![Decision-focused meetings
3
Recommend, Agree, offer Input, Decide and
Perform. Companies that are best at decisions
explicitly assign each of the roles for key deci-
sions. They expect meeting organizers to invite
only the individuals assigned those roles to
decision-making meetings.
Clarifying roles also enables companies to con-
front a chief cause of meeting proliferation and
ineffectiveness: reopening decisions. That was
a problem at Intel’s Embedded and Commu-
nications Group (ECG) where, according to
general manager Doug Davis, “someone who
hadn’t been involved [in a decision] early on
would bring in a new piece of data, and we’d go
back and revisit it.” Once ECG introduced
RAPID, decisions were far more likely to stick.
Today, says Davis, “We’re not thrashing around
on things as much.”
Companies have also learned to keep meetings
as small as possible. Our research highlights
what we think of as the Rule of Seven: every
person added to a decision-making group over
seven reduces decision effectiveness by 10 percent.
If you take this rule to its logical conclusion, a
group of 17 or more rarely makes any decisions.
Of course, a larger group may sometimes be
necessary to ensure buy-in. But organizations
trying to make important decisions should limit
the size of the group as much as they can.
4. Make meetings consequential
Sometimes meetings fizzle out and never reach
a decision. Other times, the decision that every-
body thought they made never gets implemented.
In both situations, attendees start grumbling
that they are wasting their time, and higher-ups
decide that they won’t bother attending the next
meeting. The best way to prevent all that is to
ensure that meetings have consequences.
One tool is the decision calendar or decision log.
It’s simply a file through which people track the
decisions that are made and see that they are
properly communicated to the organization. At
whenever possible. It’s a simple way of focusing
a meeting on particular decisions while allowing
for flexibility around the edges.
When a major natural-resources company was
revamping its strategy and planning process,
it noticed that its meetings lacked focus and
weren’t accomplishing all they should. In re-
sponse, the company mounted a four-part pro-
gram to correct matters:
• Leaders began insisting on explicit clarity
of purpose for every meeting.
• They established exacting requirements for
meeting preparation, including templates,
standardized pre-read protocols and deadlines.
• They designed each meeting’s agenda around
what they wanted to accomplish—ensuring,
for example, that short-term operations
and long-term planning weren’t discussed
in the same meeting. (People found it hard
to keep the two separate.)
• They also changed the conduct of the meeting,
with key decisions highlighted on the agenda
and a recap at the end summarizing the
points reached by the group.
Such measures enabled the company to im-
prove decision effectiveness and maintain its
industry-leading performance.
3. Ensure that the right people—
and only the right people—attend
Meetings often include two groups: the partic-
ipants and the audience. At some companies,
many people make a point of attending all the
meetings they can, just so they feel that they are
in the loop. (We call them “business tourists.”)
The only people who should attend a meeting
are those with a role in the decisions at hand.
To clarify those roles, we use a simple tool
called RAPID®
, which is a loose acronym for](https://image.slidesharecdn.com/decisioninsights-150901221343-lva1-app6892/75/007-53-2048.jpg)
![How group dynamics affect decisions
Yet “individuals in a number of different departments
failed to face up to, or follow up on, identified problems,”
according to an MIT Sloan Management Review article.
Good organizational practices can help counter the ill
effects of group dynamics. The most important key is to
locate decision roles and accountabilities with specific
individuals. An individual who is publicly responsible
for a given decision is less likely to be swayed by group
polarization. And someone who has public responsibility
for offering input can’t easily take refuge in mindless
conformity or in the role of a bystander.
Companies can put plenty of other tools to good use
as well, including:
• Devil’s advocate. A person or team charged with
taking the less popular side of an issue can help
guard against mindless conformity.
• Diversity in decision-making meetings. People from
different functions or with different backgrounds may
help counter conformity and group polarization.
• Advance collection of opinions. Asking for input in
advance often counters the tendency of a group to
reach more extreme positions.
• A forum for direct communication with senior manage-
ment. People who disagree with an action but are
afraid to say so can use back channels to communi-
cate their concern.
• An “at-cause” attitude. A culture that fosters what we
call an at-cause approach encourages everyone to
assume personal responsibility for group decisions.
Nobody can put an end to group dynamics, and anyway
the output of a group is often more positive than you
would expect. But companies that actively compensate
for the negative effects will make better decisions, on
average, than those that fail to do so.
Professor Cass R. Sunstein in an analysis of the shutdown.
“If you’re in a group whose members think the Affordable
Care Act is horrible, you’ll hear many arguments to that
effect and very few the other way. After a lot of people
have spoken, [the act] will seem much worse than merely
horrible; it might be taken as a menace to the republic.”
Obedience to authority. Every Psychology 101 student
learns of Stanley Milgram’s classic experiment in which
test subjects obeyed instructions to administer electric
shocks to other “subjects”—actually confederates pre-
tending to be shocked—even when the harm seemed
extreme. Though businesses depend on employees to
carry out their supervisors’ instructions, executives should
find this particular group dynamic disturbing. A company
suffers when subordinates never challenge their superiors’
decisions. Take the worst commercial aviation incident
in history: In 1977 a KLM plane attempted to take off
from Tenerife airport while a Pan Am plane was on the
runway. Official investigation concluded that the senior
KLM pilot had taken off without clearance as a result of
communication problems, including the reluctance of
other crew to challenge his decision to go. The “captain
was always right” effect was cited as a principal cause
in the official report on the incident.
Bystander effect. As social psychologists have long known,
people are far more likely to aid a victim in distress or
report an apparent emergency if they are alone than if
other people are around. One reason: If you’re uncertain
what to do, you’re likely to take your cues from other
people whenever possible.
The bystander effect crops up in a variety of business
contexts. Employees might be expected to report safety
violations, for example—but if some people ignore a
dangerous situation, others are likely to do so as well.
Barings Bank was brought down in 1995 by the unauthor-
ized trading of head derivatives trader Nick Leeson in
Singapore. Afterwards, investigators found that several
internal and external reports had drawn attention to the
fact that someone in Leeson’s position could conceal losses.
Copyright © 2013 Bain & Company, Inc. All rights reserved.
Paul Rogers is a partner with Bain & Company based in London and founder of the firm’s Global Organization
practice. Todd Senturia is a Bain partner based in Los Angeles.](https://image.slidesharecdn.com/decisioninsights-150901221343-lva1-app6892/75/007-91-2048.jpg)
007
- 1. Decision Insights: Score yourorganization By Marcia W. Blenko, Michael C. Mankins and Paul Rogers
- 3. 1 Decision Insights: Scoreyour organization Decisions are the key to organizational per- formance. 1 You may have a great strategic plan, plenty of resources and a deep bench of talent. But if your company can’t make and execute decisions well, nothing else matters. CEOs such as Chris Begley know this, which is why so many companies are focusing on improving their decision abilities. The first steps in this process, not surprisingly, are (1) a rigorous, fact-based assessment of your orga- nization’s decision effectiveness and (2) an equally thorough review of the organizational strengths and weaknesses that contribute to your decision score. Assessing decision effectiveness: What are the trouble spots? In our view, decision effectiveness has four distinct components: • Quality. One is decision quality—whether a company makes good decisions more often than not. The best gauge of quality is whether in retrospect people believe they chose the right course of action. • Speed. How quickly an organization moves can be as important as how good its deci- sions are. What counts most isn’t absolute speed, which will vary according to the business you’re in and the kind of deci- sion you’re making, but speed relative to competitors. • Yield. Decision yield, or how well a com- pany turns its decisions into action, is always critical to performance. Poor execu- tion of a decision—or a complete failure to execute, as sometimes happens—naturally undermines any virtues the decision itself might have had. • Effort. Effort is the time, trouble and sheer emotional energy it takes to make and execute a decision. Decision effectiveness obviously suffers if the effort involved is greater than what the decision merits. But it can also suffer if companies shoot from the hip—that is, if the effort involved is too little. Hospira, a $3.6 billion specialty medical device and pharmaceutical company, had developed an ambitious plan for growth and for more than $100 million in cost savings. Executing the plan would put the company in its industry’s top quartile, where CEO Chris Begley felt it belonged. But was Hospira’s organization up to the challenge? Begley wasn’t sure. Many decisions in every part of the company seemed to take longer than they should. Hospira produced hundreds of marketing brochures every year, for instance, and the process for each was painfully slow. Drafts were passed along in manila folders. People added comments in longhand. Nobody really knew who had the final say. If the company couldn’t speed up its metabolism on everyday issues like that, could it really hope to enter the top ranks?
- 4. 2 Decision Insights: Scoreyour organization The best way we know to understand how well a company performs on each of these dimensions is to ask the people who work there. For example: In retrospect, how often does your organization make the right decision? Or: How quickly is your organization able to make decisions—faster than competitors, slower or about the same? In making an assessment, we typi- cally survey a broad cross-section of people, including those on or close to the frontline, using questions like these. We then flesh out the survey data (where appropriate) with sup- plementary information from interviews or group discussions, “X-ray” analyses of decisions that have gone well or badly and so on. We have also surveyed large numbers of exec- utives from companies around the world, with the objective of creating a diagnostic database for benchmarking purposes (see the box, “What the research shows”). Companies use our data to see how their own performance on each of the four elements measures up against com- petitors and peers. Hospira, for example, administered a decision survey like ours to the top 300 people in the organization, covering every function and geo- graphical unit. When the results were in, the news wasn’t nearly as good as CEO Begley had hoped. The company’s decision score was below average (around the 40th percentile)— a far cry from the top quartile where Begley and his team aspired to be. Decision quality was fairly good, but speed was below average and effort was higher than it should have been. Nearly 80 percent of respondents, regardless of level or function, said decisions took too much effort. Top-level respondents actually rated speed and effort worse than did others in the organization, perhaps because these higher-level leaders were involved in thorny cross-functional or cross-unit decisions. When Begley and the team asked themselves whether, from their own experience, the survey results rang true, they had to admit that the scores seemed accurate. They thought back to the marketing brochures, for example. Those decisions, with their many manila-folder stop- ping points, clearly took too long to wend their way through the system. And the need to rec- oncile everybody’s handwritten changes meant that effort was definitely higher than it needed to be. But speed and effort weren’t the only issues. The feedback from the sales organiza- tion was that the brochures weren’t all that great. The company was taking too much time, devoting too much effort and still not making the best possible decisions. For Hospira, as for many organizations we have worked with, benchmarking was a wake- up call. Begley began to see that if Hospira could improve on its weakest elements, the company’s whole metabolism would begin to function better. It would accelerate the journey toward top-quartile performance. But Begley also had to ask himself what was holding things back. With the marketing bro- chures, it was most likely the decision process that needed fixing. But what about all the other decisions that were taking too long or requir- ing too much effort? Maybe talented, decisive people weren’t in the right positions. Maybe the culture somehow encouraged people to act slowly. Or maybe it was something else entirely. Like any company that has assessed its decision effectiveness and found it wanting, Hospira now had to move on to the second part of the assessment: the organizational system within which decisions happen.
- 5. 3 Decision Insights: Scoreyour organization Assessing organizational health: Where are the decision barriers? To add depth to a decision survey, we typically also look at the organizational root causes of decision strengths and weaknesses. We have surveyed hundreds of organizations worldwide in this manner as part of our ongoing research, so again we have benchmark diagnostic data. This part of the survey typically offers state- ments on a broad range of organizational topics and asks respondents to what extent they agree. For example: Individuals are clear on the roles they should play in making and executing critical decisions. People with decision authority have the skills and experience to make good decisions. This kind of research enables executives to identify what is actually helping decision effectiveness and what may be holding it back. There is rarely a direct, one-to-one relationship between specific decision weaknesses, such as poor quality or lack of speed, and a single aspect of the organization. Every organization is a system, and all the elements have to work together to produce great results. Each element of the organizational system not only has to support effective decisions but also reinforce the other elements of the underlying system. In our research, we found that companies with top-quintile decision scores outperformed other companies by about 15 to 20 percent in every single organizational area. And the more elements of organizational health a com- pany scored highly on, the higher its overall decision effectiveness. Hospira’s organizational survey revealed signif- icant strengths. The company had good leader- ship, for instance, and a strong talent pipeline. These were important findings, attributes on which further improvements could be built. Hospira had to ensure that such strengths weren’t undermined by changes to other ele- ments of the organizational system. But the survey also turned up weak spots. People felt that decisions weren’t always made at the right level of the organization, and that the balance between the corporate center and the operating units wasn’t on the mark. They believed that decision processes were flawed: Meetings weren’t used well, interactions around decisions weren’t mapped clearly and so on. Also, the culture needed attention. Not everybody in the organization acted like an owner and made decisions reflecting the company’s best inter- ests. Not everyone brought a customer focus to decisions. Thanks to these diagnoses, Hospira redesigned a wide variety of key decisions, and it began reshaping the organization to support and enable continued good decision making and execution. These efforts involved extensive training as well as strong leadership engagement on the organizational changes that would help take Hospira from good to great. At this writing, the company has come far on its journey. One early win was those marketing brochures. A team redesigned the process required to design and approve a set of marketing materials, reduc- ing approval time substantially. Management clarified decision rights, thereby ensuring that people in marketing had a say over the quality of the brochures. The outcome was a smoother process that was faster, consumed less effort and produced brochures attuned to customer needs as well as regulatory requirements. Hospira has made similar gains in many other decision areas. If it can consistently improve on decision speed and effort while maintaining quality and yield, it should achieve its ambitious
- 6. 4 Decision Insights: Scoreyour organization plans. Already, the company has achieved results well ahead of its cost and revenue targets. And the recent stock price was up more than 80 percent since the announcement of the trans- formation efforts, with total shareholder returns in the upper quartile—right where Begley and his team believed they should be. Decisions are a key to performance, and a strong organization is the key to decision effec- tiveness. A diagnosis of both can show you where your organization is strong and where, like Hospira’s, it can be improved. What the research shows Not long ago, we conducted an extensive global survey of nearly 800 companies. We asked about their decision effectiveness, their organizational health and the connections with financial results. Here are some of the highlights: • Decisions = performance. Decision effectiveness and financial results correlate at a 95 percent confidence level or higher for every country, industry and company size we studied. Top-quintile companies on decisions generate average total shareholder returns nearly 6 percentage points higher than those of other companies. • Quality, speed and yield reinforce one another. Each factor alone correlates with financial results. But there’s a multiplier effect: The product of all three is a much stronger predictor of financial performance than any single element. • Effort is a drag. The amount of effort that goes into decisions separates truly great companies from merely good ones. Of all the companies with high scores on quality, speed and yield, for instance, nearly half report effort as too high or too low—and this group’s overall decision score is only two-thirds that of the optimal-effort group. • Few trade-offs. Although it’s counterintuitive, high performance on quality goes along with high performance on speed and yield, and vice versa. For instance, companies that score the highest on quality are nearly eight times as likely to execute their decisions effectively as those with average or low quality scores. • Room for improvement. On a decision-effectiveness scale of zero to 100, top-quintile companies score an average 71. All other companies average only 28. The size of the gap may be surprising, but it is due to the multiplier effect of quality, speed and yield on overall decision effectiveness. Stated differently, the average organization has the potential to more than double its ability to make and execute critical decisions. 1 See the book Decide & Deliver: 5 Steps to Breakthrough Performance in Your Organization (Harvard Business Review Press, 2010), from which this article is adapted.
- 7. Bain’s business ishelping make companies more valuable. Founded in 1973 on the principle that consultants must measure their success in terms of their clients’ financial results, Bain works with top management teams to beat competitors and generate substantial, lasting financial impact. Our clients have historically outperformed the stock market by 4:1. Who we work with Our clients are typically bold, ambitious business leaders. They have the talent, the will and the open-mindedness required to succeed. They are not satisfied with the status quo. What we do We help companies find where to make their money, make more of it faster and sustain its growth longer. We help management make the big decisions: on strategy, operations, technology, mergers and acquisitions and organization. Where appropriate, we work with them to make it happen. How we do it We realize that helping an organization change requires more than just a recommendation. So we try to put ourselves in our clients’ shoes and focus on practical actions. Decision Insights: Score your organization
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- 9. Decision Insights: What areyour critical decisions? By Marcia W. Blenko, Michael C. Mankins and Paul Rogers
- 10. Copyright © 2010Bain & Company, Inc. All rights reserved. Content: Editorial team Layout: Global Design Marcia W. Blenko ([email protected]) leads Bain’s Global Organization practice. She has extensive experience in decision effectiveness and organization design across a range of sectors. Marcia has authored numerous articles on organi- zation, decision effectiveness and leadership, and she often speaks on these topics. Her writings have appeared in Harvard Business Review, Financial Times, Wall Street Journal, Economic Times, European Business Journal, Harvard Management Update and the World Economic Forum’s Global Agenda. She is also a contributing author of Winning in Turbulence (Harvard Business Press, 2009). Marcia is a partner with Bain’s Boston office. Michael C. Mankins ([email protected]) leads Bain’s Organization practice in the Americas and is a key member of Bain’s Strategy practice. He advises business leaders on the strategic and organizational initiatives required to drive performance and long-term value. Michael’s writings have appeared in Harvard Business Review, Wall Street Journal, Financial Times, Harvard Management Update, Journal of Business Strategy, Directors & Boards, Chief Executive and other publications. He has been a featured speaker at numerous conferences and is coauthor of The Value Imperative: Managing for Superior Shareholder Returns (Free Press, 1994). In 2006, Consulting Magazine named Michael one of the year’s “top 25 most influential consultants.” Michael is a partner with Bain’s San Francisco office. Paul Rogers ([email protected]) is the managing partner with Bain’s London office and previously led Bain’s Global Organization practice. Paul’s organizational experience spans comprehensive transformation, decision effectiveness, culture change, talent management, frontline employee loyalty, overhead optimization and change management. Paul has authored numerous articles on organizational effec- tiveness and successful change in Harvard Business Review, European Business Forum, Business Strategy Series, Financial Times and others, and he regularly speaks on these topics.
