THE D’FACTOR
Organizations are run by people who make processes that help make progress and work more consistent. These processes are made by learning’s by the people who operate in that environment. One key parameter that drives an organization is accountability and governance. How rapid and effective the decision making and responsibility allocation works People play a critical role in every success, every mishap, every opportunity seized or missed is the result of a decision that someone made or failed to make. At many companies, decisions routinely get stuck inside the cogs of an organization. These cogs are gear’s that delivers the performance of the entire organization that run organizations smoothly and that is what is at stake-. It does not matter what industry, how big and well known the company may be, or what clever strategy is thought to be implemented. If the organization can not make quick right effective decisions, executed to the T, business will lose critical ground. Making and implementing good decisions are the hallmarks of high-performing organizations. During an online organizational effectiveness survey across 350 companies, only 12.3% said that they have an organization that helps the business outperform competitors. What sets those top performers apart is the quality, speed, and execution of their decision making. The most effective organizations score well on the major strategic decisions – which markets to enter or exit, which businesses to buy or sell, where to allocate capital and talent. But they truly shine when it comes to the critical operating decisions requiring consistency and speed – how to drive product innovation, the best way to position brands, how to manage channel partners.
Even in companies respected for their decisiveness, however, there can be ambiguity over who is accountable for which decisions. As a result, the entire decision-making process can stall, usually at one of four bottlenecks: global versus local, center versus business unit, function versus function, and inside versus outside partners.
The first of these bottlenecks, global versus local decision making, can occur in nearly every major business process and function. Decisions about brand building and product development frequently get snared here, when companies wrestle over how much authority local businesses should have to tailor products for their markets.
Marketing is another classic global versus local issue–should local markets have the power to determine pricing and advertising?
The second bottleneck, center versus business unit decision making, tends to afflict parent companies and their subsidiaries. Business units are on the front line, close to the customer; the center sees the big picture, sets broad goals, and keeps the organization focused on winning. Where should the decision-making power lie? Should a major capital investment, for example, depend on the approval of the business unit that will own it, or should headquarters make the final call? Function versus function decision making is perhaps the most common bottleneck. Every manufacturer, for instance, faces a balancing act between product development and marketing during the design of a new product. Who should decide what? Cross-functional decisions too often result in ineffective compromise solutions, which frequently need to be revisited because the right people were not involved at the outset.
The fourth decision-making bottleneck, inside versus outside partners, has become familiar with the rise of outsourcing, joint ventures, strategic alliances, and franchising.
In such arrangements, companies need to be absolutely clear about which decisions can be owned by the external partner (usually those about the execution of strategy) and which must continue to be made internally (decisions about the strategy itself). In the case of outsourcing, for instance, brand-name apparel and footwear marketers once assumed that overseas suppliers could be responsible for decisions about plant employees’ wages and working conditions. Big Mistake.
Clearing the Bottlenecks
The most important step in unclogging decision making bottlenecks is assigning clear roles and responsibilities. Good decision makers recognize which decisions really matter to performance. They think through who should recommend a particular path, who needs to agree, who should have input, who has ultimate responsibility for making the decision, and who is accountable for follow-through. They make the process routine. The result: better coordination and quicker response times. Companies have devised a number of methods to clarify decision roles and assign responsibilities. An approach called RAPID has been used, which has been evolved over year’s, to help hundreds of companies develop clear decision making guidelines. It is, for sure, not a panacea (an indecisive decision maker, for example, can ruin any good system), but it’s an important start. The letters in RAPID stand for the primary roles in any decision-making process, although these roles are not performed exactly in this order: recommend,agree, perform, input, and decide – the “D.” (See the sidebar “A Decision-Making Primer.”)
The people who recommend a course of action are responsible for making a proposal or offering alternatives. They need data and analysis to support their recommendations, as well as common sense about what’s reasonable, practical, and effective. The people who agree to a recommendation are those who need to sign off on it before it can move forward. If they veto a proposal, they must either work with the recommender to come up with an alternative or elevate the issue to the person with the D. For decision making to function smoothly, only a few people should have such veto power. They may be executives responsible for legal or regulatory compliance or the heads of units whose operations will be significantly affected by the decision. People with input responsibilities are consulted about the recommendation. Their role is to provide the relevant facts that are the basis of any good decision: How practical is the proposal? Can manufacturing accommodate the design change? Where there’s dissent or contrasting views, it’s important to get these people to the table at the right time. The recommender has no obligation to act on the input he or she receives but is expected to take it into account – particularly since the people who provide input are generally among those who must implement
A Decision-Making Primer
Good decision making depends on assigning clear and specific roles. This sounds simple enough, but many companies struggle to make decisions because lots of people feel accountable – or no one does. RAPID and other tools used to analyze decision making give senior management teams a method for assigning roles and involving the relevant people.
