Success in Strategic decisions depends on tactical decisions, we all know this
Why? Because the quality of execution, of course!!
Yes, right, but there is another side less explored that in a no such direct way have a deeply impact in the way we make strategic decisions. Let’s call, for a while “who gives the green light?”
Effective executives do not make a great many decisions. They concentrate on what is important. They try to make the few important decisions on the highest level of conceptual understanding. They try to find the constants in a situation, to think through what is strategic and generic rather than to “solve problems” said Peter Drucker when he referred to the effective decision.
Executives, actually, face a ubiquitous problem which is the tendency of decision makers to settle for the first alternative that meets the minimum requirements rather than finding the optimal solutions. The term “satisficing” was coined more than sixty years ago by social scientist Herbert A. Simon to describe this phenomenon.
People have difficulty passing up the first reasonable idea, whether in a group or individually, they start analyzing the pros and cons instead of remaining in exploratory mode.
The impulse to reach a quick solution makes sense for decisions that are urgent, but many executives use the same approach for making weightier decisions that involve high complexity and long-term impact. It’s not the same, obviously, important business decisions from everyday decisions, because once you make them, you can’t unwind them. Talking about routine decision, many times is better to make a decision quickly and then adjust down the road, than taking too much time.
Starting from this premise I would like to discuss two concepts, first; how we can work with matrix decision, one of the most commons tools used by executives and second; which are the steps to ensure that the right decisions will be made by the right people.
Strategy is about managing difficult trade-offs around scarce resources, with many competing demands and high degrees of uncertainty. The quality of strategic decisions critically depends on having discerning and well-thought-through options and criteria. However, executives typically focus on too narrow a set of options and criteria without taking out-of-the-box possibilities and conflicting stakeholders interests into account.
When executives look at complex problems, they try to focus on the Essentials and to screen out irrelevant distractions. But determining the most important factors and the best ways to respond varies depending on the frame adopted. The option-criteria frame sets the context for the decision. Executives tend to treat this frame as a given; when they get locked into a suboptimal frame they lose perspective, which undermines the quality of their decision making.
Option myopia and criteria myopia are two typical flaws that appear in this kind of process.
We need to use the decision matrix to stimulate out-of-the-box thinking instead of an evaluation tool as we can see in Figure 1. The matrix’s real value is when it is also used as a process tool that helps executives extend their decision frame beyond the obvious options and criteria.
Out-of-the box thinking is not just about coming up with fresh options but also about gaining clarity on key evaluation criteria.
The decision matrix is no panacea, its systematic structure and visual layout provide powerful perspectives for reflecting on, sharing, and debating the critical trade-offs and choices inherent in any difficult decision.
Visualizing options, criteria, and trade-offs in a decision matrix and broadening the decision frame doesn’t guarantee better outcomes. But having a tool for expanding perspectives, removing bias, finding creative compromises, and achieving buy-in increases the chances that you will get it right.
Using a decision matrix to expand the decision frame can enhance decision making at three levels: clarifying your thinking; engaging your team; and generating buy-in from the larger organization.
On the other hand, executives should be careful about turning every decision into a major Project. You don’t need to use a decision matrix to expand the decision frame to make short-term operational decisions — for the effort required; the payoff will be too limited. For that type of decision it’s important to think about the other concept, I mentioned above: how we define decision makers in our organization.
How a company decides who is authorized to make what types of decisions can have a profound effect on its business, both in terms of everyday effectiveness and the bottom line.
“Allocating decision rights in ways that maximize organizational performance is an extraordinary difficult and controversial management task”
To better understand how the distribution of decision rights drives performance and what companies can do to allocate them more effectively, Peter Jacobs, a freelance business writer, spoke with several leading authorities and practitioners and they found that while the barriers to effective decision-rights distribution can be high, several best practices promise to lower them.
First of all we need to weigh the costs.
There are two types of costs that must be considered in allocating decision rights. In their paper, “Specific and General Knowledge and Organizational structure” (Journal of applied corporate finance, summer 1995), Jensen and Meckling note these issues:
- The cost of delegating decision rights to those who have the relevant information but whose motivations and goals don’t align with those of the company
- The cost of accurately transferring the relevant information from the source to the decision maker.
Placing decision rights where these combined cost are minimal, the authors write, should lead to optimal decision-making efficiency and therefore better performance.
“If I know someone in the organization’s lower levels can make a tough call that won’t affect other parts of the company, then it’s their call” says Nick Pudar, director of planning and strategic initiatives at General Motors.
But finding the organizational spot where decision costs are minimal is only part of the battle. You still must deal with the fact that those imbued with decision authority are invariably motivated by their own sets of personal and professional goals some of which inevitably are inconsistent with those of the organization
Overcoming these obstacles begins with the following steps, each of them self-explicative by themselves:
1- Routinely review and update how decision authority is distributed because organizations, what they do, and the environment in which they operate continually change.
2- Avoid too much centralization — and too much democracy by employing an innovative approach of consensus building. Understanding which the inconsistencies within the team are, allows a better alignment.
3- Assign decision rights unequivocally to weaken ambiguity, the main problem in communication. Sometimes we diagnose this situation as communication breakdown, but it’s really a decision-rights assignment problem. Managers forget to inform those to whom they have given decision authority.
4- Don’t confuse a particular outcome with the process itself because if the decision were well allocated, then reallocating them because a bad outcome will only make matters worse. Managers blame the decision makers when results are not as expected.
We talk about two different concepts, apparently disconnected but we can conclude that both of them have something in common.
Either to reframe our matrix decision exploring different alternatives and criteria or communicate to our reports the purpose of our directives, the root cause is the same, as we can see in Figure 3.
We need to change our approach to solve this bottleneck; we need to invest, precisely, our scarcest resource, time.
Time to reflect, time to think in the consequence of our actions and time to develop changes, little by little, to see small wins which help us to understand that it is possible to change our habits. In other words we need to leave sometimes the autopilot behind.