- 11. 1 Decision Insights: Whatare your critical decisions? An organization’s decision abilities determine its performance. 1 Companies that make better decisions, make them faster and translate them into action more effectively nearly always outrun their competitors. But managers and employees in any large company make count- less decisions every day. How can an individual manager or a leadership team know which decisions to focus on? How can it analyze those individual decisions to see what’s working and what isn’t? This article will help you answer both questions. It shows how to identify your organization’s critical decisions, the ones that most affect results. And it shows how to use a tool we call a decision X-ray to expose the trouble spots and begin to identify improvements. Taken together, these actions can tune up your organization to deliver peak performance. Two categories of critical decisions What are your critical decisions? Any organi- zation’s success obviously hinges on big, high- value choices, whether strategic or operational. When Starbucks introduced its instant coffee, or when Applied Materials moved its manu- facturing and engineering base to Asia, the decisions involved sizable amounts of resources and significant risk. Each company had to do the best job it possibly could on the decisions. Decisions like these aren’t limited to the cor- porate level—every unit within a company has big strategic decisions of its own. When IT decides to invest in a major systems upgrade, for example, that’s clearly a critical decision for the IT organization. But there’s a second category of decisions that can be equally important: those that are made and remade frequently, week in and week out, and that add up to a substantial amount of value over time. These decisions are typically more operational in nature. The people who make and execute them can be anywhere in the organization, and often they are on or near the frontline. For instance, Amazon.com’s continuing success depends partly on a host Nike’s famous “swoosh” is a global icon, a brand that’s recognized by consumers and sports fans worldwide. Less well known are the organizational structure and processes Nike has relied on to build global leadership in sports-related footwear, apparel and equipment. The company had long been organized as a matrix, with the three businesses on one dimension and geographic areas on the other. In 2007, however, executives began to see that they were missing a holistic focus on a given sport—soccer, golf, etc.—across the three business areas. So they introduced a sport-focused dimension to the matrix. With their “Just Do It” attitude, most people at Nike welcomed the change, realizing it would bring them closer to consumers. But many also wondered if another set of dotted-line account- abilities would bog down the organization. Who would make key decisions? Who would be responsible for implementing them? Unless everyone at Nike understood exactly how the new organization would work, they would never be able to respond quickly enough to changing trends in all the countries, products and sports where the company competes.
- 12. 2 Decision Insights: Whatare your critical decisions? of savvy merchandising decisions, including decisions about special prices and shipping discounts, suggestions for complementary purchases and targeted email notices about new offerings. Individually, each of these deci- sions may have a relatively small impact. Taken together, they stimulate many millions of dollars in sales and contribute to a winning customer experience. Every part of an enterprise is likely to have this kind of everyday critical decision as well. IT organizations, for example, must make routine but often essential decisions about matters such as software upgrades and help-desk staffing levels. Critical decisions are an example of the “80–20” rule—a subset of decisions has a dispropor- tionate impact on an organization’s perform- ance. The key, therefore, is for organizations at whatever level—business units, functions, even teams—to develop their own lists of crit- ical decisions, including decisions from both categories. That way they will always be focus- ing on what’s most important. Identifying your critical decisions Here’s a simple two-step process that will help you identify your own critical decisions. 1. Create a decision architecture. A decision architecture lays out a list of decisions for every major business process of a given company or unit. It shows the value creation steps that the business or unit is respon- sible for. It identifies the decisions, both one-off and ongoing, involved in each one. Depending upon the business, a decision architecture may contain scores of decisions. It gives you a holistic view, enabling you to home in on those that are central to success. It ensures that you have thought through all the possibilities and that you don’t miss any important decisions. 2. Winnow the list. The next step is to shorten the list of decisions to those you most need to focus on. Companies typically employ two distinct screens as they narrow down their lists. One is the value at stake. High- value decisions are generally more impor- tant than those with lower value. To make sure you don’t miss the everyday decisions that add up over time, you can keep in mind a handy formula: decision value multiplied by frequency. A European rental-car com- pany, for instance, realized that its growth would come from serving international travelers, which it had failed to serve well in the past. So it put a high priority on everyday operating decisions made in one geographical area but affecting customers originating from elsewhere. These decisions affected pricing, customer service and fleet management, among others. The objective was to do everything necessary to provide the international travelers with a seamless experience. The other screen is the degree of management attention required. Some decisions need more management attention than others in order to work well. They may be particularly complex. They may represent an organizational bottle- neck that is getting in the way of other decisions. Or they may be new to the organization— decisions resulting from a change in structure, for example. The output from these two screens is a list of critical decisions, which must work well if the organization is to improve its performance (see Figure 1).
- 13. 3 Decision Insights: Whatare your critical decisions? In practice, each company tailors this two- step process to its own situation. Some take a comprehensive approach, listing decision areas (such as brand management) and then iden- tifying important decisions within each area (such as the target customer segment for each brand). Once they have a long list of decisions, they use surveys, interviews and workshops to assess the value and degree of attention required and thus pare down the list. Other companies take a simpler approach. They create a high-level architecture with decision areas, assign priorities to each area and brain- storm critical decisions only in the areas with the highest priority. Both approaches can work, and both are likely to produce 20 to 30 deci- sions to focus on. 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. Using a decision X-ray to analyze critical decisions Once you have a clear sense of your organi- zation’s critical decisions and have highlighted those that most need improvement, it’s always tempting to jump right in and fix things. That’s understandable. But it’s usually more productive first to take a closer look at many of these deci- sions. How are they working right now? Where are the failings, exactly—decision quality, deci- sion speed, execution of the decision (yield), the effort involved or some combination of the four? What aspects of the organization are holding the decisions back? Decision architecture One off decisions On going decisions Degree of attention required Value at stake Critical decisions Company wide Develop products Market and sell Deliver Support • _________ • _________ • _________ • _________ • _________ • _________ • _________ • _________ • _________ • _________ • _________ • _________ • _________ • _________ • _________ • _________ • _________ • _________ • _________ • _________ • _________ • _________ • _________ • _________ • _________ • _________ • _________ • _________ • _________ • _________ Prioritization Figure 1: Identifying critical decisions often starts with a decision architecture that is then prioritized
- 14. 4 Decision Insights: Whatare your critical decisions? To reach that level of specificity, we use a tool called a decision X-ray. In a decision X-ray, leaders ask questions of everyone involved in the selected decisions. How do they rate quality, speed, yield and effort? Who plays what roles, and are the roles clear to all? How well does the process work? Where is the organization helping or hurting? What behaviors get in the way? An X-ray often uncovers issues that a broad survey misses. It can reveal the kinds of actions likely to improve problem areas. It also may turn up issues common to many key decisions. At Nike, team members used surveys to get broad input on all 33 critical decisions. Then they conducted detailed X-ray-style interviews to get more insight into a few. One set of deci- sions, for instance, involved how much to invest in new product development. In the previous system, the business unit (such as apparel or footwear) would make the decision. But who should make the decision in the new system? Should it be the business unit, with input from the category organization? Or should the roles be reversed? Survey respondents had a range of views both on how the decisions worked today and on how they should work in the future, with perhaps predictable differences on country versus center, and category versus sport. Decisions regarding retail strategy for each country showed similar differences. Nike, of course, wasn’t just interested in diag- nosing the issues. The company used the deci- sion X-rays to help resolve them. In workshops, managers clarified how specific decisions should be made in the new matrix. They also proposed other practical changes, such as co-locating project teams that had previously been dispersed throughout the building. That made it easier for teams to communicate and 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 in- evitably have a scattershot quality—a little bit here, a little bit there. The teams leading the charge never really know whether the changes they’re working so hard on will have a real effect. But viewing the organization with crit- ical decisions in mind transforms the process. You’re now focused on what matters—and you know that improving these decisions will generate better performance. 1 See the book Decide & Deliver: 5 Steps to Breakthrough Performance in Your Organization (Harvard Business Review Press, 2010), from which this article is adapted.
- 15. Decision Insights: Whatare your critical decisions? How to conduct a decision X-ray A decision X-ray assesses the effectiveness of the particular decision and diagnoses what’s holding it back. You can gather people in a room (physical or virtual), conduct a series of interviews or send out a broader online survey. Start with gauging quality, speed, yield and effort. Then assess which organizational elements may be standing in the way of an effective decision (see Figure 2). Of course, if an area is particularly strong, you’ll want to note that, too. Decision effectiveness is as much about building on strengths as it is about fixing weaknesses. As part of the X-ray, it’s often helpful to sketch out a “day in the life of a decision.” This shows what a decision has to go through—the loops, disconnects and misalignments that slow things down and push people toward lowest-common-denominator solutions. Mapping the actual steps a decision goes through, rather than the ideal steps encapsulated in a process guide, often leads to a “How could we have let that happen?” moment. It also provides concrete ideas on how to fix the problem. Decision: Question: What works about this decision? What doesn’t? Org enablers: Comments: Decision effectiveness attributes: Processes & information People & performance Leadership & culture Roles & structure Clarity & alignment =Good/great =So so =Poor Rating: Speed: Yield: Effort: Quality • Strategic context/priorities clear • Management aligned • Clear/appropriate decision roles • Structure supports/doesn’t hinder decision • Effective decision process/disciplines • Right information, right place, right time • Right people in key roles • Effective performance objectives/incentives • Supportive leadership behaviors • Helpful culture Figure 2: Decision X-ray
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- 17. Decision Insights: Set upyour most important decisions for success By Marcia W. Blenko, Michael C. Mankins and Paul Rogers
- 18. Copyright © 2010Bain & Company, Inc. All rights reserved. Content: Editorial team Layout: Global Design Marcia W. Blenko ([email protected]) leads Bain’s Global Organization practice. She has extensive experience in decision effectiveness and organization design across a range of sectors. Marcia has authored numerous articles on organi- zation, decision effectiveness and leadership, and she often speaks on these topics. Her writings have appeared in Harvard Business Review, Financial Times, Wall Street Journal, Economic Times, European Business Journal, Harvard Management Update and World Economic Forum’s Global Agenda. She is also a contributing author of Winning in Turbulence (Harvard Business Press, 2009). Marcia is a partner with Bain’s Boston office. Michael C. Mankins ([email protected]) leads Bain’s Organization practice in the Americas and is a key member of Bain’s Strategy practice. He advises business leaders on the strategic and organizational initiatives required to drive performance and long-term value. Michael’s writings have appeared in Harvard Business Review, Wall Street Journal, Financial Times, Harvard Management Update, Journal of Business Strategy, Directors & Boards, Chief Executive and other publications. He has been a featured speaker at numerous conferences and is coauthor of The Value Imperative: Managing for Superior Shareholder Returns (Free Press, 1994). In 2006, Consulting Magazine named Michael one of the year’s “top 25 most influential consultants.” Michael is a partner with Bain’s San Francisco office. Paul Rogers ([email protected]) is the managing partner with Bain’s London office and previously led Bain’s Global Organization practice. Paul’s organizational experience spans comprehensive transformation, decision effectiveness, culture change, talent management, frontline employee loyalty, overhead optimization and change management. Paul has authored numerous articles on organizational effec- tiveness and successful change in Harvard Business Review, European Business Forum, Business Strategy Series, Financial Times and others, and he regularly speaks on these topics.
- 19. 1 Decision Insights: Setup your most important decisions for success Too many organizations struggle with their critical decisions. Some simply dither. Others make a decision and then, like ECG, revisit it. Still others make poor choices or cannot translate their decisions into action. For decisions with a great deal of value at stake, the cost of all these failings can be extraordinarily high. This article shows you how to attack your trou- bled decisions by resetting them—in effect, setting them up to succeed. A decision reset not only gets individual decisions working better, it also demonstrates to people in the organi- zation that they can cut through bureaucratic logjams and get things decided and delivered.1 A reset involves clarifying the answers to just four questions: • What decision needs to be made and executed? • Who will play the key roles that go into a decision? • How will people make and execute the decision? • When will they make and execute the decision? Let’s take a look at each one. Resets that bring you closer to best practice on all four will put you well along on the path to greater deci- sion effectiveness. Define the what Is the decision at hand clear in everyone’s mind? If not, the first step is to state the decision explicitly. Intel, for example, asks its employees to begin every meeting with a single statement: “The purpose of this meeting is to inform you about X, to discuss Y and to decide on Z,” where Z is a specific, well-defined decision. Sometimes framing the decision right is essen- tial. When the team at Ford Motor Company was deliberating whether to accept a bailout from US taxpayers, for example, CEO Alan Mulally framed the decision as “What strategy will maximize the long-term value of the com- pany?” This forced the group to examine alter- natives such as “fix the operations,” “merge with a competitor,” “seek Chapter 11 bankruptcy protection” and others, along with accepting government funding. By framing the decision this way—and not “Should we accept a bailout or not?”—Ford was able to make the best deci- sion for all the company’s stakeholders. One of ECG’s key decisions wasn’t working right, and general manager Doug Davis knew it. The decision in question was what should go on the roadmap of products slated for development by ECG, Intel’s Embedded and Communications Group. The general manager and marketing director responsible for each of ECG’s three product areas wanted a say. So did the unit’s strategic- planning manager, who looked across all three areas—industrial, automotive and communications applications. Because of the confusion, said Davis, “We were making decisions without including the right people, so they didn’t stick. Someone who hadn’t been involved early on would bring a new piece of data, and we’d go back and revisit the decision.”
- 20. 2 Decision Insights: Setup your most important decisions for success Determine the who: RAPID®2 Even if the decision itself is clear and well framed, individuals may be uncertain about their own roles and responsibilities. In help- ing our clients reset decisions, we use a time- tested tool known as RAPID to cut through the uncertainty and to clarify who’s accountable for what. The words that form the acronym RAPID—Recommend, Agree, Input, Decide and Perform—reflect the primary roles in any decision, though we have taken liberties with the sequence to create a memorable acronym. • Recommend. The person in this role leads the process. He or she is responsible for obtaining and evaluating the relevant facts and other inputs and then proposing alternative courses of action. • Input. People with input responsibilities provide the data that is the basis of any good decision. They also offer their own judgments about the proposals. They have the right to provide input to a recommen- dation but not to veto it. • Agree. People who must agree to a recom- mendation are those who must sign off on it before it can move forward—execu- tives with legal or regulatory compliance responsibilities, for instance. • Decide. Eventually, one person will decide. (Many RAPID users say that this person “has the D.”) Giving the D to one individual ensures single-point accountability. • Perform. The final role in the process involves the individual or group who will perform or execute the decision. It’s this party’s job to implement the decision promptly and effectively. Spelling out decision roles was one key to reset- ting product-roadmap decisions at Intel’s ECG. Doug Davis and his team gave the D to the strategic-planning manager within ECG, who was best placed to make trade-offs across the unit’s product areas. They assigned an input role to the product managers. Implementation wasn’t perfectly smooth. Some of the product general managers, for example, weren’t happy with just offering input and would second- guess the strategic-planning manager’s decisions. But Davis reinforced the new roles, and soon the decisions were going smoothly—and a lot more quickly. “We’re not thrashing around on these things as much,” he says. Clarify the how Companies that are best at handling decisions use a consistent, well-defined process for every major decision, whether it is made in the C- suite or on the frontlines. They modify it only to take into account the value that is at stake— more care and attention for high-value deci- sions, less for lower-value ones. Like RAPID, a structured decision process has the great advantage that people eventually come to under- stand and expect it. If one person isn’t follow- ing the drill, someone else is likely to raise a red flag. The best practices, such as those listed in Figure 1, are remarkably similar from one company to another. Any structured approach needs to incorporate the appropriate steps and sequencing. It needs to factor role assignments into the picture. ECG’s process specifies how people will play their roles, at what stage they will provide input, when a recommendation will be developed, how approval will be sought when necessary and how the final decision will be reached. Communications is also a key part of ECG’s decisions. Davis says, “We devel- oped a regular cadence of ‘Here’s what we’ve done, here’s why we’ve done it’ to help people understand what’s being added to the roadmap and why. This has reduced the amount of revisiting we do by a lot.”
