One would hope that you'd benefit from routinely following a good decision-making process -- but what would be the characteristics of that process? The McKinsey Quarterly recently addressed that in a global survey and published the results in How companies make good decisions. The article opens by asking "Which decision-making disciplines really make a difference?" and "Do strong decision-making processes lead to good decisions?"
All this had me wondering how they define "good decision". Any decent manager knows a good decision isn't simply one with a good outcome: Wagering your entire 401(k) at the Bellagio in Vegas is probably a bad decision, regardless. But investing in promising R&D innovations is a good decision, even though a significant portion of those bets will be financial losers.
What does the evidence say? McKinsey provides evidence to support their conclusions. As shown above, their survey "highlights several process steps that are strongly associated with good financial and operational outcomes.... The results highlight the hard business benefits — such as increased profits and rapid implementation — of several decision-making disciplines. These disciplines include ensuring that people with the right skills and experience are included in decision making, making decisions based on transparent criteria and a robust fact base, and ensuring that the person who will be responsible for implementing a decision is involved in making that decision."
Try to get the odds in your favor. As my middle school Latin teacher used to say, you can make your own choices, but you can't make your own consequences. By choosing a reasonable decision process, you will usually avoid the ugliest consequences -- the evidence shows that taking the right steps should improve your success rate. So, what goes into a "good" decision?
- A "good" decision means that the "right" variables were considered, and the "right" people consulted.
- McKinsey found that "good decision making involves avoiding some basic mistakes. Decisions initiated and approved by the same person generate the worst financial results — indicating the value of good discussion. And decisions made at companies without any strategic planning process are twice as likely to have generated extremely poor results as extremely good ones — more than a fifth of them generated revenue 75 percent or more below expectations."
- The survey also found that "One relatively straightforward finding is of strong relationships linking financial success, clarity about who is responsible for implementation, and the involvement of that individual in the decision-making process...."
But outcome isn't the only evidence. I like what McKinsey is doing here, but I wish they'd emphasized the importance of resisting the urge to equate good outcomes with good decision-making. It's easy to see weak results and question the ability of the person running the show, and vice versa. Basic financials are frequently poor analytical benchmarks: The petroleum executives reporting astronomical profits two quarters ago have the same skills today -- ExxonMobil is still considered a well-managed company, and certain others, not so much. To McKinsey's credit, they did include some other meaningful indicators in the survey, such as time to project completion.
Like it or not, sometimes you'll collaborate like crazy, and analyze your brains out, and still overlook a crucial relationship, side effect, or possible consequence (as explained very well by Edward Tenner in Why Things Bite Back). I'll let the U.S. economy from 2000-2008 speak for itself.
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