8 Critical Components of Effective Decision-Making
By Peter Mulford, Executive Vice President
The idea of change isn’t new, but the rate of change in the business world today is unprecedented and increasing exponentially. Yet, we continue to make critical business decisions—from strategy, to business planning, to operations and product development—at the same rate as the past. And, when the rate of change in the market exceeds the cadence at which firms’ learn and act, we reach a tipping point—firms become vulnerable to disruption.
It’s been happening for a while and you don’t have to look far to find evidence- Research in Motion and Blackberry’s demise, Chipotle’s ascent, Apple’s expanding market share, and Uber’s innovation of transportation services. “The problem is a lot of people, when they think about the future, they think about it linearly,” explains Ray Kurzweil, American author, scientist and inventor, Google’s Director of Engineering and Ted Talk Host.“They think they’re going to continue to address future problems using today’s tools, at today’s pace of progress, and fail to address the exponential growth.”(1) So where does that leave us?
More than ever, a company’s capacity to grow in the years ahead will be dependent on the sum of the business decisions it takes, but effective decision-making demands strong business acumen. Motivated to help people make the right decisions better and faster, we went on a 16 month global research project. In the end, we distilled seven critical components of effective decision-making.
1. A-List your Decisions.
To make the biggest impact, leaders should focus their discretionary time on the decisions that matter most, and then unleash their teams to explore ways to reduce the time it takes to do everything else. To start, leaders must separate pivotal decisions—the decisions that carry the most value for the business—from those that are merely important. In their book,To Decide and Deliver, Mankins and Rogers note that an organization’s pivotal decisions typically fall into two broad categories(2):
- Category 1:incorporates individual, big decisions that carry enormous value, such as M&A.
- Category 2:includes smaller decisions, taken frequently, that add up to a substantial amount of value over time, such as merchandising or customer call center related decisions.
Once you have created a decision A-list and separated it from all others (the B-list), you can then get to work reducing the time it takes to complete the B-list. The time you save can be reallocated to the A-list.
For example, as described in his book It’s Your Ship, Captain Michael Abrashoff, upon taking command of the USS Benfold, first interviewed all 310 crew members, sorted the jobs performed on the Benfold into an A-List and a B-list, and finally had the crew work on trimming the B-list. Reducing the B-list activities allowed the crew to spend more time on pivotal activities. The result? In one example, the crew passed the graduation challenge for a six-month training exercise in the first week, while earning a higher score than any other ship in the process. (3)
2. Clear on the Problem, and Bring That Clarity to Others.
At the onset of any problem-solving effort, leaders must be clear on the problem they are trying to solve, and must bring that clarity to others before searching for solutions. This might sound obvious, but teams can talk endlessly about business issues and make no progress in solving the problem.
Some approaches to consider:
- Begin every meeting with an “inform/discuss/decide” agenda.
At Intel, for example, employees are asked to begin meetings by stating, “The purpose of this meeting is inform you of X, discuss Y, and decide Z.” (4)
- Ensure that meeting participants understand what the purpose is before arriving.
At one company, the leader puts a flip-chart outside the door to each meeting suggesting that if the attendee doesn’t know the purpose of the meeting, he or she should not enter the room.
- Frame business issues as choices.
Complex issues, such as shifting consumer preferences or market share losses, are difficult to address before the issue is framed as a choice to be made. To frame the choice, the team should begin by identifying different ways of solving the problem.
Questions to Consider:
What is the problem/opportunity we are trying to address?
What customer objectives/insights are we basing our decision on?
Who are our main competitors? What are the relevant competitive considerations?
What are the measures of success? How clear are the requirements?
3. Use “Windows and Mirrors” to Set a Decision Timeline.
Determining the timeline by which a decision should be made requires that leaders:
- “Look out the window”: to get a sense of how quickly the decision must be implemented relative to the competition.
- “Look “in the mirror”: to understand the internal dependencies and inter-connected actions that must happen for the decision to be executed effectively within the organization.
Once there is a shared understanding of “Windows and Mirrors”, it becomes possible to map out a decision timeline in a collaborative fashion.
4. Connect Decisions to the Company Strategy.
Make sure the core business questions surrounding strategy, capabilities and intent are accurately addressed. Use probing questions to investigate any areas that are unclear.
Questions to Consider:
How does this align with our stated strategy /objectives?
Why are we looking to address it?
How are we positioned to succeed?
Why will we win?
5. Seek Broad Input.
Think about the individuals or groups whose involvement could improve the effectiveness of the decision. Challenge the decision-maker—whether yourself or another--to think about who to seek input from through a wider lens.
Questions to Consider:
Who has relevant experience from being in this situation previously?
If seeking approval, what questions may be asked of me?
Who do I need to consult to have greater confidence in the decision?
Who could provide an objective and/or contrary view?
6. Evaluate Multiple Alternatives.
Look to expand the number of alternatives considered. Be acutely aware of a decision point that has seemed self-evident to the decision-maker from the beginning.
Questions to Consider:
What new perspectives can I take to view the problem?
Who could help me identify other options? Who has handled a similar issue in the past?
As I fast-forward through time, does the attractive option today look as attractive?
What would we do if there were no restrictions? What if the restrictions were more restrictive?
7. Assess Information Quality.
Focus on the data and information gathered throughout the decision-making process. Identify gaps where information may be missing or assumptions untested through probing questions.
Questions to Consider:
What are the trade-offs at hand? Do I have all pertinent information to evaluate the trade-offs? Is the information comprehensive enough to inform my decision?
What makes my sources credible and valid? Who have I involved to take an objective and unbiased view of the information?
Where are the critical assumptions and areas of uncertainty? Have I tested them?
Have I avoided rationalizing negative outputs?
8 .Be Aware of Decision Biases.
Watch out for situations where common decision-making biases might be hindering the process. Don’t be afraid to challenge yourself or a decision-maker on his or her own biases. Recognition itself can be a powerful mitigating tool.
Some common biases include:
- Anchoring: A common human tendency to rely too heavily on the first piece of information offered (the "anchor") when making decisions.
- Sunk Cost Bias: The tendency of people to irrationally follow through on an activity that is not meeting expectations because of the time and/or money they have already spent on it.
- Confirmation Bias: Searching for information which only confirms pre-conceptions, or avoiding information that contradicts pre-conceptions. The result of this bias: we focus on things we like rather than dislike.
- Loss Aversion and the Endowment Effect: The tendency to over-factor negative outcomes, and over-value what we already have. Economics studies reveal that people strongly prefer avoiding losses to acquiring gains. Some studies suggest that losses are twice as powerful psychologically as gains.
Whether assessing market expansion, a merger or acquisition, an investment in a new line of business, or customer needs, these eight critical steps have proven to drive effective decision-making for companies across industries.
About the Author: Peter Mulford is an Executive Vice President at BTS and Managing Director of BTS’s global Strategy Execution Research & Design Lab.
1 Kurzweil, Ray, “The Accelerating Power of Technology,” TED Talks, February 2005.
2 Rogers, Paul; Mankins, Michael C.; Blenko, Marcia (2010-09-27). Decide and Deliver: Five Steps to Breakthrough Performance in Your Organization.
3 It's Your Ship: Management Techniques from the Best Damn Ship in the Navy (revised) by D. Michael Abrashoff (Oct 9, 2012).
4 Lafley, A.G.; Martin, Roger L. (2013-02-05). Playing to Win: How Strategy Really Works