- 21. 3 Decision Insights: Setup your most important decisions for success Make the when explicit The best performers create schedules, time- tables, milestones, deadlines. They ensure that decisions are quickly followed by action. Bob Walter, the CEO who led Cardinal Health from start-up to $100 billion in sales during his tenure, was a stickler for avoiding decision drift. He would say, “Delay is the worst form of denial.” When an issue hit the executive agenda at Cardinal, the clock began ticking. Every team had a certain length of time to come back with facts, alternatives and recommendations. Every executive had a strict timetable for making a decision and seeing that it was carried out. Timetables ensure that decisions get made at the right speed and that execution stays on track. Resetting a decision In an earlier article we described the case of Hospira, a specialty pharmaceutical and medical device company that sought to increase its effectiveness on many critical decisions.3 Among the decisions that weren’t working well at Hospira were everyday operational matters such as producing marketing materials. That par- ticular process seemed to take forever. Often it didn’t lead to effective sales aids. So a team attacked it in just the manner outlined here: What. Everybody knew that the US Food and Drug Administration (FDA) had strict regula- tory restrictions on what a pharma sales aid could say. But discussions with the team sug- gested that while the employees were rightly concerned with FDA guidelines, they didn’t put enough emphasis on the benefits of the product. So Hospira agreed that the what of the decision was to develop effective, compelling brochures that were also FDA compliant. Who. The team also discovered that decision roles were less than clear. Marketing, regulatory and medical functions all believed they had the D on decisions regarding sales aids. Further discussion unbundled the decisions involved and resolved the issue. To ensure compliance • Conscious approach to decisions: sets criteria, considers relevant facts, develops alternatives and makes a clear decision weighing all of these Structured decision approach 1 • Logical steps and sequence for how decision roles and processes will work in practice • Clear guidelines on how, when to escalate and when not to Clear steps and sequence 2 • Key meetings required for the decision specified, with purpose and participants clarified up front • Appropriate committee reviews Meetings and committees 3 • Final decision communicated to key parties • Resources allocated (people and money) • Execution plan in place (actions, accountabilities, milestones) Closure and commitment 4 • Ongoing review of execution progress to drive fast corrective action or to replicate successes Feedback loops5 Figure 1: The how—elements of a best-practice decision process
- 22. 4 Decision Insights: Setup your most important decisions for success with FDA rules, Regulatory got an A role on the words that could be used. Product market- ing got the D on most subdecisions to ensure that they presented a compelling story to cus- tomers (see Figure 2). How. In the existing process, colleagues jotted down comments on a draft and passed it around in a manila folder. Team members received the draft with no context for the critiques and had to interpret and make their own edits as best they could. Going forward, the team agreed to hold focused meetings to discuss specific issues on a brochure and thereby provide the person in the recommend role with more information and insight. When. Finally, the team outlined a timetable for decisions. Each step in the process—deter- mining a promotional strategy, developing a brief, customizing the language and distributing a draft—had its own deadline. That way, every- one had clear guidelines about how long each step and the entire project should take. The Hospira team reset the what and the who of these decisions in a one-day workshop. Team members collaborated on the how and when over the following weeks. Finally, the entire group met to finalize the process. The results have been positive: while the teams used to take about four weeks to approve a sales aid, they are now churning through approvals much faster. Like Intel and Hospira, you can reset your orga- nization’s key decisions and get them humming. The likely outcome? Better, faster decisions and improved performance—and a renewed sense of engagement and enthusiasm among the people involved. 1 See the book Decide & Deliver: 5 Steps to Breakthrough Performance in Your Organization (Harvard Business Review Press, 2010), from which this article is adapted. 2 RAPID® is a registered trademark of Bain & Company, Inc. 3 See the first article in this series, “Score your organization” (Bain & Company, 2010). After: “What marketing materials will be compelling to customers, while also compliant with FDA regulations?” R R D R D I P I P I P I P I IR D D D I IR I I D I IR A A A P I D Before: “What marketing materials will be compliant with FDA regulations?” Product marketing ecommend gree erform nput ecide Medical Regulatory Creative Sales/ customer Global marketing Corporate marketing and commun ications • Who is the target audience, and what is the message? • What words can we use? • What is the look and feel? Figure 2: Hospira’s decisions on marketing materials, before and after RAPID
- 23. Decision Insights: Setup your most important decisions for success Bain’s business is helping make companies more valuable. Founded in 1973 on the principle that consultants must measure their success in terms of their clients’ financial results, Bain works with top management teams to beat competitors and generate substantial, lasting financial impact. Our clients have historically outperformed the stock market by 4:1. Who we work with Our clients are typically bold, ambitious business leaders. They have the talent, the will and the open-mindedness required to succeed. They are not satisfied with the status quo. What we do We help companies find where to make their money, make more of it faster and sustain its growth longer. We help management make the big decisions: on strategy, operations, technology, mergers and acquisitions and organization. Where appropriate, we work with them to make it happen. How we do it We realize that helping an organization change requires more than just a recommendation. So we try to put ourselves in our clients’ shoes and focus on practical actions.
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- 25. Decision Insights: Build anorganization that decides and delivers By Marcia W. Blenko, Michael C. Mankins and Paul Rogers
- 26. Copyright © 2010Bain & Company, Inc. All rights reserved. Content: Editorial team Layout: Global Design Marcia W. Blenko ([email protected]) leads Bain’s Global Organization practice. She has extensive experience in decision effectiveness and organization design across a range of sectors. Marcia has authored numerous articles on organi- zation, decision effectiveness and leadership, and she often speaks on these topics. Her writings have appeared in Harvard Business Review, Financial Times, Wall Street Journal, Economic Times, European Business Journal, Harvard Management Update and World Economic Forum’s Global Agenda. She is also a contributing author of Winning in Turbulence (Harvard Business Press, 2009). Marcia is a partner with Bain’s Boston office. Michael C. Mankins ([email protected]) leads Bain’s Organization practice in the Americas and is a key member of Bain’s Strategy practice. He advises business leaders on the strategic and organizational initiatives required to drive performance and long-term value. Michael’s writings have appeared in Harvard Business Review, Wall Street Journal, Financial Times, Harvard Management Update, Journal of Business Strategy, Directors & Boards, Chief Executive and other publications. He has been a featured speaker at numerous conferences and is coauthor of The Value Imperative: Managing for Superior Shareholder Returns (Free Press, 1994). In 2006, Consulting Magazine named Michael one of the year’s “top 25 most influential consultants.” Michael is a partner with Bain’s San Francisco office. Paul Rogers ([email protected]) is the managing partner with Bain’s London office and previously led Bain’s Global Organization practice. Paul’s organizational experience spans comprehensive transformation, decision effectiveness, culture change, talent management, frontline employee loyalty, overhead optimization and change management. Paul has authored numerous articles on organizational effec- tiveness and successful change in Harvard Business Review, European Business Forum, Business Strategy Series, Financial Times and others, and he regularly speaks on these topics.
- 27. 1 Decision Insights: Buildan organization that decides and delivers Decisions determine performance. If you want to outstrip your competitors, your company has to make better decisions than they do, make them faster and execute them more effectively.1 But people at every level make important deci- sions, so a company’s decision capabilities ultimately depend on its organization. Every element of the organizational system—the people, the processes, the incentives, the culture and so on—must explicitly reinforce good, quick decision making and execution (see Figure 1). If you accept those premises, then you have at your disposal a wholly new way of approaching organizational change. You no longer have to rely on hopes and prayers that your organiza- tional initiatives will somehow have a positive impact. Instead, you can focus specifically on the changes to the organizational system that will most affect decision making and execution— and you can be confident that these will improve both financial performance and employee morale. The key to the new approach is to replace tra- ditional questions about organizational change with questions focused squarely on decisions. Clarity • Traditional question: Do we have a clear and compelling mission and vision? • Decision-centered question: Are we clear on our top three to five business priorities, and on what they mean for decision making and execution in each part of the organization? When people understand a company’s priorities, they can make good decisions about what to do. British American Tobacco (BAT), for example, was once comprised of four competing com- panies. New CEO Martin Broughton eliminated the internal competition and set out a goal of regaining the No. 1 spot in the industry. A very few priorities and principles guided decisions under this framework. The company’s new focus on growth in premium global brands allowed people to worry less about local value brands. A new emphasis on achieving savings through global scale in procurement encouraged people to seek out suppliers that could deliver those savings. Clarity on the few priorities that would create value for BAT’s business provided the context people needed to make and execute decisions in line with those priorities. Alignment • Traditional question: Do we have effective internal communications? • Decision-centered question: Are we help- ing everyone in the organization under- stand our objectives and strategy so that they have the context they need to make and execute decisions? Though executives talk a lot about alignment, it’s hard to align a leadership team that is spread out over regions, functions and business units. Even harder—yet even more critical to effective decisions—is ensuring alignment throughout the organization, so that people at all levels can make and execute decisions in line with the company’s top priorities. One key to this is good communication: spreading the word about goals and priorities through clear, simple The leaders of UD Trucks in Japan, formerly Nissan Diesel, had laid the groundwork for a major transformation, focusing the company on sales to large, nationwide operators and growth in profitable after-sales service. But some important decisions weren’t working well. Decisions about pricing and service levels for key national accounts, for example, weren’t integrated across the network. Each branch set its own policy. Assigning roles and establishing better processes for decisions like these would help, but they wouldn’t be enough to put UD Trucks on the road to success. The firm needed a major organi- zational realignment. Its structure was too complicated. The organization’s key performance indicators didn’t focus people on the right things. And the company’s culture didn’t yet support a truly integrated national strategy. How could UD Trucks turn its new strategy into a reality?
- 28. 2 Decision Insights: Buildan organization that decides and delivers messages, usually repeated many times through many different methods. A few years ago, the Zurich-based power equip- ment and automation company ABB trans- formed the way it made and executed decisions. Thanks to the company’s extensive commu- nication, no one at ABB could miss the fact that things were changing. The five members of the executive team distributed a video explain- ing the core elements of the transformation. Each team member spent a huge amount of time out rallying the troops. Every employee got a weekly email from the CEO talking about the new ABB—what the priorities were, what the challenges were, how the company was doing. The email included a feedback tool so that employees could let the CEO know any questions or concerns. Roles • Traditional question: Who should report to whom? • Decision-centered question: What are the specific roles and accountabilities for our critical decisions? Today, traditional job descriptions and report- ing lines often say little about who should play particular roles in major decisions. That’s why many companies find it valuable to spell out those roles with a decision-rights tool such as RAPID®2 , described in the previous article in this series. The letters in RAPID stand for each of the five major roles in any decision: Recommend, offer Input, Agree, Decide and Perform. For RAPID to be effective, however, companies need accountability guidelines—broad princi- ples that help managers know where decisions should sit. BAT’s guidelines, for instance, reflect the company’s need to balance strong global roles in key areas such as brand management and procurement with local autonomy in exe- cution and customer relationships. Following such principles, managers can quickly use a tool such as RAPID to clarify roles in hundreds of decisions. Structure • Traditional question: Is our structure aligned with our strategy? • Decision-centered question: Does our structure support the decisions most crit- ical to creating value? Structure is rarely the chief culprit behind poor decision making and execution. Senior leaders should scrutinize other organizational elements before shouldering the expense of a reorgani- • Clarity on priorities and principles • Communication and alignment throughout the organization • Clear roles for critical decisions • Simple, cost effective structure that supports value creation • Robust decision processes linked to effective business processes • Key metrics and information—right place, right time • Cohesive leadership team living the right behaviors • Winning culture, with individuals who personally engage • Right people in right jobs—will and skill • Objectives and incentives focused on performance Critical decisions Leadership and culture Clarity and alignment Roles and structure People and performance Processes and information Figure 1: Align the organization around decisions
- 29. 3 Decision Insights: Buildan organization that decides and delivers zation. But if a reorg is necessary, the key to success is aligning the structure with the busi- ness’s most important decisions. UD Trucks, for instance, consolidated 10 regional sales companies into a single national sales group that was better suited to the new integrated strategy. A guiding principle for the move: the new group could make better decisions about how to pursue the large, nationwide operators that were critical to the strategy’s success. Processes • Traditional question: Are our core business processes effective and efficient? • Decision-centered question: Are our processes geared to produce effective, timely decisions and action? Most companies spend a lot of time engineer- ing and reengineering their business processes, but they often fail to consider the decisions involved. At the Internet company Yahoo!, for instance, every new product, such as a new version of the home page, moves through well- defined processes. Yahoo! people develop it, market it to advertisers and users, launch it and eventually make sure it operates effectively. But the company had originally designed those processes without specifying and coordinating the critical decisions each one entailed. So product development might consider a new product finished, even though the regions hadn’t yet weighed in on the degree of flexibility needed to meet local user needs. To remove the blockages, team members care- fully defined where the new-product develop- ment process stopped and the marketing process began. That helped to ensure coordi- nation of decisions and kept things from slip- ping through the cracks. Information • Traditional question: Do our information systems support our business objectives? • Decision-centered question: Do the people in key decision roles have the information they need when and how they need it? In theory, every improvement in a company’s IT systems provides more or better information. But it’s easy for managers to get overloaded. So the real key is to think through exactly what’s required for critical decisions and figure out how to make that information available in a systematic way. Lafarge’s Aggregates & Concrete Division, under executive vice president Tom Farrell, realized that some of its most important decisions involved its fleet of heavy mobile equipment, which was scattered across 620 sites in 25 countries. Farrell invested in a system that captured information about equipment at each site—the location of individual machines, usage levels, maintenance logs and so forth— and married that data with a standard analytic process reflecting group best practices. This system allowed local managers to make better- informed decisions about fleet size, mainte- nance schedules and equipment sharing between sites. People • Traditional question: Are we winning the war for talent? • Decision-centered question: Do we put our best people in the jobs where they can have the biggest impact on decisions? The key positions in any organization are those with the biggest impact on critical decisions. Since some critical decisions involve everyday operations, key positions can be anywhere in the organization, including on the frontline. The individuals who can best fill key positions are people with the skills to make and execute decisions well and quickly, and the will to do so. Looking at your organization from this perspective may change how you think about talent. One technology company, for instance, found that fewer than 30 percent of its mission- critical positions were filled by top performers. And it found that only 40 percent of its top performers were in key positions. This approach to deployment helped the company make the most of its talent pool and improve its deci- sion effectiveness. Performance-linked incentives • Traditional question: Is our compensation competitive with our peers?
- 30. 4 Decision Insights: Buildan organization that decides and delivers • Decision-centered question: Do our per- formance objectives and incentives focus people on making and executing the right decisions for the business? Nearly every well-run company translates com- pany goals and metrics into performance objec- tives and incentives for individual managers and employees. But the incentives have to encourage good decision making and execution. UD Trucks, for example, had been rewarding its salesforce mainly on the number of trucks sold in a given period, with only a small incen- tive for after-sales services. To ensure that incentives helped sales reps make the right decisions about their time and their interactions with customers, the company added new tar- gets for truck inspections (a leading indicator of service revenue) and service profits. During the last recession, this focus helped UD Trucks make up for falling sales volumes with greater service revenue, keeping the operation profitable. Leadership behaviors • Traditional question: Do we have an effective leadership team? • Decision-centered question: Do our lead- ers at all levels consistently demonstrate effective decision behaviors? An organization’s leaders set the tone for han- dling decisions. But some may second-guess assigned decision makers or make snap deci- sions without adequate information. To avoid these traps, high-performing organizations define the behaviors they want to see and support people as they adopt those behaviors. When he was CEO of Gillette, Jim Kilts noticed a lot of hallway chatter after meetings—some people were passively resisting decisions made in those meetings. So he asked his team to agree to a specified code of behaviors, includ- ing open and honest debate and wholehearted support for a decision once made. Gillette’s executives at the time received four separate annual ratings on their behaviors, one from themselves, one from peers, one from direct reports and one from Kilts. The score affected a meaningful portion of their bonus pay. Culture • Traditional question: Do we have a high- performance culture? • Decision-centered question: Does our culture reinforce prompt, effective decision making and action throughout the organization? Lasting improvements in decision effectiveness often require changing a company’s culture. Though every high-performance culture has its own unique personality, all seem to encourage a remarkably similar set of behaviors—and all of those behaviors support decision effec- tiveness. People care passionately about winning. They orient themselves outward, focusing on customers and competitors rather than on internal politics. They think like owners and have a bias to action. They build teamwork, and they bring enthusiasm and energy to their jobs. Shinhan Bank has grown to be the second largest in Korea and consistently wins top marks for customer satisfaction. One key factor: its culture of accountability, performance and focus on the customer. This culture “is an invaluable asset unique to Shinhan, which other banks can’t match,” says bank president Baek Soon Lee. A company that attacks its organizational weak spots will soon find that its decision making and execution improve significantly. For the team at UD Trucks, the list of challenges includ- ed structural change, resetting measures and incentives, establishing a clearer context for decisions and building a culture focused on nationwide success. These moves allowed the company to make and execute the decisions essential to achieving its goals and to deliver a multimillion-dollar improvement in operating income. With an organization that decides and delivers, your company can do the same. 1 See the book Decide & Deliver: 5 Steps to Breakthrough Performance in Your Organization (Harvard Business Review Press, 2010), from which this article is adapted. 2 RAPID® is a registered trademark of Bain & Company, Inc.
- 31. Decision Insights: Buildan organization that decides and delivers Bain’s business is helping make companies more valuable. Founded in 1973 on the principle that consultants must measure their success in terms of their clients’ financial results, Bain works with top management teams to beat competitors and generate substantial, lasting financial impact. Our clients have historically outperformed the stock market by 4:1. Who we work with Our clients are typically bold, ambitious business leaders. They have the talent, the will and the open-mindedness required to succeed. They are not satisfied with the status quo. What we do We help companies find where to make their money, make more of it faster and sustain its growth longer. We help management make the big decisions: on strategy, operations, technology, mergers and acquisitions and organization. Where appropriate, we work with them to make it happen. How we do it We realize that helping an organization change requires more than just a recommendation. So we try to put ourselves in our clients’ shoes and focus on practical actions.
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- 33. Decision Insights: Embed decisioncapabilities in your organization By Marcia W. Blenko, Michael C. Mankins and Paul Rogers
- 34. Copyright © 2011Bain & Company, Inc. All rights reserved. Content: Editorial team Layout: Global Design Marcia W. Blenko ([email protected]) leads Bain’s Global Organization practice. She has extensive experience in decision effectiveness and organization design across a range of sectors. Marcia has authored numerous articles on organi- zation, decision effectiveness and leadership, and she often speaks on these topics. Her writings have appeared in Harvard Business Review, Financial Times, Wall Street Journal, Economic Times, European Business Journal, Harvard Management Update and World Economic Forum’s Global Agenda. She is also a contributing author of Winning in Turbulence (Harvard Business Press, 2009). Marcia is a partner with Bain’s Boston office. Michael C. Mankins ([email protected]) leads Bain’s Organization practice in the Americas and is a key member of Bain’s Strategy practice. He advises business leaders on the strategic and organizational initiatives required to drive performance and long-term value. Michael’s writings have appeared in Harvard Business Review, Wall Street Journal, Financial Times, Harvard Management Update, Journal of Business Strategy, Directors & Boards, Chief Executive and other publications. He has been a featured speaker at numerous conferences and is coauthor of The Value Imperative: Managing for Superior Shareholder Returns (Free Press, 1994). In 2006, Consulting Magazine named Michael one of the year’s “top 25 most influential consultants.” Michael is a partner with Bain’s San Francisco office. Paul Rogers ([email protected]) is the managing partner with Bain’s London office and previously led Bain’s Global Organization practice. Paul’s organizational experience spans comprehensive transformation, decision effectiveness, culture change, talent management, frontline employee loyalty, overhead optimization and change management. Paul has authored numerous articles on organizational effec- tiveness and successful change in Harvard Business Review, European Business Forum, Business Strategy Series, Financial Times and others, and he regularly speaks on these topics.
