What drives successful corporate decision making?
Companies are often described as decision factories. Based on the literature and extensive interviews my colleagues and I created this Tellusant decision making framework.
It is influenced by academic authorities like Herbert Simon,¹ Henry Mintzberg,² Chris Argyris³ and Abubakar et al.⁴
Decisions are not made in a vacuum. To us, there are five enablers that dictate the quality of decisions:
- The quality of supporting materials is a key enabler of good decision making. This quality is today variable. Our interviews show that decision makers almost uniformly would like to see an improvement of the underlying materials.
- Scenarios should be possible to run in real time. Most executives find this lacking. Instead, a new scenario make take up to 2–3 days to run for the business analysts. Some of our interviews run 50–70 scenarios.
- Decisions should be timely. Often, decision making takes too long. A typical strategic planning process takes 3–5 months. Some issues seen at the outset may not be material by the end, and new issues may have emerged.
- The right people have to be involved, with the right incentives. T-shaped expertise is required: some should be generalists with broad experience, while some should be specialists with deep knowledge. Often, the two do not match well, especially if their incentives are misaligned.
- A collaborative environment is an important enabler. Executives are more committed when heard. In the end, decisions are taken by the most senior executive. But during the process that executive is wise to listen to the input from the best contributors. Further, an important consideration is the structure of incentives. Oftentimes, incentives lead to conflict as individuals optimize their own benefits.
The enablers lead to to a decision context:
- The most important pain point we heard in our interviews was that the issues to be decided on were not framed correctly, or not at all. Instead the decision making process (e.g., for the strategic plan) became a process of checking the numbers. A mechanical exercise rather than a thinking exercise.
- The decision processes are usually viewed inefficient, especially in higher level processes like strategic planning, even though outcomes may be good. As an executive who leads the decision making effort it is important to pay attention to the productivity of collaborators.
The actual decision making flows from the enablers and the context. There are two ways of making business decisions: rationale and intuitive.⁵
- Rationale decision making has gradually become more important over the last century. This is because executives are now better educated and much more information is available in digestible form.
- But, intuitive decision making is important and will continue to be so. An important observation is that when rational decision making becomes more efficient, it opens up space to have higher quality in intuition.
Improving high level decision making like strategic planning is often the highest ROI effort available to a company.
First, more effective processes will save money. There are 0.7 million corporate planning analysts in the United States, and 2.5 million worldwide. Most work on decision support efforts.
Second, Resource allocation is improved with better decisions. This is especially true of the decisions coming out of strategic planning cycles.
Third, capturing opportunities becomes more precise. This leads to top line growth which over time adds up to a major benefit for the company.
These factors is why in a survey we conducted, executives are highly supportive of strategic planning, but find the associated processes sub-optimal.
Learn more about Tellusant at https://tellusant.com.
- Simon, Herbert ( 1997): Administrative behavior, 4th edition: A study of decision-making processes in administrative organizations
- Mintzberg, Henry (1994): The rise and fall of strategic planning
- Argyris, Chris (2004): Reasons and rationalizations: The limits to organizational knowledge
- Abubakar, Mohammed et al. (2017): Knowledge management, decision-making style and organizational performance
- As individuals, we can also make instinctive (“reptilian”) decisions, but this is seldom called for in companies