Those that do focus on enterprise-level value in this way are much more likely (2.9 times) than others to be a winner. Think about hiring somebody. Big-bet decisions can be future-shapers for a company, the most important decisions leaders make. Use minimal essential Respondents “agree” or “strongly agree” that the decisions made by their organizations (or their senior executives, in the case of big bets) are consistently of high quality. The resulting benefits included a significant financial boost (as employees used the freed-up time in higher-value ways), as well as an arguably more important boost in employees’ morale and sense of work–life balance, which in turn has helped the company attract and retain talent. We'll email you when new articles are published on this topic. That often means involving as many people as possible in the outcome—something that, paradoxically, in the end will enable the decision to be implemented more speedily. Best because of more data, better analytics, and clearer understanding of how to mitigate the cognitive biases that often undermine corporate decision processes. Superior market performance. We use cookies essential for this site to function well. June 2017. The online survey was in the field from February 13, 2018, to February 23, 2018, and garnered responses from 1,259 participants representing the full range of regions, industries, company sizes, functional specialties, and tenures. Each initiative should have a sponsor, who wil… For example, if an underling learns that over time when the boss says, “You should make that decision,” she really means, “so long as you make the same decision I would have made,” then decisions are sure to bubble up. People create and sustain change. The online survey was in the field from February 13, 2018, to February 23, 2018, and garnered responses from 1,259 participants representing the full range of regions, industries, company sizes, functional specialties, and tenures. As this example suggests, empowerment means not only giving employees a strong sense of ownership and accountability but also fostering a bias for action, especially in situations where time is of the essence. Our research indicates that the quality and speed of decision making are both strongly associated with overall company performance. The key to effective decision-making on energy transition Leaders in the energy system have highlighted the need for: 1) An effective and inclusive platform for action-oriented dialogue 2) A fact-based framework that supports an unbiased approach to energy transition Over the course of the last year, the Fostering Effective Our latest research confirms the importance of this approach, and it also highlights for each major decision category a noteworthy practice—sometimes stimulating debate, for example, while in other cases empowering employees—that can yield outsize improvements in effectiveness. (The fourth category, ad hoc decisions, which are infrequent and low stakes, is not addressed in this article.) Reinvent your business. The ideal in our experience are hands-on and delegating leaders who coach, challenge, and inspire their reports, are there to help those who need help, and stay well clear of actually making the decision. Consequently, when the top team moved to decide on a proposed new initiative in Europe, the leaders from the US business stayed silent, even though they had years of hard-won experience in marketing and cross-selling similar agricultural products to those new ones under discussion. In this survey, we did not ask about this decision type, because ad hoc decisions are circumstantial by nature and vary too greatly. We have also observed a fourth decision typ… Our mission is to help leaders in multiple sectors develop a deeper understanding of the global economy. In this episode, Simon London looks at the power of decision meetings and how to make them better. For more, see Tim Koller, Dan Lovallo, and Zane Williams, “. Embrace them, and continue to learn as you go. This presupposes, of course, that the decisions leaders make at all levels of the organization reflect the company’s strategy and its value-creation agenda. Make decisions at the right level. Effective decision making . Most transformations fail. Indeed, every decision is a risk-taking judgment. A survey we conducted recently with more than 1,200 managers across a range of global companies gave strong signs of growing levels of frustration with broken decision-making processes, with the slow pace of decision-making deliberations, and with the uneven quality of decision-making outcomes. When pressed further, she admits that her boss doesn’t make it either. The strength of a decision is only as strong as the strength of the set of decision choices. The dynamic inside many decision meetings doesn’t help. tab, Engineering, Construction & Building Materials, Travel, Logistics & Transport Infrastructure, McKinsey Institute for Black Economic Mobility. Decision making amid uncertainty is not easy. You do not need previous business knowledge or gaming experience to do well in this assessment. After conducting pilots in several countries, executives used two-day workshops to roll out the process redesign. Capability building can help, too, for example, in learning to have difficult conversations or coaching leaders on how to influence outcomes without taking over control. Given that McKinsey consultants operate as advisers, with government officials charged with making final decisions, it can be hard to identify the firm’s responsibility for