- 35. 1 Embed decision capabilitiesin your organization With effort, any organization can rid itself of internal logjams and get things decided and delivered for a period of time. But most organ- izations have enormous amounts of inertia and are likely to slide back into the old ways of doing things. If you want decision effec- tiveness to be more than a four-month flash in the pan, you’ll need to build lasting capa- bilities—to embed the new ways of working in the organization and ensure that they produce continuing results. This fifth step in our program is last in the sequence. But as with any attempt to reshape an organization, you have to think about the change process from the very beginning. Which leaders will you count on to spearhead the effort? How will you persuade people of its importance? How will you maintain momen- tum and overcome the obstacles? As Maria Morris recognized at MetLife, how you plan and lead this journey makes the difference between success and failure. Every company is different, so there’s no single road map. But the companies that have built durable decision capabilities have learned three important lessons, which we’ll summarize here (see Figure 1). 1. Build the foundation for effective decisions The process has to begin with a powerful rationale for embarking on the journey: a big, meaningful, worthwhile goal. MetLife CEO Henrikson, for example, wanted the company to be recognized as a leading global insurance provider. He and his team made it clear that better decision making and execution were essential to achieving that goal. Along with two other senior leaders, Henrikson video- taped a speech shown at leadership meetings throughout the company. The three officers declared that MetLife would become a “decision- driven organization.” It would use best-practice tools to increase the speed of decisions and optimize the effort involved. It would shift to a participative style, with all the changes in leadership behaviors that shift implied. These measures, the officers said, would help the company become a true top performer. Leaders MetLife was on the move. The insurance giant was reengineering its operations, deepening its relationship with customers, expanding into global markets. The company’s organization already functioned pretty well, CEO Rob Henrikson thought. But reaching the full potential of the business required MetLife to work better than ever. People needed to make great decisions day in and day out. They needed to make those decisions quickly and execute them smartly. Now, in the company’s Technology & Operations division, the rubber was about to meet the road. “We are counting on all of you,” executive vice president Maria Morris explained to 500 of her division’s leaders. “The path to transforming ourselves into a decision-driven organization will require commitment and tenacity. It will require new skills, new behaviors and new ways of working that will sometimes feel uncomfortable. Every individual will have to be open to change.” Morris could see that people were getting fired up. But would they follow through and embrace the change she was hoping for? The effort to improve decision making and execution couldn’t be seen as just another chore—people were already working hard on so many fronts. “Decision effectiveness is not another initiative,” she said firmly. “It is a capability— a capability that will help us deliver the initiatives our future depends on. Let’s get started!”
- 36. 2 Embed decision capabilitiesin your organization in each area of the business shared the video with their own teams and echoed the messages whenever they could. A year later, they were still starting major meetings with reminders of how important decision effectiveness was and what people still needed to do to improve it. This kind of commitment from the senior team helps to engage influential leaders through- out the business. For example, Henrikson’s urgent appeal to boost decision effectiveness found a receptive ear in Bill Mullaney, then head of MetLife’s Institutional Business seg- ment, which accounted for more than 40 percent of the company’s earnings. Mullaney rallied his executive team and met with his top 200 leaders to talk about why decision effectiveness was so important and to enlist their support. Then Maria Morris began to mobilize her team in Technology & Operations to work on decision effectiveness. Soon other leaders were following suit. Seeing influential executives like Mullaney and Morris embrace the effort was just the inspiration they needed. Two techniques are particularly helpful in engag- ing influential leaders: building commitment through hands-on experience, and asking leaders to co-create the plan. Once the top team and other leaders are on board, the job of spreading the new ideas and approaches to the rest of the company becomes that much easier. 2. Create and sustain momentum If you have successfully laid the foundation, the next task is to harness people’s energy and build momentum. A great way to begin is to apply good decision practices to the process you will use to improve decision effectiveness. Establish clear accountabilities for the people who will lead the effort. Define the roles involved in selecting and resetting decisions, and in redesigning elements of the organizational system. Clarify up front the what, who, how and when for each of these major decisions. The process itself can be an object lesson, showing people the benefits of good decision making and execution. One judgment call you’ll have to make is what must be decided at higher levels and what can be pushed outward. The senior leader—for a companywide effort, the CEO—must be involved from the beginning and needs to stay involved. He or she must make the tough calls on deci- sion accountabilities, organizational redesign and people changes. But plenty of other deci- • Make decision effectiveness a priority • Engage influential leaders early • Apply good decision disciplines to improving decision effectiveness itself • Celebrate decision successes— and nurture grassroots pull • Build new capabilities and skills • Walk the talk • Measure the impact Build the foundation for effective decisions Create and sustain momentum Equip people to decide and deliver Figure 1: Embed decision capabilities
- 37. 3 Embed decision capabilitiesin your organization sions can be delegated, especially since you want future leaders involved in the process. MetLife launched its decision effectiveness effort as part of a broader change management program called Operation Excellence. Once the decision effort was under way, the company appointed Bill Moore, head of its Auto & Home business, to lead the charge. Moore’s job was to monitor progress, encourage and support the various businesses and functions and ensure that the new decision approaches became part of how MetLife did business day to day. Successful companies also sustain momentum by celebrating decision and execution successes and thereby nurturing grassroots pull for more. People need to feel confident that there will be real victories. So announce the early wins loud and clear. Communicate them, celebrate them, show that others are likely to follow. The early wins don’t have to be huge. MetLife, for instance, revamped its process for evaluating IT invest- ment decisions, which had been a bottleneck. The new process delivered tangible, measurable improvements to the process and illustrated the possibilities of a decision-centered approach. One benefit of early wins is that they inspire people at the grassroots to explore the changes for their own organizations. Nothing is quite as powerful as when decision effectiveness goes viral—when people begin to say sponta- neously, “I’d like to do that in my area,” or “Where can I go to learn about this?” 3. Equip people to decide and deliver Improving decision making and execution over time requires investing in new skills and capa- bilities. Successful companies have developed four essential techniques for helping people handle important decisions more effectively. • Develop a repeatable model that can be applied throughout the business. MetLife established a step-by-step approach to decisions and codified a set of tools that made it easier for each business and function to apply best practices in its own area. The repeat- able approach meant that people could tackle a few decisions and improve them, tackle the next set and so on, until the approach became a natural part of con- tinuous improvement. • Use a “train the trainer” approach—and tailor the training to the audience. At MetLife, senior leaders and designated rollout cham- pions got directly involved in redesigning important decisions and discussing the leadership behaviors that would be critical to the change. The next tier of leaders— individuals who would lead efforts to improve decisions in their areas—attended half-day sessions that taught them how to evaluate and redesign individual decisions. People from this group then worked on specific decisions, with support from the senior team and rollout leaders. In addition, a one-hour e-learning program provided an overview of the approach, helping people in the broader organization understand key terms, expected behaviors and the like. • Help people learn through experience. Just as leaders need hands-on experience, so do other people throughout the organization. The most successful training programs involve actual decisions, not just theoretical exercises. Teams work with experienced coaches to develop capabilities on the job rather than in the classroom. • Share best practices. At MetLife, executives held kickoff meetings in their own areas, inviting leaders from units that had already begun redesigning decisions to discuss their experiences. The company also for- malized best-practice sharing by creating a council of rollout leaders from each area of the business to review progress and help resolve emerging issues.
- 38. 4 Embed decision capabilitiesin your organization Any change effort, big or small, requires re- sources, time and management attention. Naturally, you want to know whether you’re get- ting a return on your investment. You may want to run the decision diagnostic and organizational health surveys again and compare scores. You will certainly want to track progress on the spe- cific decisions that you are working to improve. Effective measurement helps build enthusiasm about achievements and helps strengthen resolve to tackle the remaining challenges. Even if you follow all these prescriptions, the journey to decision effectiveness isn’t necessarily an easy one. There are plenty of potential pit- falls along the way—difficult decisions, tough people issues and so on. It takes determination and perseverance, and a willingness to finish what you’ve started. At MetLife, Maria Morris got her leadership team committed to drive the change. Team members learned RAPID, decision X-rays and other techniques. They laid out a plan, appointed a rollout leader and worked with the organ- ization to identify critical decisions and redesign them. By the end of 2009, Morris and her team had worked through nearly 20 major decisions, and the new approaches were start- ing to gain traction. Maybe most important, the organization was beginning to show signs of a culture change—people were learning to act differently, day in and day out. Though Morris was enthusiastic about the results so far, she would be the first to tell you that the journey was far from over. But MetLife had begun. Too many other organ- izations hold back from attacking their deci- sion difficulties. They fail to reshape their organizations so that they can build stronger decision capabilities. The result, almost inevit- ably, is mediocre performance. Great results, by contrast, require a great organization—an organization that, like MetLife, is prepared to build on its strengths, work on its weaknesses and learn to decide and deliver, day after day after day. Decisions—before and after ABB, the big Zurich-based power technology and automation company, came close to bankruptcy several years ago. Part of the company’s trouble was that it couldn’t make good decisions on important matters such as bids on major jobs. Each ABB unit, for example, had its own profit targets and set its own transfer prices. By the time a bid got through the chain of ABB units, the price was often too high to be competitive. But ABB recovered, partly because it fixed that kind of decision trouble and embedded a different way of working deep in the organization. A new leadership team simplified the organizational structure into just two divisions, centralizing profit-and-loss accountability. It simplified transfer pricing and required full margin transparency. New goals and incentives set managers’ sights on the company’s performance rather than the performance of individual units. Leaders launched a major change effort, communicating the new priorities relentlessly, building momentum, helping everyone learn the new ways of doing things. By 2007, ABB was back on track, again profitable, again a leader in its industry. Its share price and market value had grown more than fivefold in the previous four years. And it was making and executing its key decisions well and quickly.
- 39. Embed decision capabilitiesin your organization Bain’s business is helping make companies more valuable. Founded in 1973 on the principle that consultants must measure their success in terms of their clients’ financial results, Bain works with top management teams to beat competitors and generate substantial, lasting financial impact. Our clients have historically outperformed the stock market by 4:1. Who we work with Our clients are typically bold, ambitious business leaders. They have the talent, the will and the open-mindedness required to succeed. They are not satisfied with the status quo. What we do We help companies find where to make their money, make more of it faster and sustain its growth longer. We help management make the big decisions: on strategy, operations, technology, mergers and acquisitions and organization. Where appropriate, we work with them to make it happen. How we do it We realize that helping an organization change requires more than just a recommendation. So we try to put ourselves in our clients’ shoes and focus on practical actions.
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- 41. Decision Insights: Shape yourcompany’s decision style—and behaviors By Marcia W. Blenko, Paul Rogers and Patrick Litre
- 42. Copyright © 2011Bain & Company, Inc. All rights reserved. Content: Editorial team Layout: Global Design Marcia W. Blenko is a partner with Bain & Company and leads the firm’s Global Organization practice. Paul Rogers is the managing partner of Bain’s London office. Patrick Litre is a partner with Bain & Company in Atlanta.
- 43. 1 Shape your company’sdecision style—and behaviors Nearly every organization has a characteristic style of making decisions. People may not be conscious of the dominant style, just as Molière’s Monsieur Jourdain was unaware that he had been speaking prose all his life. But a particular approach to decision making is nearly always a key ingredient of an organization’s culture. It’s one of the “soft” elements that research shows are most important in determining an organization’s decision effectiveness and thus its performance.1 Sometimes, however, a company’s predominant decision style has to change. The trigger may be a merger, as with Merck and Millipore. It may be a shift in the competitive landscape, the adoption of a new strategy or the arrival of new leaders. Suddenly the customary way of doing things no longer fits the organization’s business objectives. People need to learn a new decision style, and they need to tackle the challenge head-on. This article will help you get started on the journey. Four decision styles From an analytic point of view, decision styles typically fall into one of the following four categories: • Directive. One person has decision authority in any given situation. Once he or she makes a decision, the expectation is that everyone else will get on board. • Participative. One person takes responsibility for each decision, but the decision maker gathers input from others with relevant knowledge or expertise. This style combines single-point accountability with a collab- orative approach to the process. • Democratic. Participants gather information, then vote on decisions. The majority rules, and the minority must abide by the vote. • Consensus. All involved agree on the pro- posed plan of action before they finalize a decision. Note that the categories aren’t hard and fast; they are more like markers on a continuum. And all of a company’s decisions don’t neces- sarily fall into the same category. Decisions relating to safety might be directive, for example, while decisions on which charities to support might be put to a vote. But organizations get themselves into trouble when they fail to agree on and communicate a predominant decision style—a method that will be used for most decisions in most situa- tions. For one thing, people in the organization don’t know what to expect. Individual execu- tives adopt whatever style feels most comfortable to them. Employees, who often work across groups, wind up not knowing how to operate from one to the next. A new leader may confuse things still further. A major UK retail chain, for instance, relied for decades on a CEO whose The year was 2010. The German healthcare company Merck KGaA had just acquired Millipore, an American biotech equipment supplier. Now executives from the two companies were facing the daunting challenge of marrying the organizations’ cultures—especially the way they went about making and executing decisions. Merck, with an 8 billion euros global business, was known for its careful, methodical approach. “We revisit decisions, if needed, to ensure alignment with key stakeholders,” said one employee. Millipore was more entrepreneurial. As one executive put it, “If we decide on something, we do it.” The newly merged company would need to define and develop its own way of handling key decisions, one that captured the strengths of both organizations—and it would need to begin the process right away.
- 44. 2 Shape your company’sdecision style—and behaviors style was wholly directive. When a new, more participative CEO took the reins, the organ- ization could barely function. People weren’t sure how to participate, and they hadn’t learned to make decisions on their own. Then, too, the organization may find it has adopted a particular style by default, and that the style is inappropriate to its business chal- lenges. Several years ago, Boeing Commercial Airplanes revisited how it handled pricing. At the time, only a handful of executives at the top of the organization knew how the company priced its airplanes and how much money it made on each one. This directive style on pricing decisions excluded information from lower-level executives, which might have led to better choices. The advantages of the participative style Though any of the four styles can work in some situations, we find compelling evidence from both research and experience in favor of the participative style. More than half of the top performers in a recent survey said that they tend to rely on such a style. Employee engage- ment is also significantly higher in companies with a participative style. Employees of par- ticipative companies are three times as likely as others to recommend their organization as a place to work. Changing to a participative style often improves both the speed and the quality of decisions. Boeing’s shift to a participative style under Alan Mulally helped the company make better pricing and other commercial decisions and turn around performance. Changing behavior At root, “decision style” is simply a convenient shorthand for a set of specific behaviors. If an organization aspires to change its style, individuals in the organization must learn to behave differently—not always an easy task. Leaders who are guiding this process typically rely on four critical steps. 1. Explain the rationale The first step is to answer the obvious question: Why do we need to change? People need to see a clear link between a new decision style and business objectives if they are to buy in to the program. When MetLife shifted to the partic- ipative style, CEO Rob Henrikson was crystal clear about the rationale. In an internal video, he said, “The participative style fits well with our desired culture, emphasizing both account- ability and collaboration.” In the case of Merck and Millipore, executives from both sides could see that smooth decision making was key to achieving the hoped-for synergies. 2. Determine the biggest gaps between today’s behaviors and those that will be required in the future Companies that adjust their decision style typi- cally ask employees to assess their current ways of acting—their point of departure, so to speak. What are the behaviors that obstruct effective decision making? What are the behaviors that help it? In the case of a merger, which behav- iors are at odds? The organization can then define the point of arrival, the behaviors that will support the new style (see Figure 1). In the Merck-Millipore merger, the teams from Merck identified a sizable gap between their current speed of decision making and the speed they wanted in the future. Millipore’s group wanted future decisions to focus less on short- term results than they had in the past. 3. Identify the behaviors that need to change Millipore executives were accustomed to a fast-moving style, which didn’t always allow for debate. The move to a participative style required decision makers to learn to listen to
- 45. 3 Shape your company’sdecision style—and behaviors others, and it required the others to begin offer- ing input in a timely fashion. Merck executives, for their part, had traditionally operated more by consensus, without explicit roles and processes. Adopting the participative style helped them move faster and get things done more effec- tively. For example, Merck Chemical chief executive Bernd Reckmann had the “D”— decision rights—on the priority agenda for 2011. In keeping with the new style, Reckmann consulted with others at every step and led a spirited debate on the criteria for choice before coming to his decision. A useful approach is to home in on the two or three behavior shifts that are hardest when going from one style to another. If an organi- zation is shifting from directive to participative, decision makers may find it difficult to solicit input, welcome open and constructive debate and change their minds when warranted. One executive addressed that issue by asking for every staff member’s views before declaring his own, just to be sure he got everyone’s perspectives. People who don’t have decision responsibility but are involved in decisions must prepare the input that they want to offer— and understand that they must earn the trust of the decision maker if they expect to influence the decision. Moving from consensus to participative can be even harder. Decision makers must actually be decisive and bring the discussion to a close, even in the face of conflicting views. When they choose a course of action, they should help others understand their thinking, so that people don’t suddenly feel they’re being told what to do with no explanation. Participants must all learn to commit to the decision even if they don’t agree, and not to take it personally if they are no longer involved in certain decisions. 4. Embed the new behaviors Companies changing their decision style invari- ably find that they must reinforce the message in several different ways, including: If have the Decide role If have another role • At the start – Establish “what, who, how, when” for the decision – Provide context and set expectations • During the process – Actively engage R’s and I’s; listen, debate and consider different viewpoints – Run meetings to advance decision process – Ensure people respect decision roles and process – Make the decision! Reinforce single point accountability Cut off input/debate when decision can be made • Once the decision is made – Do not revisit the decision – Hold people accountable for execution – Communicate outcomes and lessons learned, regardless of success • Recommend – Push for clarity around “what, who, how, when” if not clear – Make sure all A’s and I’s are engaged • Agree – Provide input early on – Work collaboratively with R’s to resolve issues • Input – Provide high quality input – Recognize that you need to earn the trust of the decider and recommender to influence the decision – Don’t insist on having a bigger role (I’s are not A’s) • Perform – Take the required action on time and to the full extent of the decision – Ask for and provide feedback Figure 1: Participative best-practice decision behaviors
- 46. 4 Shape your company’sdecision style—and behaviors • Role modeling and communication by leaders. One big motivator for many people is seeing leaders act in new ways. When MetLife was consolidating its US businesses into a single organizational unit, the new unit president, Bill Mullaney, decided to move one part of the organization to an- other. Rather than simply announcing the change, he sent an email to every manager explaining how he and his team had made the decision using the participative style. He recounted how he had used some of the new decision practices he was trying to reinforce, such as considering alterna- tives and evaluating the options with the right facts. The message was crystal clear: This is the new way of doing things, and here’s how it works. • Reinforcement. Of course, little is as pow- erful as rewards for adopting new practices. Reinforcement needs to be positive, im- mediate and consistent. It can come from the boss, such as a simple “well done” after a meeting using the new decision style. Even more powerful is reinforcement from a peer group. When the newly merged Merck and Millipore made its decision about priorities for 2011, executives went through a process of preparation, spirited discussion and revision. But they wound up making this complex decision on time and on budget, without undue effort. The experience left people feeling good about the entire process and ready to use the new disciplines again in other critical decisions. The positive feedback from peers created its own reinforcement for participants. • Feedback and coaching. Regular feedback on progress toward behavior change is critical for groups as well as individuals. Merck established a checkpoint for the change process, asking each leader how things were working and then summa- rizing the feedback for senior management discussions. If an individual is struggling with certain behaviors, outside coaching can often help that person make progress toward the goal. These behavior changes may feel uncomfort- able. People accustomed to working by consen- sus, for example, may find the participative style too abrupt. Those accustomed to a directive style may find that decisions take longer than they used to. The key to getting people past their discomfort to actual behavior change is persistence. The journey takes time: The ini- tiative will fail if behavior change is no longer a priority six months later. But long-term com- mitment will reap long-term rewards. Conclusion The teams from Merck and Millipore concluded a remarkably successful merger. It closed on time and on budget. The new company began to execute its business plan and turned in excellent operational results in the period immediately following the merger. Many factors contributed to the success, of course, but a central factor was the introduction and gradual implementation of a new decision style—a style that allowed people from both companies to make good decisions, make them quickly and see them implemented effectively. So it can be with any major change in a com- pany’s organizational life. Identifying your predominant decision style, selecting a new one if necessary and launching the process of changing behaviors so that the new style comes to life can create a path to better decisions and thus better performance. 1 See Decide & Deliver: 5 Steps to Breakthrough Performance in Your Organization (Harvard Business Review Press, 2010), from which parts of this article are adapted.
