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The Decision-making Process, make it your competitive advantage

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How good is your company’s decision-making process? In term of making the right decisions quickly and executing fast, how competitive are you? I researched processes to improve on this sometime back and made a presentation on it and presented it in Japanese several times. Have a look at this English version of that presentation. I hope it is helpful and generates some ideas.

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The Decision-making Process, make it your competitive advantage

  1. 1. How to improve decision making quality, speed and execution Managing the Decision Making process 1 Source: Decide & Deliver, Bain & Company, Inc. Harvard Business Review Press, Copyright, 2010 Focusing on decision making efficiency and effectiveness. Ron McFarland, Tokyo, Japan
  2. 2. 2 4-Organize Restructure the organization to enable a better decision making process. 2-Identify Learn what the most critical decisions are now. 5-Promote Expand and promote the ideal decision making process throughout the organization 1-Assess Learn the current decision making effectiveness (where strong, where weak) and company health 3-Improve Redesign the decision making process to get the best results. Steps to improve decision effectiveness There are five steps to achieve successful decision making in quality, speed and execution. Better decisions lead to better performance How good are our decisions? Ron McFarland, Tokyo, Japan
  3. 3. 3 Effective decision making components Quality How good are our decision? Are outcomes successful? Speed How fast are decisions and execution? Execution How efficient is the execution managed? Effort What is the expense of time, energy and assets to achieve what is decided? Is it too much or too little? Decision management How good is our decision making process? Ron McFarland, Tokyo, Japan
  4. 4. 4 Effective decision making components - Quality Quality Quality Decisions 1. They are based on relevant facts. 2. They are based on good risk analysis. 3. They have been evaluated against alternatives. 4. They take into account the ability to execute. Ron McFarland, Tokyo, Japan
  5. 5. 5 Effective decision making components - Speed Speed Decision speed 1. Speed is influenced by the speed of information sharing and distribution. 2. Speed is influenced by trust. 3. Speed can save money. 4. Speed can improve profit. 5. Speed can add to customer satisfaction. 6. Speed can improve employee moral. 7. Speed can create a competitive advantage over slower companies. 8. If the decision can be modified later, it is better to decide quickly now! Ron McFarland, Tokyo, Japan
  6. 6. 6 Effective decision making components - Execution Execution Decision execution 1. It is often forgotten in the decision making process. 2. It is putting decision into action. 3. Available ability, skills, capacities and assets must be considered to execute a decision. 4. Excellent execution can be a huge competitive advantage against competitors that do not execute well. Ron McFarland, Tokyo, Japan
  7. 7. 7 Effective decision making components - Effort Effort Decision effort 1. It is the time and resources spent in the decision and execution. 2. It is the trouble caused to all. 3. It is the emotional energy spent. 4. It is necessary but must be less than the benefits gained by the decision. 5. Effort can be too much or too little considering the value of the project. Ron McFarland, Tokyo, Japan
  8. 8. 8 Research on decision making components 1. Decision making effectiveness equals higher company financial performance. 2. Decision quality, speed and execution reinforce one another. 3. Appropriate effort is needed. 4. Process attention is very important. Source: Decide & Deliver, Bain & Company, Inc. Harvard Business Review Press, Copyright, 2010Ron McFarland, Tokyo, Japan