any given decision. The evidence of our survey—and our experience watching executives grapple with this—suggests that while the best practices for making better decisions are interrelated, there’s nonetheless one standout practice that makes the biggest difference for each type of decision (exhibit). Take the manufacturing company whose operations managers, faced with calls from the sales team to raise production in response to anticipated customer demand, had to consider whether they should spend unbudgeted money on overtime and hiring extra staff. Never miss an insight. Making good business decisions is a critical part of every executive’s job and is vital to every company’s well-being. Classifying the problem.Is it generic? Looking more closely at the data, there is little evidence of economies of scale. Leadership. The new rules also required leaders to clarify their decision rights in advance, and to be more deliberate about managing the number of participants so that meetings wouldn’t become bloated, on the one hand, or lack diverse views, on the other. Productive debate is essentially a form of conflict—a healthy form—so senior executives will need to devote time to building trust and giving permission to dissent, irrespective of the organizational hierarchy in the room. The temptation was too great: the fee changes helped the leader’s own business unit—albeit ultimately at the expense of other units whose revenues were cannibalized. It argues that organisational effectiveness involves more than simply putting in place the right command and control structure to coordinate the delivery of an organisation’s strategy. Of the total sample, 20 percent (or 234 respondents) qualified as winners. There are many keys to better decision making, but in our experience focusing on the three practices discussed here—and on the commitment to implement decisions once taken—can reap early and substantial dividends. Respondents who reported that decision making was fast were 1.98 times more likely than other respondents to say that decisions were also of high quality. Unweighted data were used in our analyses, which included a range of statistical techniques. For managers at an average Fortune 500 company, this could translate into more than 530,000 days of lost working time and roughly $250 million of wasted labor costs per year. McKinsey Insights - Get our latest thinking on your iPhone, iPad, or Android device. One of the survey’s most noteworthy insights is how much time decision making really consumes. We measured market outperformance as the rate of revenue growth in the past three years, relative to peers, and for respondents who answered for big-bet or cross-cutting decisions, the average financial returns from their organizations’ decisions of that type. But unless these elements are the stepping stones of the decision process, the executive will not arrive at a right, and certainly not at an effective, decision. A rotating devil’s advocate role can bolster critical thinking, while premortem exercises (in which you start by assuming the initiative in question turned out to be a failure, and then work back for likely explanations) can pressure test for weak spots in an argument or plan. “Fortune 500,” Fortune, 2018, fortune.com. 1 The recent climate of unprecedented uncertainty requires even greater speed, agility, and decisiveness in decision making. Leaders can encourage debate by helping overcome the “conspiracy of approval” approach to group discussion. The online survey was in the field from February 13 to February 23, 2018, and garnered responses from 1,259 participants in 91 countries, all of whom are members of McKinsey’s Online Executive Panel. Further analyses reveal the importance of making decisions that are both high quality and fast, a combination that is much more common at the winning organizations. 9. “Fortune 500,”. Most transformations fail. Of them, 1,228 are familiar with decision making at their organizations. Indeed, faster decisions are often a happy outcome of these efforts. And for more on premortem techniques, see Daniel Kahneman and Gary Klein, “Strategic decisions: When can you trust your gut?,” McKinsey Quarterly, March 2010. 2 Sixty-five percent of respondents agree that their organizations’ big-bet decisions are high quality, while 54 percent 1 only 20 percent of respondents say their organizations excel at decision making. These decisions are effectively handled by a single individual or working team made accountable for the decision, and they usually require limited input from others. They identified seven internal elements of an organization that need to align for it to be successful. Of the four decision categories we identified two years ago, three matter most to senior leaders. tab. tab, Engineering, Construction & Building Materials, Travel, Logistics & Transport Infrastructure, McKinsey Institute for Black Economic Mobility. While fostering commitment can mean involving more people and getting more buy-in, that doesn’t mean companies have to compromise on speed. 1. The elements do not by themselves “make” the decisions. According to respondents, the organizations that make decisions quickly are twice as likely to make high-quality decisions, compared with the slow decision makers. Decision making is the process of decision making through decision making. Or is it the first manifestation of a new genus for which a rule has yet to be dev… Respondents who reported that decision making was fast were 1.98 times more likely than other respondents to say that decisions were also of high quality. 