- 47. Bain’s business ishelping make companies more valuable. Founded in 1973 on the principle that consultants must measure their success in terms of their clients’ financial results, Bain works with top management teams to beat competitors and generate substantial, lasting financial impact. Our clients have historically outperformed the stock market by 4:1. Who we work with Our clients are typically bold, ambitious business leaders. They have the talent, the will and the open-mindedness required to succeed. They are not satisfied with the status quo. What we do We help companies find where to make their money, make more of it faster and sustain its growth longer. We help management make the big decisions: on strategy, operations, technology, mergers and acquisitions and organization. Where appropriate, we work with them to make it happen. How we do it We realize that helping an organization change requires more than just a recommendation. So we try to put ourselves in our clients’ shoes and focus on practical actions. Shape your company’s decision style—and behaviors
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- 49. Decision Insights: Decision-focused meetings ByMichael C. Mankins and Jenny Davis-Peccoud
- 50. Copyright © 2011Bain & Company, Inc. All rights reserved. Content: Editorial team Layout: Global Design Michael C. Mankins leads Bain’s Organization practice in the Americas and is a key member of Bain’s Strategy practice. He is a partner in the firm’s San Francisco office. Jenny Davis-Peccoud is senior director of Bain’s Global Organization practice and senior director of the Bain Cares Global Social Impact Program. She is based in London.
- 51. Decision-focused meetings 1 Beth Williamsis fictitious, but nearly every executive we know feels her pain. Senior leaders and middle managers at most companies spend more than 50 percent of their time in meetings. According to one survey, about two-thirds of meetings run out of time before participants can make important decisions. Not surprisingly, 85 percent of the executives surveyed are dis- satisfied with the efficiency and effectiveness of meetings at their companies. The trouble this situation causes goes well beyond annoyance. Meetings are essential to effective decision making and execution and thus to business results. The companies that are best at decisions—and that turn in the best performance—have learned to manage their meetings as carefully as they manage any other part of their businesses.1 This article examines four ways to get your meetings back under control and turn them into the powerful performance driver that they ought to be. 1. Eliminate unnecessary meetings Some meetings focus on decisions. Others don’t. The top performers scrutinize their calendars and, as a first step, do away with meetings in the “don’t” category. The key—the scalpel that lets you separate the important from the un- important—is a clear understanding of your critical decisions. The list should include both big one-off decisions, such as major strategic investments, and more routine decisions that add up to significant value over time. If a meet- ing doesn’t bear on one of these decisions, cancel it. Zero-basing your meetings in this fashion gives you an opportunity to eliminate superfluous sources of meetings. You can ax all the com- mittees whose only job is to prep for other committees, along with all the other working groups that have outlived their usefulness. One electric utility found it had more than 70 steering committees that still met, even though their work was largely complete. The company had so many steering committees that it issued a moratorium on new ones. The moratorium spotlighted the issue of meetings and encouraged people to rethink which were really necessary. Depending on how bad things are, you may find that a mandate to eliminate unnecessary meetings reveals an opportunity for large-scale simplification. A well-known European retailer, for example, was suffering from slow, frustrat- ing decision making. One committee would Beth Williams groaned as she looked at her computer monitor—another Monday, another product- development meeting. Later, she had a meeting with her own team and a get-together with marketing, plus a conference call. She glanced at the week’s schedule: half her time was already blocked out, and more meetings would flow in as the week dragged on. How could she ever get anything done? If the meetings actually accomplished anything, it wouldn’t be so bad. But today’s product- development session would likely revisit a decision the group made two weeks ago. Jason hadn’t liked the outcome and had persuaded Dana, the group leader, to revisit it. And the marketing meeting, well, that would be a cookie-fest with slides about the current campaign. But if Beth didn’t go, people would start whispering. At this company, you were supposed to show up at meetings and say something smart. She wondered how Tony, the VP in charge of her unit, got away with never attending any. She checked her email and saw yet another meeting invitation. She badly wanted to click “decline.”
- 52. 2 Decision-focused meetings to eliminatenearly 70 percent of committees, with an equally big drop in the number of meet- ings. The company estimated that the reduction would free up roughly 50 percent of the typical executive’s time. 2. Make meetings effective The fact that a meeting is supposed to focus on a key decision doesn’t mean that it will. But several companies have developed tools to keep people attentive to the matters at hand. One such tool is announcing the meeting’s purpose at the outset. The University of Cali- fornia at Berkeley, for example, expects its staff to begin every meeting with a single statement: “The purpose of this meeting is to inform you about X, to discuss Y and to decide on Z,” where Z is a specific, well-defined decision. Using this kind of tool—we call it IDD, for Inform, Discuss, Decide—encourages people to move the “inform” items to pre-reading materials reverse another’s decisions. Some decisions had to be approved by three or more different forums. Managers were tearing their hair out: “I feel like I’m urging my team to wade through treacle,” said one. The retailer built a database of its committees and found that it had some 42 cross-functional groupings, plus additional committees within each function. Few had clear decision responsibilities. To solve the problem, the retailer reorganized its governance system (see Figure 1). One step was to subsume many of the committees into a single program board with well-defined respon- sibilities, such as overseeing execution against the business plan and budget. Another was to clarify the roles of each surviving committee. In the past, for example, the capital expendi- tures committee might have begun discussing the content of a menswear-redesign project; now its job was explicitly limited to approving or disapproving the proposed investment. The governance reorganization enabled the retailer Figure 1: Retail Co had multiple decision-making committees with unclear decision rights Management board Systems Operations Buying and brand Retail Commercial Strategy Programs Other subcommittees Original subcommittees of the board Functional governance • Programs/projects to achieve budgeted results as per business plan • But unclear alignment to subcommittees • Multiple additional subcommittees were set up to resolve cross functional issues • However, there were often unclear terms of reference or a lack of clarity on linkages to programs and original sub groups • Subcommittees oversee delivery of programs and recommend projects to approve • However, they also provide input on projects from other programs due to overlapping terms of reference • Set the strategic agenda • Oversee delivery of the budget and business plan • Act as steering committee for major projects Source: Bain analysis Program SG ... Program SG C Program SG A Program SG B Program SG ... Program SG ...
- 53. Decision-focused meetings 3 Recommend, Agree,offer Input, Decide and Perform. Companies that are best at decisions explicitly assign each of the roles for key deci- sions. They expect meeting organizers to invite only the individuals assigned those roles to decision-making meetings. Clarifying roles also enables companies to con- front a chief cause of meeting proliferation and ineffectiveness: reopening decisions. That was a problem at Intel’s Embedded and Commu- nications Group (ECG) where, according to general manager Doug Davis, “someone who hadn’t been involved [in a decision] early on would bring in a new piece of data, and we’d go back and revisit it.” Once ECG introduced RAPID, decisions were far more likely to stick. Today, says Davis, “We’re not thrashing around on things as much.” Companies have also learned to keep meetings as small as possible. Our research highlights what we think of as the Rule of Seven: every person added to a decision-making group over seven reduces decision effectiveness by 10 percent. If you take this rule to its logical conclusion, a group of 17 or more rarely makes any decisions. Of course, a larger group may sometimes be necessary to ensure buy-in. But organizations trying to make important decisions should limit the size of the group as much as they can. 4. Make meetings consequential Sometimes meetings fizzle out and never reach a decision. Other times, the decision that every- body thought they made never gets implemented. In both situations, attendees start grumbling that they are wasting their time, and higher-ups decide that they won’t bother attending the next meeting. The best way to prevent all that is to ensure that meetings have consequences. One tool is the decision calendar or decision log. It’s simply a file through which people track the decisions that are made and see that they are properly communicated to the organization. At whenever possible. It’s a simple way of focusing a meeting on particular decisions while allowing for flexibility around the edges. When a major natural-resources company was revamping its strategy and planning process, it noticed that its meetings lacked focus and weren’t accomplishing all they should. In re- sponse, the company mounted a four-part pro- gram to correct matters: • Leaders began insisting on explicit clarity of purpose for every meeting. • They established exacting requirements for meeting preparation, including templates, standardized pre-read protocols and deadlines. • They designed each meeting’s agenda around what they wanted to accomplish—ensuring, for example, that short-term operations and long-term planning weren’t discussed in the same meeting. (People found it hard to keep the two separate.) • They also changed the conduct of the meeting, with key decisions highlighted on the agenda and a recap at the end summarizing the points reached by the group. Such measures enabled the company to im- prove decision effectiveness and maintain its industry-leading performance. 3. Ensure that the right people— and only the right people—attend Meetings often include two groups: the partic- ipants and the audience. At some companies, many people make a point of attending all the meetings they can, just so they feel that they are in the loop. (We call them “business tourists.”) The only people who should attend a meeting are those with a role in the decisions at hand. To clarify those roles, we use a simple tool called RAPID® , which is a loose acronym for
- 54. 4 Decision-focused meetings how manymeetings they are invited to. So not everyone will be happy if companies reduce the number of meetings and cut down on the num- ber of invitees. Some will experience what we think of as a meeting-withdrawal syndrome. We have developed a three-step program that will help reduce the syndrome’s effects: 1. Communicate why the organization is mak- ing these changes. Convey the idea that everybody will soon be attending fewer meetings—and that when they do attend one, it is likely to be more effective and productive than in the past. 2. Role-model the new behaviors. Leaders should attend those meetings where they play a decision role and avoid others. They should push back when someone tries to reopen a decision. Peers and superiors can recognize and praise these behaviors. Every meeting leader can adopt new techniques, such as a moment at the beginning asking, “Does everyone have to be here?” 3. Train people in the new protocols for meet- ings—the “new way of doing things around here.” The job here is to reorient expecta- tions about what meetings will be held, how they will be run and who should attend them. Like other organizational changes, reining in meetings can be difficult at first. But you should soon find that your time is freed up, that your remaining meetings are far more productive than before and that your decisions are better and faster. The real-life Beth Williamses in your organization will appreciate it. a large entertainment company we worked with recently, senior executives found that they often struggled to reach closure at their sessions or, worse yet, failed to agree on what they had decided. By focusing team meetings on decisions and capturing the group’s actions in a formal decision log, executives were able to increase the pace of decisions significantly and dramatically improve the group’s follow-through and execution. A second tool: ensuring commitment. When Jim Kilts was CEO of Gillette, he noticed that that there was a lot of hallway chatter after meet- ings, and that some executives were passively resisting decisions made in those meetings. So he asked his team to agree to a specified code of behaviors, including open and honest debate during a discussion and wholehearted support for the decision once made. To put some muscle behind the commitment, Kilts arranged for four separate annual ratings on executives’ behaviors—one from themselves, one from peers, one from direct reports and one from Kilts himself. The scores affected a meaningful portion of the executives’ bonus pay. Occasionally, of course, people in a meeting will “decide not to decide.” But that’s a phenomenon worth watching. One company we worked with tracked its delays and found that it was post- poning decisions about 60 percent of the time. As the company reduced this percentage, it sped up decision making and execution and reduced the effort for all involved. Not surprisingly, performance improved as well. “Meeting withdrawal” Because meetings are so common, many people rely on them to organize their daily lives at work. They also gauge their relative status by 1 For more on the connection between decisions and business results, see the book Decide & Deliver: 5 Steps to Breakthrough Performance in Your Organization (Harvard Business Review Press, 2010). Parts of this article are adapted from the book. RAPID® is a registered trademark of Bain & Company, Inc.
- 55. Bain’s business ishelping make companies more valuable. Founded in 1973 on the principle that consultants must measure their success in terms of their clients’ financial results, Bain works with top management teams to beat competitors and generate substantial, lasting financial impact. Our clients have historically outperformed the stock market by 4:1. Who we work with Our clients are typically bold, ambitious business leaders. They have the talent, the will and the open-mindedness required to succeed. They are not satisfied with the status quo. What we do We help companies find where to make their money, make more of it faster and sustain its growth longer. We help management make the big decisions: on strategy, operations, technology, mergers and acquisitions and organization. Where appropriate, we work with them to make it happen. How we do it We realize that helping an organization change requires more than just a recommendation. So we try to put ourselves in our clients’ shoes and focus on practical actions.
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- 57. Decision Insights: Great decisions—Nota solo performance By Marcia W. Blenko and Jenny Davis-Peccoud
- 58. Copyright © 2011Bain & Company, Inc. All rights reserved. Content: Global Editorial Layout: Global Design Marcia W. Blenko is a partner with Bain & Company and leads the firm’s Global Organization practice. Jenny Davis-Peccoud is a practice area senior director for Bain’s Global Organization practice.
- 59. Great decisions—Not asolo performance 1 The Recommend role What it is. The R role typically involves 80 percent of the work in a decision. The recommender gathers relevant input and proposes a course of action—sometimes alternative courses, complete with pros and cons. Rs are the quarterbacks of the decision process, coordinating the other roles so that the decision maker’s choices are as clear, simple and timely as possible. If they do their job correctly, R’s will usually see their recom- mendations accepted by the D. Getting the R right. Some organizations fail to identify an R, thus forestalling a decision. When one mining company, for example, was expanding into a new region, corporate headquarters was pushing to create an external relations organization to support the new mine. Headquarters assumed the regional vice president (RVP) would develop a recommendation for the new structure. The RVP expected headquarters to do it—after all, it was their idea. The upshot: a big delay, until the responsible executives eventually clarified the R role. Other organizations have too many recom- menders. A media company we worked with gave all of its editorial units an R on content, which led to recurrent bottlenecks. It solved the problem when it assigned one person to integrate the inputs, set priorities and recom- mend tradeoffs. Even two Rs is too many. If a business unit prepares a full-scale case rec- ommending an acquisition while finance prepares a recommendation against it, the CEO will have to get to the bottom of both views, and the decision will take longer than it should. To succeed, a company needs to specify the right recommender for each key decision and ensure that those individuals set decisions up for success. R’s can start by sitting down with decision makers to establish the parameters for the decision, the form of the recommendation and the level of rigor required. They can then clarify decision roles and processes and map out a series of meetings to gather the necessary input and signoffs. A large technology company tries to capture these best practices by arming every R with a checklist of issues to consider, such as “Who should be consulted to develop a complete recommendation?” and “What is the right tradeoff between rigor and speed for the recommendation?” A few years ago, Marcia Blenko and Bain colleague Paul Rogers wrote an article in Harvard Business Review called “Who Has the ‘D’?” Its central point: companies that are best at getting things done specify who is responsible for every role in major decisions. Identifying and assigning the key roles—Recommend, Agree, Perform, Input and, of course, Decide—cuts through all the frustrating debates about (for instance) whether finance or a business unit should determine investment levels, and whether marketing or engineering has the final say on a product’s features. The article introduced a decision-rights tool we call RAPID® , which encapsulates all the roles in an easy-to- remember acronym. But perhaps we should have called the article “Who Has the ‘R’?” or “Who Has the ‘I’?” The reason is that many companies take the original title too literally: they pay close attention to the Decide role but too little attention to the others. As a result, their decision-and-execution processes continue to hit bumps and barriers. In this article we will try to redress the balance. We’ll look at each of the four supporting roles in detail—what it is, what can go wrong and how to make things right.
