The 5 essential steps for making better business decisions
No company can reach its full potential unless it makes good decisions quickly and consistently and then implements them effectively. Bain & Company’s 10-year research program involving more than 1,000 companies showed a clear correlation (at a minimum 95 per cent confidence level) between decision effectiveness and business performance.
And it isn’t just financial results that suffer. Organizations that can’t decide and deliver are dispiriting to their employees.
But things don’t have to be that way. Working with clients across industries, we have developed a five-step process to help companies improve their decision muscles.
Step 1 – Score your organization.
Step 1 is a rigorous, fact-based technique for benchmarking both decision abilities and the organizational elements that either help or get in the way. It’s important to assess your performance on decision quality, speed, yield (or execution), and effort. A good way to begin is to survey a cross-section of people throughout the organization. The goal is to answer some key questions: What percentage of the time does the organization make the right decisions? Are decisions made faster or slower than competitors? Is there too much (or too little) effort involved?
As part of the process, identify the obstacles. Here, too, you can use surveys and interviews. Sample questions might include: Are individuals clear on the roles they should play in critical decisions? Do people with decision authority have the skills and experience they need?
The insights you generate will allow you to understand not just where your decision abilities are weak but why, and then create an effective plan of attack.
Step 2 – Focus on key decisions.
Step 2 is to identify the decisions that matter most. They’re the big, high-value, strategic choices. But many organizations overlook a second category that can be equally significant: operating decisions that seem small but that are made and remade frequently and generate a lot of value over time.
To identify the key decisions in these two categories, you can use a tool we call decision architecture. You begin with a long list of decisions for every major business process of a company or unit and then narrow it down using two different screens: the value at stake and the degree of management attention required. The result from applying these two screens is a list of your critical decisions—the top 20 or 30 decisions that absolutely must work well for the business to succeed.
Step 3: Make decisions work.
Step 3 in our process helps you reset a specific decision. It’s like a surgical intervention: You go in and repair the trouble in order to restore the patient to health. We think of the four parts of this operation as fixing the What, Who, How, and When of the decision.
Clarify the What. The group involved in the decision first needs to know exactly what the decision is. It has to be spelled out clearly and framed correctly.
– Determine the Who. The roles involved in the decision need to be equally clear. We use a decision-rights tool we call RAPID®, which includes all the key roles. One person or group makes the Recommendation. Others provide Input. Still others must Agree, or sign off on the recommendation. One person or group then has the D—they make the final Decision. Others are assigned to Perform or execute it. If you spell out these roles clearly, everyone will know who’s accountable for what.
– Understand the How. Will the decision be made by consensus, by vote, or by one person? How will the necessary information be provided? Answering questions like these beforehand enables a decision to proceed much more smoothly than it otherwise would.
– Make the When explicit. Every major decision needs timetables and deadlines. A schedule ensures that decisions are quickly followed by action.
Step 4 – Build an organization.
The ultimate goal is an organization in which people make good decisions, make them quickly, and execute them effectively.
That’s why Step 4 of our process involves scrutinizing, and improving where necessary, every one of these elements—both the “hard” elements of the organization, such as structure and processes, and the “soft” ones, such as people and culture. Taking a decision-centered approach to evaluating your organization will give you a more accurate assessment of what needs to be improved and how to go about improving it.
Step 5 – Embed decision capabilities.
We’ve found that successful companies build a foundation for effective decisions by mapping out ambitious goals and involving influential leaders early on. They create and maintain momentum by celebrating early wins and nurturing the kind of viral take-up that builds enthusiasm for decision effectiveness throughout the organization—a step that is often aided by people who feel liberated from decision paralysis and spread the word. And they embed decision behaviors by helping people at all levels learn new decision capabilities, by sharing best practices, and by keeping close track of progress.
In a large company, this change process can take several months to hit its stride. But once an organization begins to hum, once it learns to decide and deliver, the effect is dramatic.
Your organization can be like this.
RAPID® is a registered trademark of Bain & Company, Inc.