3. 3. 1 These organizations have adopted a few foundational best practices that support good decision making across all three decision types: 1. 1 We'll email you when new articles are published on this topic. Overall, 70 percent of respondents at organizations with one to three reporting layers agree that their companies make high-quality decisions, compared with 53 percent at organizations with four to six layers and 45 percent of those with seven or more. Select topics and stay current with our latest insights. Our flagship business publication has been defining and informing the senior-management agenda since 1964. Among C-levels, 57 percent say the same. Good decision making will help you solve problems, build solutions, and build skills. 2 This analysis included only responses from those answering for big-bet or for cross-cutting decisions. To ensure a faster process, companies should manage the expectations of debate participants by limiting their voting rights and sticking to other agreed-upon processes, as we explore next. With delegated decisions, for instance, respondents are 1.7 times as likely to say their organizations are winners if they follow both types of best practices than if they follow only the foundational ones (Exhibit 7). Unleash their potential. It might seem intuitive, but only 41 percent of respondents say their organizations’ decisions align with the corporate strategy and that they allocate human and financial resources toward high-value projects. We strive to provide individuals with disabilities equal access to our website. Similarly, in corporate cultures that punish mistakes, there is little upside in making a decision that turns out to be right—and lots of downside if it’s wrong. Please email us at: McKinsey Insights - Get our latest thinking on your iPhone, iPad, or Android device. And with delegated decisions, the winning organizations empower their employees to make decisions through coaching and providing space for people to fail safely. A decision is a final choice made from a set of options. 7. These findings confirm our earlier research on decision making. On average, respondents spend 37 percent of their time making decisions, and more than half of this time was thought to be spent ineffectively. Since then, we’ve conducted research to more clearly understand this balance, and the results have been disquieting. This poor-quality—and in our view avoidable—outcome was the direct result of siloed thinking and a set of narrow incentives in conflict with the group’s broader strategy and value-creation agenda. Cross-cutting decisions (such as a pricing decision), which can be high risk, happen frequently and are made in cross-functional forums as part of a collaborative, end-to-end process. We strive to provide individuals with disabilities equal access to our website. Even those businesses that do make decisions at the right level, however, complain about slow and bad outcomes. For example, consider starting the decision meeting by reminding participants of the overall organizational goals the meeting supports, in order to reframe the subsequent discussions. One of the most important characteristics of a good decision is that it’s made in such a way that it will be fully and effectively implemented. 4 Flip the odds. In our experience, steps such as these are invaluable for big bets: 1. Our sources for this estimate included fortune.com and the US Bureau of Labor Statistics (for salary data). Any recurring meetings (particularly topic-focused ones) where the nature of the decision isn’t clear are ripe for a rethink—and quite possibly for elimination. Please try again later. And cross-cutting decisions were the ones that executives in our survey had the most exposure to, regardless of their seniority. The authors wish to thank Iskandar Aminov, Alison Boyd, Elizabeth Foote, Kanika Kakkar, and David Mendelsohn for their contributions to this article. You do, therefore, need to be committed to the decision personally, and be able to persuade others of its merits. Forty percent of respondents work in the general-management or strategy functions, and the sample skews toward upper management: one-third of respondents are C-level executives, and 35 percent are senior managers. Problem solving is the ability to break down problems, intimately understand them, and develop highly effective and efficient solutions to them. We define “substantial” as a double-digit percentage-point increase in the returns that respondents report from their companies’ most 2. 1. That is, a financial return of 20 percent or more from the most recent big-bet or cross-cutting decision at respondents’ organizations. Many theories have been proposed for the decision-making conducted by nurses across all practices and disciplines. And 14 percent of C-suite executives report spending more than 70 percent of their time on the topic. On average, 54 percent of respondents to our survey report spending more than 30 percent of their time on decision making. Only 30 percent of all respondents report familiarity with all three decision types. recent decisions. Aaron De Smet is a senior partner in McKinsey’s Houston office, Gregor Jost is a partner in the Vienna office, and Leigh Weiss is a senior expert in the Boston office. In a global agricultural company, for example, the members of the executive committee tended to speak up only if their particular area of the business was being discussed. Discover the four leadership traits that separate the effective from the inept. Beyond the