- 60. 2 Great decisions—Not asolo performance And sometimes senior executives get involved in topics that are best delegated. A consumer products company we’re familiar with developed a process to ensure that top leaders focused only on major innovations. That was a wise move, but unfortunately the company never spelled out which decisions required their input. Soon the executives found themselves arguing about matters such as the height of the letters on product packages rather than focusing on more important issues. Other companies, however, don’t have enough people in an I role and don’t get the specific input they need. At a pharmaceutical company, the drug-development decision process included input relating to scientific and medical factors but didn’t include sufficient input about payers’ willingness to cover the drug. As a result, the company found itself investing in pharmaceuticals that insurers were unlikely to pay for. Best-practice companies not only define the right Input roles; they also ensure that the designated individuals can provide high-quality input on a timely basis. A retailer, for instance, realized it needed better input into decisions regarding what products to stock and at what price points. So the company created a set of standard templates that allowed assistant brand managers to provide the necessary analysis. That helped their super- visors, the brand managers, to make better decisions and to make them faster. The Input role What it is. People who offer input into a recom- mendation provide necessary information and points of view. They help the recommender assess whatever tradeoffs the decision may require. When decisions are based primarily on analytics, people in the I role provide the statistics and interpreta- tions. Another I job is helping to think through the implications of the decision, such as risks and implementation challenges. Note, however, that the I role is strictly advisory. Recommenders should consider all input, but they don’t have to reflect every point of view in the final recommendation. Getting the I right. Ideally, the I group includes everyone with relevant data, expertise or experience. It should also include people who will be respon- sible for implementation, along with individuals in parts of the organization affected by the decision. Including these folks ensures that downstream issues are considered, thus improving decision quality and speeding buy-in. Serving as an I is a big responsibility, and people in most high- performing organizations earn the right to influence a decision by providing credible, high- quality analytics and logic. What can go wrong? Companies with inclusive cultures often put too many people in an I role. Dozens of unnecessary people in meetings clog the process without improving decision quality. Skills and character traits required • Provide input based on data, experience or position • Ensure input is clearly heard—bring high quality analytics and logic to bear and use influence appropriately • Access to data, strong analytic skills • Ability to provide input in clear fashion, e.g., not too detailed, with relevant insights clearly highlighted • Ability to influence— make sure people under stand importance of input • Willingness to argue points firmly but accept the outcome if final decision differs I is for Input Key responsibilities Skills and character traits required • Establish criteria and required facts upfront • Gather inputs • Synthesize analysis • Develop the recommendation • Effective process management • Compelling presentation skills • Good listening skills • The ability to assemble multiple viewpoints, do logical analysis, and make tradeoffs • Trusted by the decision maker • Trusted by those offering input R is for Recommend Key responsibilities
- 61. Great decisions—Not asolo performance 3 when they finally slap down their veto card, they undermine the decision maker’s authority and cause further delay. Occasionally a company will assign an A to a senior executive just because that individual “should have a chance to weigh in.” But that confuses the I role with the A. Leading companies typically reduce the need for constant signoffs by providing guidelines to their businesses. Only if a decision goes outside the guidelines does it require an approval from some- one in an A role. Take a retail bank that for years had run a cumbersome process to create direct mail campaigns. Every mailing required approvals from Finance (on the financial assumptions) and Risk (on the mailing’s loss rate projections). Even identical campaigns required a reexamination of these assumptions and projections. The com- pany saved a great deal of time and frustration when it began providing guidelines for the mailings. Now, marketing managers could make their own decisions about mailings as long as they stayed with the guidelines. Mailings outside of the guidelines, such as a new offer or a mailing to a new population, continued to require scrutiny and approval by Finance and Risk. There are times, of course, when a recommender feels that the A is constraining the recommendation too much and proceeds with the recommendation, highlighting the A’s concerns. A telecommunica- tions company, for instance, decided to launch The Agree role What it is. Unlike the I, the A is a form of input that can’t be ignored. If the person holding an A doesn’t agree, the recommendation must be modified. The classic example of an A is a legal or regulatory signoff, but in fact, many situations lend themselves to A-type approval. A safety execu- tive may need to sign off on a change in work processes. A brand manager may have to agree that a given decision won’t hurt the brand. Risk management and finance functions often play an A role to ensure that decisions fit the company’s overall risk profile and budget constraints. Getting the A right. Since too many people in the A role creates gridlock—everyone can say no, no one can say yes—top-performing companies set a high bar for who should have an A. Many decisions require no A at all. Others may need only one or two. Agreement should always be part of developing the recommendation—that is, it should come before the decision, not after it. Ideally,therecommenderandtheAworkthingsout between themselves, with the R amending the proposal until the A is satisfied and the A pro- viding constructive suggestions for creating a feasible proposal. It’s important to specify not just the A role but thescopetowhichtheAapplies.Atamedicaldevice company, the group responsible for regulatory compliance had to sign off on the company’s mar- keting brochures. Regulatory managers reached the point where they were exercising their A on every aspect of the brochures, including the colors. That made little sense, and it meant that every brochure took too long to produce. When the com- pany reassigned decision rights, it gave regulatory an A role only on the text of a brochure to be sure it was compliant with federal regulations. Companies run into other sorts of A-related dif- ficulties as well. Some recommendations may be missing an essential A—and when the absence is discovered, the decision has to be revisited. Some people in the A role may wait for the decision rather than weighing in on the recommendation; Skills and character traits required • Sign off on key recommendations to ensure consistency with company policies or regulatory compliance • Work with recommender to achieve mutually satisfactory proposal • Expertise and broad view of relevant field, e.g., legal requirements or brand consistency • Negotiating abilities • Creativity and openness to working with recommenders to find alternative feasible solutions • Discipline to focus only on content within scope of their A A is for Agree Key responsibilities
- 62. 4 Great decisions—Not asolo performance teams need to apply the same rigor and RAPID- style analysis to these execution-related decisions that they applied to the original one. Decisions: A team sport Specifying the individual who is responsible for a major decision—assigning the D—is obviously critical to good decision making. But it is less than half the story. D’s can’t do their job without great recommendations, insightful input and the right signoffs. A robust recommendation with the right input, cleared with folks who have to agree, makes for a fast, high-quality decision. And a decision obviously has no effect unless someone—the P—is accountable for executing it. Companies that are best at decisions turn in better financial performance, and it’s not hard to see why. People know their roles. Decisions move smoothly from recommendation to execution. The orga- nization hums. Assigning all these roles, training people to understand their responsibilities and following through to ensure appropriate behaviors all require a concerted effort. But they hold the key to high performance. a worldwide standard for contracts for select global customers. But every local legal office in the company assumed it had an A and effectively blocked the decision. To break through, the com- pany acknowledged the concerns but said that the decision might go forward anyway. In effect, the decision maker was prepared to take the risks that the local legal offices had flagged. When a company begins to specify decision roles, many people who thought they had A responsi- bilities will be redefined into the I role. This may feel like a demotion, so it’s important that everyone understand both the merits of an A role and the importance of an I role. Leaders need to reinforce the significant benefits to decision making when A and I roles are properly defined. The Perform role What it is. The P role defines who is accountable for implementation. Best-practice companies typically define P’s and gather input from them early in the process. That lets the P’s flag imple- mentation issues and encourages them to buy in to the decision they will be executing. In situations where the P is not known early, com- panies need to assign a P promptly once a decision is made to ensure a timely transition to the execution phase. Getting the P right. Sometimes the P is never defined, so a decision is never implemented. A beverage company, for instance, decided to relocate its IT center of excellence to a European city. But no one was assigned the P, so no one began looking for office space, figuring out how to consolidate current IT operations with the new center and so on. When a new CIO came on board, she reopened the entire decision, which meant that the company, in effect, had to make the same decision twice. Once a major decision is made and moved into execution, of course, it will likely involve a set of significant follow-on decisions. Implementation Skills and character traits required • Flag potential implementation issues early and ensure decision is practical • Execute decision as intended • Handle follow on decisions with rigor • Excellent execution skills • Ability to think creatively through roadblocks and come up with solutions • Ability to drive follow on implementation decisions at pace • Practical outlook • Good team player; willing to execute even if he or she doesn’t agree with decision P is for Perform Key responsibilities
- 63. Bain’s business ishelping make companies more valuable. Founded in 1973 on the principle that consultants must measure their success in terms of their clients’ financial results, Bain works with top management teams to beat competitors and generate substantial, lasting financial impact. Our clients have historically outperformed the stock market by 4:1. Who we work with Our clients are typically bold, ambitious business leaders. They have the talent, the will and the open-mindedness required to succeed. They are not satisfied with the status quo. What we do We help companies find where to make their money, make more of it faster and sustain its growth longer. We help management make the big decisions: on strategy, operations, technology, mergers and acquisitions and organization. Where appropriate, we work with them to make it happen. How we do it We realize that helping an organization change requires more than just a recommendation. So we try to put ourselves in our clients’ shoes and focus on practical actions.
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- 65. Decision Insights: How organizationsmake great decisions By Michael C. Mankins and Jenny Davis-Peccoud
- 66. Copyright © 2011Bain & Company, Inc. All rights reserved. Content: Global Editorial Layout: Global Design Michael C. Mankins leads Bain’s Organization practice in the Americas and is a key member of Bain’s Strategy practice. He is a partner in the firm’s San Francisco office. Jenny Davis-Peccoud is senior director of Bain’s Global Organization practice and senior director of the Bain Cares Global Social Impact Program. She is based in London.
- 67. How organizations makegreat decisions 1 Like the company we’re calling International Energy, too many organizations fail to make and execute their critical decisions well. Some just dither. Others come to a decision but revisit it repeatedly. Still others make poor choices or never translate their decisions into action. For decisions with a great deal of value at stake, the cost of these failings can be extraordinarily high. The source of the trouble often lies in the way companies try to make critical decisions. Here’s a more-or-less typical scenario. A day before the key meeting, attendees get copies of a 165-page PowerPoint presentation. The presentation out- lines the principal recommendation, the logic behind it and the supporting data. Nobody reads it, of course, because they assume someone will walk them through it the next day. In the meeting itself, everyone sees and hears the presenta- tion, but reactions differ. Some people believe the team hasn’t looked at the right data in forming its recommendation. Others question the criteria underlying it. Still others wonder whether there’s a better alternative. One executive doesn’t believe the company can implement the recommendation. Finally, everyone agrees to delay the decision until thefollowingmonth,afterthegroup’snextmeeting. The scenario would be funny if it weren’t so painful: we have seen many organizations struggle with just such dysfunctional processes. But companies that are most effective at decisions don’t get bogged down in this way. They follow a carefully structured approach to decisions, one that ensures agreement on criteria, facts, alternatives, com- mitment and closure. And they put in a place a few simple enablers that help the process work smoothly. The results are fast, high-quality decision making and execution. A structured decision approach Creating a structured approach means establish- ing assumptions and procedures for “the way we make decisions around here.” It means making explicit what is often implicit or missing. There are five critical elements (see Figure 1). Criteria. You can’t come to a decision unless you know the criteria for making it. Is the goal of this decision to increase market share or to increase quarterly earnings? Is it to increase employee engagement or customer loyalty? Are we trying to minimize capital expenses this year, or operating expenses? Tim Beckman, the chief operating officer of International Energy, buried his head in his hands.1 He was frustrated beyond belief. A few months before, he had finally decided to scrap his company’s T662 turbine, a product that just wasn’t selling. The decision hadn’t been easy. In fact, he had originally overruled his subordinates’ recommendation to kill the T662 and had kept it on the market. After a while, though, he had to admit that the product was a bust and should be terminated. But the T662 wouldn’t die. First the factory in California had somehow managed to ignore Beckman’s decision. It continued to crank out the turbines, and it continued to sign big supply contracts. Then the company’s leasing unit had pointed out that IE itself owned most of the T662s already produced, and a cancellation would persuade most customers not to renew their leases. Beckman shook his head. The terms of the decision kept changing. What were the real facts? What were the alternatives? How did things reach this pass anyway? And above all, what should he do?
- 68. 2 How organizations makegreat decisions next batch would look more favorable. But succes- sive waves of data all pointed to the same con- clusion: the model just wasn’t selling. In short, additional facts weren’t bringing different alterna- tives to the surface, nor were they meaningfully improving the evaluation of those alternatives. The choice was clear: terminate the T662. Alternatives. A few years ago, we asked executives in a survey whether they routinely considered alternatives when making major strategic deci- sions. A whopping 82 percent said no. They probably did what most companies do, which is to consider a new course of action against staying with the present one. Of course, some- times executives see choices that are alternatives in name only. It is said that whenever Henry Kissinger, the former US secretary of state, asked his foreign policy team for alternatives, the team would always present three. The first invariably resulted in unconditional surrender to the Soviet Union. The second led to thermo- nuclear war. The third was always the one the team wanted to pursue. If you don’t get good alternatives, it’s hard to make good choices. At IE, the choices seemed to be to discontinue the T662 or not. But had the decision been framed early on as “What should we do to generate the most profit for the business?” there might have been other viable alternatives. In our experience, many companies fail to clarify the criteria for a decision, and the decision makers wind up flying blind. A major UK retailer, for instance, launched an experimental program of always matching competitors’ prices in some locations. But when the test results came in, executives were stymied. They had never deter- mined whether the goal of the test was to increase store profits, increase market share, build cus- tomer loyalty or something else entirely. They thus had no criteria for determining whether the test was a success or a failure. As a result, they couldn’t decide whether to terminate the pro- gram or to roll it out nationally. Facts. Twenty years ago, gathering data required a lot of time and effort. Now the problem is usually the opposite: everybody has too much data, and it’s not hard to get still more. That can lead to seemingly innocuous requests in making critical decisions, such as “Maybe we should get more facts.” Sometimes the request is reasonable; more often it’s simply a way of delaying a decision. The goal, after all, is not to have “all” the facts, but the precise facts that are required to under- stand the current situation, develop alternatives and make good choices. Tim Beckman, of Inter- national Energy, took a long time even to decide to kill the T662—it had been his baby, and he kept requesting more market data in hopes that the Figure 1: The five critical elements of structured decision making and the enablers that support them Facts Alternatives CommitmentCriteria Closure Tools and templates Escalation Meetings Set up and expectations
- 69. How organizations makegreat decisions 3 Paying attention to closure is essential because the people trying to implement a decision can run into so many different obstacles. Companies may need to reallocate resources and adjust budgets. They may need to redefine individual responsibilities. Quick feedback is critical, so that executives can determine whether the decision is working out as planned. In 2004, for instance, Wal-Mart decided not to offer steep discounts during the holiday selling season. On the Friday after Thanksgiving—the season’s traditional opening day—competitors noticed Wal-Mart’s strategy and began trumpeting their own holiday discounts, sensing an opportunity to draw cus- tomers away from the retail giant. But Wal-Mart was closely monitoring results, and its executives soon realized their new approach wasn’t working. They quickly reversed the decision—and within days, every store in the Wal-Mart system had returned to the company’s traditional practice of holiday discounting. Wal-Mart’s same-store sales for the month rose 3 percent, not far behind Target’s 5 percent, thanks to the leadership’s ability to respond quickly to feedback and the organi- zation’s ability to swiftly execute the new decision. Decision enablers This overview of a structured decision approach should help you eliminate any dysfunctional practices and establish more fruitful ones. But many companies have found that they also need enablers—practical methods for oiling the decision- making machinery. Our research and experience have helped us identify four such enablers, each one remarkably powerful in its effects. Set decisions up for success. Too many companies just dive into a major decision. They never take the time to plan, prepare and set it up for success. It helps to take a few moments before every such decision to ask questions such as these: • What decision are we actually trying to make? • What are the criteria for the decision? The product might have been scaled back, rede- signed, or built and marketed through a joint venture.Wedon’tknow,ofcourse,becausethecom- pany never explored alternative courses of action. To instill discipline around alternatives, we rec- ommend to our clients that, when presented with a recommendation of any sort, they ask, “What alternatives did you consider and reject and why?” This simple question reinforces the need to examine more than one option and nearly always improves the quality of decision making. Commitment. Very little is as frustrating as post- meeting conversations of this sort: “Wait—what did we just decide to do?” or perhaps, “Well, we may have decided X, but personally I’m just going to wait and see.” The opposite of this murkiness is commitment, an agreement on what the group decided and unanimous support for the decision. Decision logs—record books of every decision a group takes—can help reinforce commitment. So can explicit “rules” regarding decisions: Intel, for example, expects everyone to “agree and commit, or disagree and commit, but commit.” Dow Chemical takes commitment one step fur- ther. The company embeds decisions regarding business-unit strategy in contracts that detail the specific strategic decisions that have been made, the resources required to implement the strategy effectively, and the individuals who are account- able for delivering on the decisions. Closure. We like to tell audiences the fable about three frogs on a log. One frog decides to jump off; how many are left on the log? Some people say two, the obvious choice; others say none, figuring the first frog rocked the log and knocked the others off. But the answer is three, because deciding to do something isn’t the same as doing it. This homely lesson applies to every major decision: if you don’t communicate the decision, establish responsibility and timelines for implementation and set up a feedback loop to monitor performance, nothing will happen. That was Tim Beckman’s problem with his California turbine factory.