The key is to be clear who has input, who gets to decide, and who gets it done.
The five letters in RAPID correspond to the five critical decision-making roles: recommend, agree, perform, input, and decide. As you’ll see, the roles are not carried out lockstep in this order – we took some liberties for the sake of creating a useful acronym, a decision. Consensus is a worthy goal, but as a decision making standard, it can be an obstacle to action or a recipe for lowest-common-denominator compromise.
A more practical objective is to get everyone involved to buy in to the decision. Eventually, one person will decide. The decision maker is the single point of accountability who must bring the decision to closure and commit the organization to act on it. To be strong and effective, the person with the D needs good business judgment, a grasp of the relevant trade-off’s, a bias for action, and a keen awareness of the organization that will execute the decision.
The final role in the process involves the people who will perform the decision. They see to it that the decision
is implemented promptly and effectively. It’s a crucial role. Very often, a good decision executed quickly beats
a brilliant decision implemented slowly or poorly. RAPID can be used to help redesign the way an organization
works or to target a single bottleneck. Some companies use the approach for the top ten to 20 decisions, or just for the CEO and his or her direct reports. Other companies use it throughout the organization – to improve customer service by clarifying decision roles on the front line, for instance. When people see an effective process for making decisions, they spread the word. For example, after senior managers at a major retailer used RAPID to sort out a particularly thorny set of corporate decisions, they promptly built the process into their
own functional organizations. To see the process in action, look at the way four companies have worked through their decision-making bottlenecks.
Global Versus Local
Every major company today operates in global markets, buying raw materials in one place, shipping them somewhere else, and selling finished products all over the world. Most are trying simultaneously to build local presence and expertise, and to achieve economies of scale. Decision making in this environment is far from straightforward. Frequently, decisions cut across the boundaries between global and local managers, and sometimes across a regional layer in between: What investments will streamline our supply chain? How far
should we go in standardizing products or tailoring them for local markets?
The trick in decision making is to avoid becoming either mindlessly global or hopelessly local. If decision-making authority tilts too far toward global executives, local customers’ preferences can easily be overlooked, undermining the efficiency and agility of local operations. But with too much local authority, a company is likely to miss out on crucial economies of scale or opportunities with global clients.
To strike the right balance, a company must recognize its most important sources of value and make sure that
decision roles line up with them.
Center Versus Business Unit
The first rule for making good decisions is to involve the right people at the right level of the organization. For many companies, a balancing act takes place between executives at the center and managers in the business units. If too many decisions flow to the center, decision making can grind to a halt. The problem is different but no less critical if the decisions that are elevated to senior executives are the wrong ones.
Companies often grow into this type of problem. In small and midsize organizations, a single management
team – sometimes a single leader – effectively handles every major decision. As a company grows and its operations become more complex, however, senior executives can no longer master the details required to make decisions in every business.
A change in management style, often triggered by the arrival of a new CEO, can create similar tensions.
Function Versus Function
Decisions that cut across functions are some of the most important a company faces. Indeed, cross functional
collaboration has become an axiom of business, essential for arriving at the best answers for the company and its customers. But fluid decision making across functional teams remains a constant challenge, even for companies known for doing it well. For instance, a team that thinks it’s more efficient to make a decision without consulting other When his successor began seeking consensus on important issues, the team was suddenly unsure of its role, and many decisions stalled. It’s a common scenario, yet most management teams and boards of directors don’t specify how decision-making authority should change as the company does.
A growth opportunity highlighted that issue for a pharmaceutical company in late 2000. Through organic growth, acquisitions, and partnerships, The pharmaceutical division had developed three sizable businesses: biotech, vaccines, and traditional pharmaceutical products. Even though each business had its own market dynamics, operating requirements, and research focus, most important decisions were pushed up to one group of senior executives.