foundational practices, the winners also demonstrate best practices that are specific to each decision type (Exhibit 6): For cross-cutting decisions, the winning organizations focus on process and how to run decision meetings as effectively as possible. New survey results offer lessons for effective decision making that supports outperformance. The only way out of the logjam is to escalate it to the company’s senior-most executives, which wastes time and risks lowering decision quality. In pulse-check surveys conducted over the course of the following year, the company’s measures of meeting effectiveness and efficiency went up by almost 50 percent. Solving deeply rooted cultural challenges is beyond the scope of this article. Little substantive discussion takes place. Nonetheless, companies can take steps to avoid spending quite so much time on the bubble. The estimate of lost labor cost is based on the 2017 median salary of management occupations in the United States, which was $102,590. A final note of caution: minimizing the number of debate participants to speed up decision making could harm decision quality. Aaron De Smet, Gerald Lackey, and Leigh M. Weiss, “. 4. 2. Big-bet decisions (such as a possible acquisition) are infrequent but high risk and have the potential to shape the future of the company; these are generally the domain of the top team and the board. 8. Respondents say the average speed of their organizations’ decision making is “about right” or “too fast,” as opposed to “far too slow,” “too slow,” or “far too fast.” For big-bet and cross-cutting decisions, this also includes respondents who say the average speed at which their organizations execute decisions is “about right” or “too fast,” as opposed to “far too slow,” “too slow,” or “far too fast.” Business war gaming an effective instrument for improved decision-making Gamification can sound like a buzzword, but by deconstructing what games actually are and by applying a games mindset to solve real life challenges in businesses, see for themselves just how powerful game approaches can be within business. Reinvent your business. Survey respondents who report that employees at their company are empowered to make decisions and receive sufficient coaching from leaders were 3.2 times more likely than other respondents to also say their company’s delegated decisions were both high quality and speedy. Far from it. Neither of those actions necessarily requires giving everyone a vote or requiring unanimous agreement, which could slow a decision. The tacit assumption was that people wouldn’t intrude on colleagues’ area of responsibility. Effective Decision-Making Decisions need to be capable of being implemented, whether on a personal or organisational level. “That decision,” she says, “is made by the CEO.”. But even at the top, C-level executives and senior managers report the greatest exposure to cross-cutting decisions (Exhibit 2). It’s as if there is an unspoken understanding that the meeting should proceed like a short, three-act play. 2. For example, having high-quality big bets can deliver substantial increases in the returns from recent decisions. McKinsey's consumer decision journey can help to model how your customer comes to the moment of purchase and discover what makes buy. recent decisions. The estimate of lost labor cost is based on the 2017 median salary of management occupations in the United States, which was $102,590. Executives who get delegated decisions right are clear about the boundaries of delegation (including what’s off-limits and how and where to escalate what’s beyond an individual’s competence), ensure that those they entrust with decision-making authority have the relevant skills and knowledge to act (and if not, provide them with the opportunity to acquire those capabilities), and explicitly make people accountable for their areas of decision-making responsibility (including spelling out the consequences for those who fail to respond to the challenge). Our analysis of their responses points to the specific decision-making practices that are most associated with being a winner. Business leaders cannot afford to wait when events are moving as fast as they are right now. Aaron De Smet, Gerald Lackey, and Leigh M. Weiss, “Untangling your organization’s decision making,” McKinsey Quarterly, June 2017. the survey results confirm that not all decisions are created equal; different types of decisions require different approaches. An executive we know joked during a meeting that “a committee is born every day in this organization.” Just then, another executive nearby looked up from his computer to announce he had just been invited to join a new committee. Never miss an insight. Then assign someone to argue the case for, and against, a potential decision or the various options under consideration. This is not so surprising, given that cross-cutting decisions are broad in their scope and impact, and are made frequently. And 14 percent of C-suite executives report spending more than 70 percent of their time on the topic. 3. Subscribed to {PRACTICE_NAME} email alerts. Leaders might want to start mentoring their reports with a small “box” of accountability, slowly expanding it as more junior executives grow in confidence. As the new practices took hold, the benefits became apparent. Please use UP and DOWN arrow keys to review autocomplete results. These findings confirm our earlier research on decision making. It is created by a startup called Imbellus, which builds simulation-based cognitive assessments that measure how people think. The meetings were purposely kept informal, but top management nonetheless established ground rules to ensure that the stories would be meaningful (not trivial) and that employees telling the stories would be protected. Use minimal essential If you would like information about this content we will be happy to work with you. Bet-the-company decisions—from major acquisitions to game-changing capital investments—are inherently the most risky. 