- 70. 4 How organizations makegreat decisions level managers disagree. Unless there are specific guidelines for when escalation is appropriate, however, too many decisions may wind up on the desks of busy senior executives, who don’t have time to give them the attention they deserve. A typical set of guidelines might specify (a) when escalation is appropriate, (b) how often escalation is likely to happen and (c) what the appropriate path is. You may find it helpful to track the number of times major decisions are kicked upstairs and to brainstorm ways to manage the number down. Intel’s Embedded and Commu- nications Group (ECG), for example, found that too many decisions were being escalated. ECG general manager Doug Davis explicitly “set the expectation that we were not going to allow mav- erick escalations,” while also spelling out the process to follow if someone really believed a given approach was “doomed to fail.” Use common tools and templates. Many high- performing companies use standard tools and templates to structure decisions, rather than reinventing the wheel each time. For long-term strategic decisions, for example, planning tem- plates can assure rigorous comparisons of oppor- tunities across disparate parts of the business. For everyday decisions such as pricing, templates can assure that companies gather a standard set of facts and apply standard analytic approaches. Using such templates facilitates data gathering and frees up people’s mental energy to focus on assessing the information and making the right decisions. Good decision processes are as essential to an orga- nization as good production processes. Companies can create structured approaches and enablers, help their employees learn the necessary skills and behaviors and reinforce those behaviors through everyday reminders such as signs in meeting rooms. The result will be quicker, better decisions followed by effective execution—and no more decision swamps of the kind that trapped Tim Beckman and International Energy. • What is the information required, and what is the burden of proof? • Who will play what role? • What is the timeline, both for the decision and for execution? Best-practice companies make a point of determin- ing in advance who will recommend alternative courses of action and who will ultimately make the choice. Both of these parties can get together in advance to answer the basic initiation questions. Don’t try to do too much in one meeting. We wrote extensively about meetings in a previous article, so we won’t go into detail here. But we do want to note two common errors relating to decision- focused meetings. One is this: companies often try to cover operating performance reviews and strategic decisions in the same session. It never works. The two tasks require different mindsets: operating reviews necessarily focus on holding people’s noses to the grindstone, while strategy discussions depend on raising people’s eyes to the horizon. Once meeting attendees focus on either one of these topics, the other will get short shrift. A second error: trying to discuss facts, alternatives and the decision all in the same meeting. The pharmaceutical company Roche, under Franz Humer, made a point of doing the precise oppo- site. One session decided whether the attendees had all the facts they needed and were consid- ering the right set of options. A second session then chose among the available options (based on predetermined and agreed-upon criteria) and formalized the commitment through plans for execution. Though it sounds like a lot of trouble, separating the two kinds of meetings makes for a faster process because it eliminates much rework. Establish clear guidelines for escalation. Every organization must sometimes escalate its deci- sions to a higher level—for instance, when lower- 1 This is a true story, but we have changed names and other identifying details.
- 71. Bain’s business ishelping make companies more valuable. Founded in 1973 on the principle that consultants must measure their success in terms of their clients’ financial results, Bain works with top management teams to beat competitors and generate substantial, lasting financial impact. Our clients have historically outperformed the stock market by 4:1. Who we work with Our clients are typically bold, ambitious business leaders. They have the talent, the will and the open-mindedness required to succeed. They are not satisfied with the status quo. What we do We help companies find where to make their money, make more of it faster and sustain its growth longer. We help management make the big decisions: on strategy, operations, technology, mergers and acquisitions and organization. Where appropriate, we work with them to make it happen. How we do it We realize that helping an organization change requires more than just a recommendation. So we try to put ourselves in our clients’ shoes and focus on practical actions.
- 72. w w w. b a i n . c o m
- 73. Decision Insights Measuring decisioneffectiveness By Marcia W. Blenko and Michael C. Mankins
- 74. Good, fast decisionmaking and execution produce good financial results. The research we conducted for our recent book firmly established this connection, but really, it’s only common sense.1 Companies that make high-quality decisions, make them quickly, and implement them effectively win more contracts, get to market faster and otherwise beat out rivals. Google launched Gmail, Google+, the Android operating system, and Google Apps, all while Yahoo! was struggling to decide on its priorities in these areas. Such dramas play out on a smaller scale in every company every day. Organi- zations that decide and execute better and faster than their competitors win the race. Andyetmanycompaniesdonotevenmeasuretheirdecision effectiveness. They don’t know how they stack up against the competition, and they can’t tell whether they are getting better or worse over time. People may gripe in the hallways about this or that decision process, but there’s no burning platform to stimulate improvement. Measurement changes all that. As Peter Drucker famously observed, “What gets measured gets managed.” And if the measurement shows that your decision skills are way behind where they should be, suddenly you have a big incentive to get better. Decision effectiveness involves four different dimensions. High-performing organizations, of course, make high- quality decisions. But they also make those decisions faster than their competitors, translate them into action more effectively and devote an appropriate amount of effort to the process. People need to know how well (or poorly) they perform on all of these elements—decision quality, speed, yield and effort. Employee surveys are the best gauge of performance on each dimension, since no one knows better than the people involved how good the organization really is. Ask respondents to rate your company’s abilities on quality, speed, yield and effort using a 1-to-4 point scale; this will allow you to compare scores with our benchmark database of high, average, and low performers (see Figure 1). The results will show you where your decision strengths and weaknesses lie, and what you need to do to improve performance. A pharmaceutical company, for instance, learned from a survey that its decisions were generally of Measuring decision effectiveness Figure 1: Benchmarking your company’s decision effectiveness can help you focus on the right issues Note: High decision effectiveness range = top quintile of decision effectiveness scores; Low = bottom quintile; Mid = all other Source: Bain decision and org effectiveness survey Jan 2012 (n=1,065) Quality Speed EffortYieldx x “How often do you choose the right course of action?” “How often do you execute decisions as intended?” “How quickly do you make decisions compared with your competitors?” “Do you put the right amount of effort into making and executing decisions?” Decision effectiveness benchmarks 0 20 40 60 80 100% % right decisions 0 20 40 60 80 100% Speed relative to competitors 0 20 40 60 80 100% % effective execution 0 5 10 15 20 25% Effort “tax” for suboptimal amount of effort Slowerthan…Fasterthan…Onparwith… “Lower is better”Company 80 High 48 Low 64 Mid 70 High 39 Low 54 Mid 79 High 45 Low 62 Mid 9 High 16 Low 12 Mid
- 75. Marcia W. Blenkois a partner with Bain & Company and leads the firm’s Global Organization practice. Michael C. Mankins leads Bain’s Organization practice in the Americas and is a key member of Bain’s Strategy practice. He is a partner in the firm’s San Francisco office. Measuring decision effectiveness with developing new products—to determine the number of decisions each forum made, the number of decisions it delayed, and the number it revisited over a given time period. The company also tracked the frequency of escala- tion to a decision maker higher up in the organization. The data helped people learn to increase decision speed, cut back on reconsiderations, and reduce escalations. Decision competencies and behaviors. Companies can assess individuals’ decision-making skills in their regular performance evaluations. They can also track the behav- iors that are central to effective decision making and execution, such as people’s willingness to engage in open and constructive debate or their willingness to commit to a decision even when they disagree with it. For example, a tech company established a list of such behaviors and began measuring them through its annual upward feedback system. A financial services company tracked adoption of its desired decision behaviors through quar- terly “pulse” surveys. Several companies link executives’ bonuses to a range of decision metrics, including overall quality, speed, yield and effort; specific behaviors mea- sured through employee surveys; and performance against established leadership standards. Both the measurements and the incentives encourage individuals to develop their own decision skills and to build organizations that make and execute decisions well. Drucker’s dictum about measurement and manage- ment is by now an accepted part of management lore. The challenge it presents is to measure “soft” but critical aspects of a business’s operation, such as decision effec- tiveness. Some companies have met this challenge head-on and are reaping the rewards. They not only invest to improve their decision effectiveness, but they also measure how well those efforts generate better, faster decisions and thus better performance. high quality compared with its competitors, but its speed was below average, and nearly 80% of respondents said that decisions required too much effort. The priorities for improvement were clear. Once a company launches efforts to improve its decision effectiveness, moreover, regular surveys can provide critical feedback to show you what’s working and what isn’t. While survey results provide a high-level overview of a company’s decision effectiveness, it helps to supplement this data with metrics that relate to specific trouble spots. Among them are the following. Performance on certain kinds of decisions. Some orga- nizations repeatedly stumble over particular types of critical decisions. Another pharmaceutical company, for example, found that sluggish decision procedures slowed its stage-gate process for product development, creating unnecessary iterations along the way. The data helped the company spot and unclog decision bottlenecks and thus get its products to market faster. A utility company learned that its forecasts of daily demand were often off the mark. So it began tracking the percentage of forecasting deci- sions that, with hindsight, turned out to be right. The process helped the executives responsible for forecasting to see where their procedures were strong and what actions could help improve them. What happens in meetings. Meetings should be effective forums for discussing or making decisions, but often they are not. So top-performing companies make a point of setting decision-focused agendas, beginning meetings by specifying the decisions to be made and who is account- able for them, ensuring that committees have clear decision charters, and so on. Then they measure perfor- mance on these dimensions. A semiconductor company, for instance, tracked its R&D forums—groups charged 1 See Marcia W. Blenko, Michael C. Mankins, and Paul Rogers, Decide and Deliver: 5 Steps to Breakthrough Performance in Your Organization (Harvard Business Review Press, 2010). Copyright © 2012 Bain & Company, Inc. All rights reserved.
- 76. For more information,visit www.decide-deliver.com For more information about Bain & Company, visit www.bain.com Shared Ambition,True Results Bain & Company is the management consulting firm that the world’s business leaders come to when they want results. Bain advises clients on strategy, operations, technology, organization, private equity and mergers and acquisitions. We develop practical, customized insights that clients act on and transfer skills that make change stick. Founded in 1973, Bain has 48 offices in 31 countries, and our deep expertise and client roster cross every industry and economic sector. Our clients have outperformed the stock market 4 to 1. What sets us apart We believe a consulting firm should be more than an adviser. So we put ourselves in our clients’ shoes, selling outcomes, not projects. We align our incentives with our clients’ by linking our fees to their results and collaborate to unlock the full potential of their business. Our Results Delivery® process builds our clients’ capabilities, and our True North values mean we do the right thing for our clients, people and communities—always.
- 77. Decision Insights Committees thatwork By James Hadley and Jenny Davis-Peccoud
- 78. 2 Committees that work 1.Design committees like an architect. Form follows function, architects like to say. First, identify the function you want a committee to perform—typically, a specified role in a well-defined set of critical decisions. Then establish the committee and give it an appropriately defined charter. The investment fund mentioned ear- lier, attempting to rationalize a host of ill-defined com- mittees, adopted a handful of ironclad rules. A committee should exist only if it plays an explicit role in decisions that have a material impact on the company’s perfor- mance and objectives, and only if good recommenda- tions or decisions require diverse perspectives from departments and functions. Only about 40% of the investment fund’s committees survived such screens. 2. Assign people to committees carefully—and set them up to succeed. The makeup of any committee obvi- ously has to match the committee’s functional require- ments: the right skills, seniority levels and representation from relevant functions or departments. But that’s only the start of getting the committee composition right. Size, for instance, is a critical variable. Though some committees may need more members, Bain research suggests that six or seven people is usually the best number for a committee. More than that and the com- mittee’s effectiveness is likely to drop sharply. The group has to include at least one respected, experienced indi- vidual who can serve as chair and another who has the communication and attention-to-detail skills required for a recording secretary. Equally important: a reasonable workload. Committees can’t function when their members are spread too thin. We favor the investment fund’s approach: Put strict limits on the number of committees executives can serve on. Spell out expectations about how much time the committees will require. It’s often helpful to have term limits on individual committee service. Term limits not only spread the responsibility, they ensure that the same people aren’t always required to be on every committee. 3. Run committees using best-practice disciplines. Some committee meetings quickly degenerate into talk fests and socializing. Even those that ostensibly focus on busi- ness matters can get on the wrong track. An insurance Executives’ visions of liberation: • A truck manufacturer cuts its committees in half, from 30 to 15. Before, said one manager, “We didn’t have a clue which committees we had to send our people to in order to get a final approval.” • A mining company does even better: It eliminates more than 40 committees, leaving just 10. “We used to have a ‘Red Book’ that listed all the com- mittees. We burned it—literally—and started over.” • “I spend almost all my day in committee meetings,” complains a deputy director at an investment fund. Then the fund agrees to a new policy: No member of the leadership team can sit on more than three committees, and the time spent attending and preparing for committee meetings should not exceed 20% of total working hours. Committees can be the bane of an executive’s life. They eat up countless hours. Many don’t accomplish much. And they proliferate like rabbits. Key leaders can wind up serv- ingon six, eight, even 10 committees. Trouble is, commit- tees are indispensable. From the CEO-led executive committee to product-development committees and so on, committees enable a company to get its work done. At their best, committees are an efficient way of assembling people. They facilitate debate on important issues, and they can be effective forums for decision making. So the challenge is to manage committees well: to get the most out of them while nipping their dysfunctional traits in the bud. Gather facts, then establish procedures Any review of a company’s committees needs to start with a solid fact base. How many committees are there? How much time do people spend on them? What role does each one play? Listing all the committees on a single page is usually revealing. Quantitative data helps too. One company, for instance, uses Outlook data to calcu- late time spent in meetings and thus to quantify the cost. Facts in hand, you can tackle the tyranny of bad committees. In our experience, good committee management turns on three central precepts.
- 79. 3 Committees that work Doyou have a “committee opportunity?” One pharmaceutical company measured how many committees were involved in each of its top 25 decisions and graphed the results. What would such a chart look like in your company? Breakdown of decisions by number of committee or team reviews Source: Bain & Company 0 20 40 60 80 100% 8+ committees 6–7 committees 4–5 committees 2–3 committees Nearly 20% of the “top 25” decisions require involvement by more than eight committees or teams secretary has to record decisions, communicate the relevant action items and time frames to all concerned and ensure follow-up. A well-functioning committee system, like liberty, requires eternal vigilance. We hesitate to suggest a committee to manage committees—that might be overkill—but we do think it’s essential to track how committees and their members perform over time. Some companies, for instance, incorporate committee contributions into individual performance reviews. Also, it’s worth remem- bering that committees function best when every other element of the organization—its structure, processes, culture and so on—is clearly focused on decisions. Committees can be time sinks and morale killers, but they don’t have to be. Effective committees make deci- sions, see that those decisions are executed and give every member the well-justified feeling that they are actually getting something done. company we worked with found that its executive com- mittee devoted 40% of its time to “informing” members of new developments and only 20% considering decisions. One antidote to this lack of focus is to build agendas around the key decisions. The most effective companies typically draft agendas prior to the meeting that specify the purpose of the meeting and the time allocated to each item. Meeting organizers circulate the agendas and supporting documents at least 48 hours beforehand. At the meetings themselves, the chair ensures good discipline, often including the use of symbols and re- minders that help keep everyone on track. (See our previous article, “Refresh, refocus, remind: Nine prac- tical tips to keep meetings centered on decisions and action.”) The chair also has to help the group clarify by its decision-making mechanism. Is it participative, with the chair gathering input and then making the decision? Is it consensus? Majority vote? Finally, the James Hadley is a partner in Bain’s Dubai office and is a leader in Bain’s Global Strategy practice. Jenny Davis-Peccoud is the senior director of Bain’s Global Organization practice. She is based in London. Copyright © 2012 Bain & Company, Inc. All rights reserved.
- 80. For more information,visit www.decide-deliver.com For more information about Bain & Company, visit www.bain.com Shared Ambition,True Results Bain & Company is the management consulting firm that the world’s business leaders come to when they want results. Bain advises clients on strategy, operations, technology, organization, private equity and mergers and acquisitions. We develop practical, customized insights that clients act on and transfer skills that make change stick. Founded in 1973, Bain has 48 offices in 31 countries, and our deep expertise and client roster cross every industry and economic sector. Our clients have outperformed the stock market 4 to 1. What sets us apart We believe a consulting firm should be more than an adviser. So we put ourselves in our clients’ shoes, selling outcomes, not projects. We align our incentives with our clients’ by linking our fees to their results and collaborate to unlock the full potential of their business. Our Results Delivery® process builds our clients’ capabilities, and our True North values mean we do the right thing for our clients, people and communities—always.
