work from. In the following two scenarios, you will see some overlap.
Rational Decision Making: Scenario I
One model of rational decision making starts with the problem. It follows these steps:
- Identify the Problem: Make sure that a problem exists before you try to solve it.
- Identify the Goal: Understand why you are attacking the problem and what change you expect.
- Generate Alternatives: Involve the people potentially affected by the decision in an open, nonconfrontational discussion.
- Evaluate Solutions: The evaluation should be based on the goal and the solution should be the best way of achieving that goal.
- Plan Ahead: Arrange for resources and plan for setbacks—figure out how to provide people, training time, consultants, or other resources to support success; build in a Plan B.
- Measure the Results: Determine whether the decision is effective by measuring the results against the goal.
Rational Decision Making: Scenario II
Another way to look at rational decision making is to start from the goal:
- Establish Criteria: What are your criteria for making a decision: better revenue, recruitment, talent development?
- Establish Facts: What are the facts and what are your sources for facts: market data, turnover data, competitor analysis?
- Establish Alternatives: What alternatives are you considering and what is your basis for accepting or rejecting them?
- Gain Commitment: Has the organization committed the needed resources and are the parties responsible for seeing the decision through committed to the decision?
- Monitor the Response: Do you know if the decision is working and are you prepared to pivot if necessary?
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