The problem crystallized when managers in the biotech business saw a vital – but perishable – opportunity to establish a leading position, a promising drug. Competitors were working on the same class of drug, so the company needed to move quickly. This meant expanding production capacity by building a new plant,
The decision, by any standard, was a complex one. Once approved by regulators, the facility would be the
biggest biotech plant in the world – and the largest capital investment the company had ever undertaken. Yet peak demand for the drug was not easy to determine. What’s more, the company planned to market the product in partnership. In its deliberations about the plant, therefore, needed to factor in the requirements of building up its technical expertise, technology transfer issues, and an uncertain competitive environment.
Input on the decision filtered up slowly through a gauze of overlapping committees, leaving senior executives
hungry for a more detailed grasp of the issues.
Given the narrow window of opportunity, the company acted quickly, moving from a first look at the project to implementation in six months. But in the midst of this process, executives saw the larger issue: The company needed a system that would push more decisions down to the business units, where operational knowledge was greatest, and elevate functions may wind up missing out on relevant input or being overruled by another team that believes –rightly or wrongly–it should have been included in the process.
Many of the most important cross-functional decisions are, by their very nature, the most difficult to orchestrate,
and that can string out the process and lead to sparring between fiefdoms and costly indecision. The theme here is a lack of clarity about who has the D.
For example, at a global auto manufacturer that was missing its milestones for rolling out new models – and was paying the price in falling sales – it turned out that marketers and product developers were confused about which function was responsible for making decisions about standard features and color ranges for new models. When we asked the marketing team who had the D about which features should be standard, 83% said the marketers did. When we posed the same question to product developers, 64% said the responsibility rested with them. (See the exhibit “A Recipe for a Decision- Making Bottleneck.”)
The practical difficulty of connecting functions through smooth decision making crops up frequently at retailers.
There are businesses that pioneer in employee ownership. The USP here is the strong connection between managers and employees that permeates every aspect of the organizations operations and remained vital to the company as it grew into the largest employee-owned business, with lacs of employee partners and more than USD 10.87 billion in assets.
Even here, however, with its heritage of cooperation and teamwork, cross-functional decision making can be hard to sustain.
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The element of scale is one reason why cross-functional bottlenecks are not easy to unclog. Different functions
have different incentives and goals, which are often in conflict. When it comes down to a struggle between two functions, there may be good reasons to locate the D in either place – buying or selling, marketing or product development.
Here, as elsewhere, someone needs to think objectively about where value is created and assign decision roles accordingly.
Eliminating cross-functional bottlenecks actually has less to do with shifting decision-making responsibilities between departments and more to do with ensuring that the people with relevant information are allowed to share it. The decision maker is important, of course, but more important is designing a system that aligns decision making and makes it routine.
Inside Versus Outside Partners
Decision making within an organization is hard enough. Trying to make decisions between separate organizations on different continents adds layers of complexity that can scuttle the best strategy. Companies that outsource capabilities in pursuit of cost and quality advantages face this very challenge.
Which decisions should be made internally? Which can be delegated to outsourcing partners? These questions are also relevant for strategic partners – a global bank working with an IT contractor on a systems development project, for example, or a media company that acquires content from a studio – and for companies conducting part of their business through franchisees. There is no right answer to who should have the power to decide what. But the wrong approach is to assume that contractual arrangements can provide the answer.
ot simply to clarify decision roles but to make sure those roles corresponded directly to the sources of value in the business.
If managers suddenly realize that they’re spending less time sitting through meetings wondering why they are
there, that’s an early signal that companies have become better at making decisions. When meetings start with a common understanding about who is responsible for providing valuable input and who has the D, an organization’s decision-making metabolism will get a boost.
No single lever turns a decision-challenged organization into a decision-driven one, of course, and no blueprint
can provide for all the contingencies and business shifts a company is bound to encounter. The most successful companies use simple tools that help them recognize potential bottlenecks and think through decision roles and responsibilities with each change in the business environment. That’s difficult to do–and even more difficult for competitors to copy. But by taking some very practical steps, any company can become more effective, beginning with its next decision.
This decision making authority needs to be defined very clearly by organizations wanting to improve performance.
It is clearly seen that as organizations grow, the process set in place in rarely questioned for fear of upsetting the applecart, unless a visionary leader willing to risk their neck and career steps in and makes those D’s. And unfortunately, the D’s made will only qualify itself based on not only internal circumstances, but on the way the economy and markets move. The only way this risk can be minimized is by studying business cycles that are historical and can give quite an insight into the way things happen, time after time. So again, the right decision depends on dynamic MIS systems