3. We believe these five principles of decision making can help leaders make smart decisions quickly to guide their organizations through this crisis. Striving to increase workplace diversity is not an empty slogan — it is a good business decision. In our previous article, we proposed solutions that centered around categorizing decision types and organizing quite different processes against them. For instance, exploratory and confirmatory factor analyses were used to identify related practices within each decision type, and logistic regression was used to determine the impact of each practice on the probability of being a decision-making winner. Respondents say their organizations’ rate of revenue growth in the past three years is “much higher,” “higher,” or “about the same” as that of their industry peers, as opposed to “much lower” or “lower.” For big-bet and cross-cutting decisions, this also includes respondents who say the average financial returns from their decisions are “far above average,” “above average,” or “average” compared with the average returns of their peers’ decisions. A pharma company hesitated so long over whether to pounce on an acquisition target that it lost the deal to a competitor. These practices are far more important to decision-making success, the data suggest, than establishing clear roles or processes or giving guidelines for when to escalate a decision for approval. Here’s a variation of a conversation we have with some frequency: in talking with a manager about her work, we ask about a routine decision we would expect her to make—about hiring, for example, or pricing or marketing. Exhibit 9 That is, a financial return of 20 percent or more from the most recent big-bet or cross-cutting decision at respondents’ organizations. cookies, [email protected] Scoring & Assessment. Similarly, 61 percent of respondents at organizations with one to three layers agree that their companies make decisions quickly, compared with 47 percent at organizations with four to six layers and 38 percent at organizations with seven or more. While it’s important to devote enough resources to help propel follow-through, and it’s also important to assign accountability for getting things done to an individual or at most a small group of individuals, the biggest challenge is to foster an “all-in” culture that encourages everyone to pull together. Valuable for many reasons – such as showing how you can coordinate, motivate and lead a successful team. Consistent with our earlier work, 4 4. There are many reasons cross-cutting decisions go crosswise. The first rule about decisions is to know when you are making a decision. You can go with your gut, but the typical best practice is to create a decision matrix to evaluate different candidates against each other. To determine which organizations were decision-making winners, based on the survey responses, we created an index of three outcomes of decision making: 1. Our sources for this estimate included fortune.com and the US Bureau of Labor Statistics (for salary data). collaboration with select social media and trusted analytics partners By and large, the sample reflects the panel’s overall characteristics. Flip the odds. Select topics and stay current with our latest insights. That requires commitment, something that is not always straightforward in companies where consensus is a strong part of the culture (and key players acquiesce reluctantly) or after big-bet situations where the vigorous debate we recommended earlier has taken … Overall, 57 percent of respondents agree that Worse, the lack of clarity makes it very difficult for colleagues further down in the organization to use their judgment to see past the silos and remedy the situation. Please email us at: [email protected] That share of time increases with seniority; for example, 14 percent of C-suite respondents say they spend more than 70 percent of their time making decisions. Decision making takes up a lot of time, much of it used ineffectively. “Management occupations,” Occupational Outlook Handbook, US Bureau of Labor Statistics, 2018, bls.gov. Consistent with our earlier work, Efforts to mitigate the impact of cognitive biases on decision making have, rightly, often focused on big bets. 7 Respondents who answered the survey with respect to delegated decisions were not asked about the financial returns from their organizations’ most recent delegated decisions. Further, a majority say much of the time they devote to decision making is used ineffectively. Please try again later. Finally, delegated decisions are frequent decisions that are much narrower in scope, such as changes to HR policy. Of fashion, but it bears repeating because all too often it simply doesn ’ t on... Business is about selecting choices or Scoring & assessment and out of fashion, but it wasn t! The same belong waste time and effort and often result in poorer outcomes we define “ substantial ” as result! Fourth decision type: ad hoc decisions, which included a range of statistical techniques organizational go... 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