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What are your critical decisions?

Companies that make better, faster decisions, and act on them effectively will almost always outpace their competitors.

Par Karim Shariff and Jenny Davis-Peccoud

First published on avril 04, 2012
min


Few brands can boast the worldwide recognition of Nike's famous "swoosh." Less obvious to consumers around the world are the structure and processes behind that global icon. Nike has long relied on a matrix organization: footwear, apparel and equipment on one dimension, geographic areas on the other. In 2007, however, executives added a holistic focus on six core categories—running, basketball, football (soccer), women's and men's training, and sportswear. (Nike has since added 'action sports' as a seventh category). With their "Just Do It" attitude, most people at Nike welcomed the change, realizing it would bring them closer to their consumer. But many also wondered if another set of dotted-line accountabilities would bog down the organization and make it harder to keep up with the latest trends. Who would make key decisions? Who would implement them? Bain & Company's research shows that companies that make better, faster decisions, and act on them effectively will almost always outpace their competitors. Indeed, for big, high-value choices, that seems obvious: when Starbucks introduced its instant coffee, or when Applied Materials moved its manufacturing and engineering base to Asia, those decisions involved sizable amounts of resources and significant risk. Individual business units make big strategic decisions too: a major systems upgrade is clearly a critical decision for the IT organization. Yet equally important are decisions that are made and remade frequently, week in and week out. These sorts of decisions are usually operational, and are made and executed by people on or near the frontline. For example, the IT organization cited above must make routine but often essential decisions about software upgrades and help-desk staffing levels. Or take Amazon.com, whose continuing success depends partly on a host of savvy merchandising decisions, including decisions about prices, shipping discounts and targeted email notices about new offerings. In aggregate, each of these seemingly small decisions stimulates millions of dollars in sales. But with your company's performance dependent on so many decisions, large and small, how do managers and employees know which ones to focus on? And if they can identify them, how do they analyze them to see what's working and what isn't? Identifying your critical decisions begins with creating a decision architecture—a list of decisions for every major business process. The next step is to winnow the list. Value at stake is one useful screen. But as you identify high-value decisions, make sure you don't miss everyday decisions that add up over time: decision value multiplied by frequency is a handy formula to remember. A case in point is a European rental-car company that realized its growth would come from international travelers. It had failed to serve those customers well in the past, so it put a high priority on making sure that everyday operating decisions in specific geographies—about pricing, customer service and fleet management—were geared toward providing international travelers with a seamless experience. Another screen for narrowing your decision list is the degree of management attention required. Some decisions need more management attention than others in order to work well. Naturally, every company takes a slightly different approach to identifying critical decisions, but the end result is likely to be a list of about 20-30 critical decisions. Nike, for example, identified 10 major decision areas, including category selection, budgeting and targeting, and channel and sales strategy. Then the company came up with 33 key decisions under the 10 headings. Once armed with your list of critical decisions, it's natural to want to jump in and fix the ones that most need improvement. But it's a good idea to look before you leap. Where are the failings, exactly? A tool called a decision X-ray can help answer that question. Ask everyone involved to rate decisions in terms of quality, speed, execution (yield), and the effort involved. Who plays what roles? Are the roles clear to all? How well does the process work? What behaviors get in the way? At Nike, team members used surveys to get broad input on all 33 critical decisions, followed by detailed interviews to gain more insight into a few. For example, business units (such as apparel or footwear) had historically decided how much to invest in new product development. But who should make the decision in the new system? X-rays can reveal potential fixes too. In workshops, Nike managers clarified how specific decisions should be made in the new matrix. They also proposed practical changes, such as co-locating project teams that had previously been dispersed throughout the building. That made it easier for teams to collaborate, and for Nike to deploy teams quickly to the hottest opportunities, whether it was basketball in Poland or swimwear in Germany. The one-two punch of identifying the critical decisions and then X-raying them to determine specific fixes helped Nike get the new matrix working without missing a beat in performance. Many attempts to reshape organizations inevitably have a scattershot quality, and the teams leading the charge never really know whether the changes will have a real effect. But viewing the organization with critical decisions in mind transforms the process. You're now focused on what matters—and you know that improving these decisions will generate better performance. This article was written by Karim Shariff, Partner based in Dubai and Head of Middle East Organization Practice, Bain & Company and Jenny Davis-Peccoud, Senior Director, Global Organization Practice, Bain & Company.

