BY THOMAS H. DAVENPORT
Make Better Decisions
IN RECENT YEARS DECISION MAKERS in both the public and private sectors have made an astounding number of poor calls. For example, the decisions to invade Iraq, not to comply with global warming treaties, to ignore Darfur, are all likely to be recorded as injudicious in history books. And how about the decisions to invest in andsecuritize subprime mortgage loans, or to hedge risk with credit default swaps? Those were spread across a number of companies, but single organizations, too, made bad decisions. Tenneco, once a large conglomerate, chose poorly when buying businesses and now consists of only one auto parts business. General Motors made terrible decisions about which cars to bring to market. Time Warner erred in buyingAOL, and Yahoo in deciding not to sell itself to Microsoft.
Why this decision-making disorder? First, because decisions have generally been viewed as the prerogative of individuals – usually senior executives. The process employed, the information used, the logic relied on, have been left up to them, in something of a black box. Information goes in, decisions come out – and who knows whathappens in between? Second, unlike other business processes, decision making has rarely been the focus of systematic analysis inside the ﬁrm. Very few organizations have “reengineered” their decisions. Yet there are just as many opportunities to improve decision making as to improve any other process. Useful insights have been available for a long time. For example, academics deﬁned “groupthink,” theforced manufacture of consent, more than half a century ago – yet it
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Best Practice Make Better Decisions
still bedevils decision makers from the White House to company boardrooms. In the sixteenth century the Catholic Church established the devil’s advocate to criticize canonization decisions – yet feworganizations today formalize the advocacy of decision alternatives. Recent popular business books address a host of decision-making alternatives (see “Selected Reading”). However, although businesspeople are clearly buying and reading these books, few companies have actually adopted their recommendations. The consequences of this inattention are becoming ever more severe. It is time to take decisionmaking out of the realm of the purely individual and idiosyncratic; organizations must help their managers employ better decision-making processes. Better processes won’t guarantee better decisions, of course, but they can make them more likely.
IDEA IN BRIEF
In many organizations, decisions are left up to individuals and the process for making them receives little if any scrutiny. Therecent plague of poor ﬁnancial decisions is one result. Smart organizations can help their managers improve decision making in four steps: by identifying and prioritizing the decisions that must be made; examining the factors involved in each; designing roles, processes, systems, and behavior to improve decisions; and institutionalizing the new approach through training, reﬁned data analysis, andoutcome assessment. Chevron, the Educational Testing Service, and The Stanley Works are three organizations that have overhauled decisionmaking processes with great success. This article will help like-minded companies give decisions the attention they deserve.
A Framework for Improving Decisions Focusing on decisions doesn’t necessarily require a strict focus on the mental processes ofmanagers. (Though, admittedly, the black box deserves some unpacking.) It can mean examining the accessible components of decision making – which decisions need to be made, what information is supplied, key roles in the process, and so forth. Smart organizations make multifaceted interventions – addressing technology, information, organizational structure, methods, and personnel. They can improve...