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Bad decisions? Many companies have no idea

Bad decisions? Many companies have no idea

After a company has a broad view of its decision-making performance, its executives can take a closer look at the most common sources of bad decisions.

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Bad decisions? Many companies have no idea

Companies that decide and execute better and faster than their competitors win the race. It’s as simple as that.

Google launched Gmail, Google+, the Android operating system and Google Apps, all while Yahoo! was struggling to set its priorities. Such dramas play out on a smaller scale in every company every day.

And yet many companies don’t evaluate their decision-making skills. They don’t know how they stack up against the competition, and they can’t tell whether they are getting better or worse. If you don’t measure the effectiveness of your company’s decisions, how can you improve the process?

As the management consulting pioneer Peter Drucker famously observed, “What gets measured gets managed.” And if the measurement shows that your decision skills are way behind where they should be, you have a big incentive to get better.

Decision effectiveness involves four factors. High-performing companies make high-quality decisions. But they also make those decisions faster than their competitors, turn them into action more effectively and devote an appropriate amount of effort to the process. People need to know how well (or poorly) they perform on all of these categories—decision quality, speed, yield and effort.

Bain Book

Decide & Deliver

Learn more about the five steps that leading organizations use to make great decisions quickly and execute them effectively.

Employee surveys are the best gauge of performance on each dimension, since no one knows better than the people involved how good the company really is. A pharmaceutical company, for instance, learned from a survey that its decisions were generally sound compared with its competitors, but its speed was below average, and nearly 80% of respondents said that decisions required too much effort. The priorities for improvement were clear.

After a company has a broad view of its performance, its executives can take a closer look at some of the most common sources of bad decisions, such as these:

Stale standard operating procedures: Sometimes companies stumble over small but critical decisions that can create problems later. One pharmaceutical company, for example, found that sluggish decision procedures slowed its product development, creating unnecessary iterations along the way. The data helped the company spot and unclog decision bottlenecks and get its products to market faster. A utility company learned that its forecasts of daily demand were often off the mark. So it began tracking the percentage of forecasting decisions that, with hindsight, turned out to be right. The process helped the executives responsible for forecasting see where their procedures were strong and what could help improve them.

Pointless meetings: Meetings should be effective forums for discussing or making decisions, but often they are not. Top-performing companies set decision-focused agendas, beginning meetings by specifying the decisions to be made and who is accountable for them. Then they measure performance on these dimensions. A semiconductor company, for instance, tracked its R&D forums—groups charged with developing new products—to determine the number of decisions each forum made, the number of decisions it delayed, and the number it revisited over a given time period. The company also tracked the frequency of escalation to a decision maker higher up in the organization. The data helped people learn to increase decision speed, cut back on reconsiderations and reduce escalations.

Narrow-minded managers: Companies can assess individuals’ decision-making skills in their regular performance evaluations. They can also track the behaviors that are central to effective decision making and execution, such as people’s willingness to engage in open and constructive debate or their willingness to commit to a decision even when they disagree with it. Several companies link executives’ bonuses to a range of decision metrics, including overall quality, speed, yield and effort. The measurements and incentives encourage individuals to develop their own decision skills and to build organizations that make and execute decisions well.

Drucker's dictum about measurement and management is now an accepted part of business lore. It challenges companies to measure “soft” but critical aspects of a business’s operation, such as decision effectiveness. Companies that have met this challenge head-on are reaping the rewards. They not only invest to improve their decision effectiveness, but they also measure how well those efforts generate better, faster decisions and better performance.

Marcia W. Blenko is a partner with Bain & Company and a senior member of the firm’s Global Organization practice. Michael C. Mankins leads Bain’s Organization practice in the Americas and is a senior member of Bain’s Strategy practice. He is a partner in the firm’s San Francisco office.

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