- 81. Decision Insights Bad decisionsin history: Cautionary tales By Paul Rogers, Marcia W. Blenko and Jenny Davis-Peccoud
- 82. 2 Bad decisions inhistory: Cautionary tales Then, too, a good decision process ensures that the right people offer input and are listened to. The Trojans heard from the priest Laocoön, the prophetess Cassandra and even Helen of Troy, all of whom cautioned that the horse might be a trick. Alas, no one paid attention. Laocoön was strangled by sea serpents for offering his opinion—another poor decision practice. The fact is, great decision processes require many elements of an organization to work in concert. When we talk to executives, we often use a wheel-shaped graphic to illustrate all the factors that can come into play (see Figure 1). Every element that’s out of kilter is likely to compromise decision making and execution. Take Napoleon’s army. Yes, the weather was one reason the invasion of Russia failed, but poor organization and Napoleon’s own leadership style were big factors. When officers reported supply shortages or desertions, Napoleon would give them a public scolding, often followed by a demotion. Predictably, Napoleon’s generals began exaggerating troop strength and readiness, obscur- ing the true picture until the campaign was far advanced. History has been full of bad decisions. The Trojans brought the famous wooden horse inside their city walls, not realizing it was full of Greek soldiers who would open the gates from the inside. Napoleon decided to invade Russia and returned with just a tiny fraction of his once-grand army. The Titanic was outfitted with only enough lifeboats for a third of the total passen- gers and crew it could carry. What goes wrong with decisions like these? Sometimes it’s just individual arrogance or foolishness that produces a bad decision. But we’re organizational specialists, and we like to search out what’s amiss in the system that produces the decision. For instance: One of the keys to good decision making is assigning responsibility for all the essential roles in a decision, from recommending a course of action all the way through to executing it. The recommender plays a particularly big part by gathering input from the relevant people and getting signoffs from anyone who needs to approve the proposal. Figure 1: The elements of great decision making and execution • Clarity on priorities and principles • Communication and alignment throughout the organization • Clear roles for critical decisions • Simple, cost-effective structure that supports value creation • Robust decision processes linked to effective business processes • Key metrics and information—right place, right time • Cohesive leadership team living the right behaviors • Winning culture, with individuals who personally engage • Right people in right jobs—will and skill • Objectives and incentives focused on performance Critical decisions Leadership and culture Clarity and alignment Roles and structure People and performance Processes and information Source: Bain & Company
- 83. 3 Bad decisions inhistory: Cautionary tales To be sure, the decisions that make the history books are huge, bet-the-company choices, the business equiv- alent of deciding to invade Russia. Most companies face such issues infrequently. But every company makes millions of decisions every year, from big strategic decisions like launching a new product line to week-in, week-out decisions about marketing, procurement or customer service. And even seemingly small decisions can go terribly wrong. In September 2011, for example, Bank of America announced that it would soon begin charging its debit card customers a $5 monthly fee. The move set off a firestorm of consumer protest and the bank was forced to back down. One thing we can learn from all these cautionary tales is that it’s easy for organizations to foul up their decision processes. When the decision stars fall out of align- ment, a company can run into serious trouble quickly. So it’s worth reflecting on your decisions—the good, the bad and the ugly. Executives can learn much from the pitfalls of the past. They can study up on how to make and execute critical decisions well. On this score, we recommend the new book by Tom Davenport and Brook Manville, Judgment Calls—12 Stories of Big Decisions and the Teams That Got Them Right. And we hope you’ll read our own book, Decide & Deliver: 5 Steps to Breakthrough Performance in Your Organization. Bad decisions are a bit like Trojan horses—you may not recognize the danger at first, but if you know your his- tory, you’ll soon learn to keep them outside your walls. Uncharacteristically, Napoleon lacked a clear vision in this case as well: Did he mean to occupy Moscow and Saint Petersburg? Carve up Russia between Sweden, Turkey and a revived Poland? He remained uncertain whether he would leave Moscow or winter there. By the time he decided to retreat, it was too late. Getting business decisions right is tough, too. A company has to make good choices time after time. It has to do so speedily—faster than competitors—and it has to ensure that decisions get translated into action. No wonder there are as many missteps in this sphere as in every other area of history. Think of Coca-Cola introducing New Coke, or Polaroid and Kodak stubbornly sticking to film-based photography for way too long. (For more such blunders, see Huffington Post’s blog entry “The Worst Business Decisions of All Time.”) When a company makes a really bad decision, it’s likely that more than one organizational element isn’t working right. The wheel can help you spotlight each individual trouble spot. Whatever else it may have lacked, for instance, Coca-Cola certainly didn’t have the information it needed to make a good decision about New Coke. The company had tested the taste of its new recipe with more than 200,000 consumers, but it never asked people whether they actually wanted a different variety of Coke to replace the old one. Turned out they didn’t. Polaroid and Kodak definitely lacked clarity on priorities and principles, not to mention alignment throughout the organization. Both companies’ R&D departments had actually developed path-breaking digital cameras. But the divisions that made and marketed film had little interest in encouraging or pursuing nonfilm technology. Paul Rogers is the managing partner of Bain’s London office and leads Bain’s Global Organization practice. Marcia W. Blenko is a partner with Bain & Company and a senior member of the firm’s Global Organization practice. Jenny Davis-Peccoud is the senior director of Bain’s Global Organization practice. She is based in London. Copyright © 2013 Bain & Company, Inc. All rights reserved.
- 84. For more information,visit www.decide-deliver.com For more information about Bain & Company, visit www.bain.com Shared Ambition,True Results Bain & Company is the management consulting firm that the world’s business leaders come to when they want results. Bain advises clients on strategy, operations, technology, organization, private equity and mergers and acquisitions. We develop practical, customized insights that clients act on and transfer skills that make change stick. Founded in 1973, Bain has 48 offices in 31 countries, and our deep expertise and client roster cross every industry and economic sector. Our clients have outperformed the stock market 4 to 1. What sets us apart We believe a consulting firm should be more than an adviser. So we put ourselves in our clients’ shoes, selling outcomes, not projects. We align our incentives with our clients’ by linking our fees to their results and collaborate to unlock the full potential of their business. Our Results Delivery® process builds our clients’ capabilities, and our True North values mean we do the right thing for our clients, people and communities—always.
- 85. Decision Insights Why webehave—and decide—the way we do By Paul Rogers, Robert Carse and Todd Senturia
- 86. 2 Why we behave—anddecide—the way we do seek out and believe information that confirms our opinions, while ignoring or downplaying information that contradicts them. Many experiments have confirmed this tendency. A few years ago, for instance, Drew Westen and colleagues at Emory University in Atlanta recruited 15 Republicans and 15 Democrats and presented them with contradictory behaviors from the two major candidates in the 2004 US presidential election, along with statements designed to explain the contradictions. For example, George W. Bush once said he “loved” Enron CEO Ken Lay, but after Enron’s collapse he was critical of the company and avoided any mention of Lay. The explanation was that he felt betrayed by Lay and was shocked to learn of Enron’s corruption. Each set of partisans tended to believe the explanatory statements for their own candidate, while regarding the statements by the opposition candidate as inconsistent. In big decisions, individuals can easily fall into confirma- tion bias, jeopardizing the possibility of reaching the best outcome. 3. Framing and anchoring. Every decision depends on information. The structure and reference points of that information shape how the decision maker receives and uses it. Chief executives contemplating an acquisition, for instance, often frame the question as “Why should we do this deal?” and then answer it by focusing on potential but often illusory synergies. If they frame it instead as “How much should we be willing to pay?” the decision can turn out quite differently. Anchoring—using a predetermined reference point as the launch pad for a decision—is equally powerful. A few years ago, for instance, Wharton School profes- sor Paul J. H. Schoemaker was studying bad loans at a bank in the southern US. He found that bank officers assessing a loan naturally began by determining its current rating and asking themselves whether they should upgrade or downgrade it. Because of the anchoring effect of the current rating, as a report on Schoemaker’s work noted, downgrades tended to be incremental adjustments. So “by the time a loan was classified as troubled, it could be too late to take remedial action.” Organizational ailments, such as too much complexity, often interfere with good business decision making and execution. But they aren’t the only source of trouble. Even in the best of circumstances, people must ultimately make and execute decisions, and we human beings are even more complicated than a tangled org chart or a messy decision process. We are prisoners of emotions, habits and biases. We choose A rather than B for reasons that we often don’t understand. These pitfalls can ensnare individuals who are making decisions; they can also cause groups to go astray. The good news is that psychologists and behavioral economists have been studying why people decide the way they do. In this article we’ll look at individual behav- iors, highlighting just four of the many obstacles that these scholars have identified. If you’re aware of the traps, you are far less likely to be snared by them—and your decisions and actions will be that much better. 1. Fairness. It’s a familiar story, known to behavioral economists as a version of the “ultimatum game.” A bored rich lady sits between two strangers—call them Robert and Juliette—on a plane. For entertainment, she offers to give Robert $10,000, with the proviso that he must make a one-time binding offer to give some of it to Juliette. If Juliette accepts Robert’s proposed split, they divide the money accordingly. If she rejects it, the rich lady keeps her money, and Robert and Juliette get nothing. So how much does Robert offer? In theory, he could offer Juliette only $10. A rational person would accept it because it was, after all, free money. In practice—and the experiment has been conducted repeatedly—people in the Juliette role regularly reject any offer that they deem unfair. A powerful moral principle, fairness, plays a big role in decision making, often stronger even than self-interest. You can see this phenomenon in business as well: any decision that people regard as unfair, such as paying bonuses to executives while laying off lower-level employ- ees, is likely to trigger a sharp reaction. 2. Confirmation bias. This is a version of what psy- chologists sometimes call “motivated reasoning”—we
- 87. 3 Why we behave—anddecide—the way we do signs of erosion. Overconfidence? Management esti- mated that the chances of shuttle failure were as little as 1 in 100,000—low enough, as the late physicist Richard Feynman pointed out, to “imply that one could put up a shuttle every day for 300 years expecting to lose only one.” As for framing, Jim Collins, in How the Mighty Fall, notes that the crucial go/no-go decision in the Challenger situation was framed as, “Can you prove it’s unsafe to launch?” Reversing the framing—“Can you prove it’s safe to launch?”—might have led to a different decision. What to do about decision bias? It helps, of course, to be on the lookout for its sources, and to try to com- pensate accordingly. Organizations can also create robust decision processes that acknowledge and address the biases. They can frame questions in such a way as to pressure-test assumptions. They can explicitly assign the role of devil’s advocate, or even create a “red team, blue team” debate so that both sides of a major issue are fully represented. Of course, the human brain is more complex than any organization, and people will doubtless continue to cling to their biases. But robust countermeasures can at least minimize the likelihood that biases will lead to poor decisions. 4. Overconfidence. People everywhere tend to see their own abilities in an unrealistically positive light. Some 93% of US drivers famously say they are better than average. Countless sales managers regularly predict double-digit annual gains, especially in the out years, hence the prevalence of hockey-stick forecasts. Overconfidence often leads to terrible decisions, and not just in business. Consider the invasion of Gallipoli in 1915, which British officers thought would be an easy victory. “Let me bring my lads face to face with Turks in the open field,” wrote Commander Sir Ian Hamilton in his diary. “We must beat them every time because British volunteer soldiers are superior individuals to Anatolians, Syrians or Arabs....” The British were deci- sively defeated at Gallipoli, notes Malcolm Gladwell in the New Yorker, partly because of such overconfidence. Analyze any bad decision and you are likely to find more than one of these biases at work, each reinforcing the others. Consider the tragic 1986 decision to launch the space shuttle Challenger in spite of unusually cold weather. Confirmation bias? NASA determined that previous flights had been successful, even though the seals on the solid rocket booster showed unexplained Paul Rogers is a partner with Bain & Company in London and leads Bain’s Global Organization practice. Robert Carse and Todd Senturia are Bain partners based in London and Los Angeles, respectively. Copyright © 2013 Bain & Company, Inc. All rights reserved.
- 88. For more information,visit www.decide-deliver.com For more information about Bain & Company, visit www.bain.com Shared Ambition,True Results Bain & Company is the management consulting firm that the world’s business leaders come to when they want results. Bain advises clients on strategy, operations, technology, organization, private equity and mergers and acquisitions. We develop practical, customized insights that clients act on and transfer skills that make change stick. Founded in 1973, Bain has 48 offices in 31 countries, and our deep expertise and client roster cross every industry and economic sector. Our clients have outperformed the stock market 4 to 1. What sets us apart We believe a consulting firm should be more than an adviser. So we put ourselves in our clients’ shoes, selling outcomes, not projects. We align our incentives with our clients’ by linking our fees to their results and collaborate to unlock the full potential of their business. Our Results Delivery® process builds our clients’ capabilities, and our True North values mean we do the right thing for our clients, people and communities—always.
- 89. Decision Insights How groupdynamics affect decisions By Paul Rogers and Todd Senturia
- 90. How group dynamicaffect decisions leading to more extreme decisions. A study of US federal judges, for example, found that judges working alone took a relatively extreme course of action only 30% of the time. When they were working in groups of three, this figure more than doubled, to 65%. The business implications? Imagine a company’s invest- ment committee. If it’s composed of people with a gener- ally cautious outlook, the group may make decisions that avoid risk altogether—or vice versa. Or imagine a go/no- go product-development decision. If group members making the decision are inclined toward innovation rather than conservatism, they may collectively decide to throw caution to the winds. A public example of group polar- ization may have occurred in 2013 in the US, when opposition to the Affordable Care Act led a group of Republicans in the House of Representatives to shut down the US government in hopes of forcing negotiations over the act’s implementation. “From decades of empirical research, we know that when like-minded people speak with one another, they tend to become more extreme, more confident and more unified—the phenomenon known as group polarization,” wrote Harvard Law School We human beings don’t always make good decisions. Our rational judgment is influenced not only by passions and emotions but also by built-in biases such as over- confidence in our own abilities (see our earlier article, “Why we behave—and decide—the way we do”). One big factor affecting the quality of decisions is whether a decision involves a group. Group dynamics can lead otherwise sensible individuals to make (or agree to) decisions they might not come to on their own. At times the effects are positive, as when some group members help others overcome prejudices. But the dynamics of a group often have negative consequences. Since nearly every company relies on collective decision making in some contexts, executives need to be on the lookout for group biases and their undesirable results. Here are four common manifestations of the “group effect” and some suggestions about how to counter them: Conformity. Many people go along with the group regard- less of what they themselves might think as individuals. A famous experiment by psychologist Solomon Asch showed how powerful this effect is. Asked to choose which of three lines was the same length as a prototype line, nearly every subject chose correctly when acting alone. But then Asch put each subject into a group of several confederates, all of whom had been instructed to pick the wrong line on one of the “tests.” Sure enough, almost 75% of the subjects agreed with the group at least once—even though many later confessed they knew the group’s answer was wrong (see Figure 1). In business, the tendency to conform often persuades dissenters to shut up rather than speak out. Warner Brothers, for example, invested $50 million in the film adaptation of Tom Wolfe’s best seller The Bonfire of the Vanities. The result: a hugely expensive box-office bomb. “Many people involved … had doubts about the casting choices and changes in the storyline, but they never voiced these doubts to the director,” wrote Cabrillo College professor J. Dan Rothwell in a book on small-group communication. Meanwhile the director also had doubts “but because no dissent was voiced, he convinced himself that he had made the correct decisions.” Group polarization. You’d think that a group would tend to moderate individual points of view. In fact, the opposite often occurs: In a phenomenon known as group polarization, deliberation can intensify people’s attitudes, Figure 1:Conformity affects an individual’s judgments Which line matches the one on the left? A B C Source: Bain & Company Nearly 75% gave an “obviously wrong” answer when surrounded by confederates who chose an incorrect answer
- 91. How group dynamicsaffect decisions Yet “individuals in a number of different departments failed to face up to, or follow up on, identified problems,” according to an MIT Sloan Management Review article. Good organizational practices can help counter the ill effects of group dynamics. The most important key is to locate decision roles and accountabilities with specific individuals. An individual who is publicly responsible for a given decision is less likely to be swayed by group polarization. And someone who has public responsibility for offering input can’t easily take refuge in mindless conformity or in the role of a bystander. Companies can put plenty of other tools to good use as well, including: • Devil’s advocate. A person or team charged with taking the less popular side of an issue can help guard against mindless conformity. • Diversity in decision-making meetings. People from different functions or with different backgrounds may help counter conformity and group polarization. • Advance collection of opinions. Asking for input in advance often counters the tendency of a group to reach more extreme positions. • A forum for direct communication with senior manage- ment. People who disagree with an action but are afraid to say so can use back channels to communi- cate their concern. • An “at-cause” attitude. A culture that fosters what we call an at-cause approach encourages everyone to assume personal responsibility for group decisions. Nobody can put an end to group dynamics, and anyway the output of a group is often more positive than you would expect. But companies that actively compensate for the negative effects will make better decisions, on average, than those that fail to do so. Professor Cass R. Sunstein in an analysis of the shutdown. “If you’re in a group whose members think the Affordable Care Act is horrible, you’ll hear many arguments to that effect and very few the other way. After a lot of people have spoken, [the act] will seem much worse than merely horrible; it might be taken as a menace to the republic.” Obedience to authority. Every Psychology 101 student learns of Stanley Milgram’s classic experiment in which test subjects obeyed instructions to administer electric shocks to other “subjects”—actually confederates pre- tending to be shocked—even when the harm seemed extreme. Though businesses depend on employees to carry out their supervisors’ instructions, executives should find this particular group dynamic disturbing. A company suffers when subordinates never challenge their superiors’ decisions. Take the worst commercial aviation incident in history: In 1977 a KLM plane attempted to take off from Tenerife airport while a Pan Am plane was on the runway. Official investigation concluded that the senior KLM pilot had taken off without clearance as a result of communication problems, including the reluctance of other crew to challenge his decision to go. The “captain was always right” effect was cited as a principal cause in the official report on the incident. Bystander effect. As social psychologists have long known, people are far more likely to aid a victim in distress or report an apparent emergency if they are alone than if other people are around. One reason: If you’re uncertain what to do, you’re likely to take your cues from other people whenever possible. The bystander effect crops up in a variety of business contexts. Employees might be expected to report safety violations, for example—but if some people ignore a dangerous situation, others are likely to do so as well. Barings Bank was brought down in 1995 by the unauthor- ized trading of head derivatives trader Nick Leeson in Singapore. Afterwards, investigators found that several internal and external reports had drawn attention to the fact that someone in Leeson’s position could conceal losses. Copyright © 2013 Bain & Company, Inc. All rights reserved. Paul Rogers is a partner with Bain & Company based in London and founder of the firm’s Global Organization practice. Todd Senturia is a Bain partner based in Los Angeles.
- 92. For more information,visit www.decide-deliver.com For more information about Bain & Company, visit www.bain.com Shared Ambition,True Results Bain & Company is the management consulting firm that the world’s business leaders come to when they want results. Bain advises clients on strategy, operations, technology, organization, private equity and mergers and acquisitions. We develop practical, customized insights that clients act on and transfer skills that make change stick. Founded in 1973, Bain has 50 offices in 32 countries, and our deep expertise and client roster cross every industry and economic sector. Our clients have outperformed the stock market 4 to 1. What sets us apart We believe a consulting firm should be more than an adviser. So we put ourselves in our clients’ shoes, selling outcomes, not projects. We align our incentives with our clients’ by linking our fees to their results and collaborate to unlock the full potential of their business. Our Results Delivery® process builds our clients’ capabilities, and our True North values mean we do the right thing for our clients, people and communities—always.