Few brands can boast the worldwide recognition of Nike's famous "swoosh." Less obvious to consumers around the world are the structure and processes behind that global icon. Nike has long relied on a matrix organization: footwear, apparel and equipment on one dimension, geographic areas on the other.

In 2007, however, executives added a holistic focus on six core categories—running, basketball, football (soccer), women's and men's training, and sportswear. (Nike has since added 'action sports' as a seventh category).

With their "Just Do It" attitude, most people at Nike welcomed the change, realizing it would bring them closer to their consumer. But many also wondered if another set of dotted-line accountabilities would bog down the organization and make it harder to keep up with the latest trends. Who would make key decisions? Who would implement them?

Bain & Company's research shows that companies that make better, faster decisions, and act on them effectively will almost always outpace their competitors. Indeed, for big, high-value choices, that seems obvious: when Starbucks introduced its instant coffee, or when Applied Materials moved its manufacturing and engineering base to Asia, those decisions involved sizable amounts of resources and significant risk. Individual business units make big strategic decisions too: a major systems upgrade is clearly a critical decision for the IT organization.

Yet equally important are decisions that are made and remade frequently, week in and week out. These sorts of decisions are usually operational, and are made and executed by people on or near the frontline. For example, the IT organization cited above must make routine but often essential decisions about software upgrades and help-desk staffing levels. Or take Amazon.com, whose continuing success depends partly on a host of savvy merchandising decisions, including decisions about prices, shipping discounts and targeted email notices about new offerings. In aggregate, each of these seemingly small decisions stimulates millions of dollars in sales.

But with your company's performance dependent on so many decisions, large and small, how do managers and employees know which ones to focus on? And if they can identify them, how do they analyze them to see what's working and what isn't?

Identifying your critical decisions begins with creating a decision architecture—a list of decisions for every major business process. The next step is to winnow the list. Value at stake is one useful screen. But as you identify high-value decisions, make sure you don't miss everyday decisions that add up over time: decision value multiplied by frequency is a handy formula to remember.

A case in point is a European rental-car company that realized its growth would come from international travelers. It had failed to serve those customers well in the past, so it put a high priority on making sure that everyday operating decisions in specific geographies—about pricing, customer service and fleet management—were geared toward providing international travelers with a seamless experience.

Another screen for narrowing your decision list is the degree of management attention required. Some decisions need more management attention than others in order to work well.

Naturally, every company takes a slightly different approach to identifying critical decisions, but the end result is likely to be a list of about 20-30 critical decisions. Nike, for example, identified 10 major decision areas, including category selection, budgeting and targeting, and channel and sales strategy. Then the company came up with 33 key decisions under the 10 headings.

Once armed with your list of critical decisions, it's natural to want to jump in and fix the ones that most need improvement. But it's a good idea to look before you leap. Where are the failings, exactly?

A tool called a decision X-ray can help answer that question. Ask everyone involved to rate decisions in terms of quality, speed, execution (yield), and the effort involved. Who plays what roles? Are the roles clear to all? How well does the process work? What behaviors get in the way?

At Nike, team members used surveys to get broad input on all 33 critical decisions, followed by detailed interviews to gain more insight into a few. For example, business units (such as apparel or footwear) had historically decided how much to invest in new product development. But who should make the decision in the new system?

X-rays can reveal potential fixes too. In workshops, Nike managers clarified how specific decisions should be made in the new matrix. They also proposed practical changes, such as co-locating project teams that had previously been dispersed throughout the building. That made it easier for teams to collaborate, and for Nike to deploy teams quickly to the hottest opportunities, whether it was basketball in Poland or swimwear in Germany.

The one-two punch of identifying the critical decisions and then X-raying them to determine specific fixes helped Nike get the new matrix working without missing a beat in performance. Many attempts to reshape organizations inevitably have a scattershot quality, and the teams leading the charge never really know whether the changes will have a real effect. But viewing the organization with critical decisions in mind transforms the process. You're now focused on what matters—and you know that improving these decisions will generate better performance.

This article was written by Karim Shariff, Partner based in Dubai and Head of Middle East Organization Practice, Bain & Company and Jenny Davis-Peccoud, Senior Director, Global Organization Practice, Bain & Company.