  9. 9. 9 Step 1 (Assess): Company decision making evaluation Speed Select “1”, “2”, “3”, or “4” below regarding your company’s decision making process. Execution Effort Quality When making critical decisions, we choose the right course of action: 1. Less than 25% of the time. 2. 26 – 50% of the time. 3. 51 – 75% of the time. 4. Over 75% of the time. We make critical decisions: 1. Much slower than competitors. 2. Somewhat slower than competitors. 3. Somewhat faster than competitors. 4. Much faster than competitors. We execute critical decisions as intended: 1. Less than 25% of the time. 2. 26 – 50% of the time. 3. 51 – 75% of the time. 4. Over 75% of the time. In making and executing critical decisions: 1. We either put in far too much effort (assets) or not nearly enough. 2. We put in too much or not quite enough effort than we should. 3. We put in somewhat too much or too little effort than we should. 4. We put in exactly the right amount of effort (assets) on critical decisions. Source: Bain & Company, Inc. Ron McFarland, Tokyo, Japan
  10. 10. 10 Company decision making evaluation – result sample Speed Execution Effort Quality When making critical decisions, we choose the right course of action: 1. Less than 25% of the time 2. 26 – 50% of the time 3. 51 – 75% of the time 4. Over 75% of the time We make critical decisions: 1. Much slower than competitors 2. Somewhat slower than competitors 3. Somewhat faster than competitors 4. Much faster than competitors We execute critical decisions as intended: 1. Less than 25% of the time 2. 26 – 50% of the time 3. 51 – 75% of the time 4. Over 75% of the time In making and executing critical decisions: 1. We either put in far too much effort (assets) or not nearly enough 2. We put in too much or not quite enough effort than we should 3. We put in somewhat too much or too little effort than we should 4. We put in exactly the right amount of effort (assets) on critical decisions. 3 4 2 3 Current decision making status: 1. Over 25: You are doing great, keep it up. 2. 21 – 25: Pretty good. Could be great. 3. 16 – 20: Worse than 50% of companies. Put in decision making action plan. 4. 15 or less: Major decision making process change required. Total scoring method: Quality X Speed X Execution X (Effort/4) Therefore, sample score is 18 (eighteen) 18 Ron McFarland, Tokyo, Japan
  11. 11. 11 Organizational structure evaluation toward decision making Decision style Select 1-Strongly disagree, 2-Disagree more than agree, 3-Agree more than disagree, or 4-Strongly agree for the below regarding your company’s organizational structure and the decision making process. People Culture Priorities We make decisions in a style that is effective. They appropriately balance inclusiveness & momentum. (1, 2, 3, 4) Behaviors We put our best people in the jobs where they can have the biggest decision impact. (1, 2, 3, 4) Our leaders at all levels consistently demonstrate effective decision behaviors. (1, 2, 3, 4) Our culture reinforces prompt, effective decisions and action throughout the organization. (1, 2, 3, 4) People understand their priorities clearly enough to be able to make and execute the decisions they face. (1, 2, 3, 4) Roles Processes Measures & incentives Structure Individuals are clear on their roles and accountabilities in our most critical decisions. (1, 2, 3, 4) Information Our processes are designed to produce effective, timely decisions and action. (1, 2, 3, 4) The people in critical decision roles have the information they need when and how they need it. (1, 2, 3, 4) Our measures and incentives focus people on making and executing effective decisions. (1, 2, 3, 4) Our structure helps, rather than hinders, the decisions most critical to our success. (1, 2, 3, 4) Source: Bain & Company, Inc. Ron McFarland, Tokyo, Japan
  12. 12. 12 Organizational structure evaluation toward decision making - example Decision style People Culture Priorities We make decisions in a style that is effective. They appropriately balance inclusiveness & momentum. (1, 2, 3, 4) Behaviors We put our best people in the jobs where they can have the biggest decision impact. (1, 2, 3, 4) Our leaders at all levels consistently demonstrate effective decision behaviors. (1, 2, 3, 4) Our culture reinforces prompt, effective decisions and action throughout the organization. (1, 2, 3, 4) People understand their priorities clearly enough to be able to make and execute the decisions they face. (1, 2, 3, 4) Roles Processes Measures & incentives Structure Individuals are clear on their roles and accountabilities in our most critical decisions. (1, 2, 3, 4) Information Our processes are designed to produce effective, timely decisions and action. (1, 2, 3, 4) The people in critical decision roles have the information they need when and how they need it. (1, 2, 3, 4) Our measures and incentives focus people on making and executing effective decisions. (1, 2, 3, 4) Our structure helps, rather than hinders, the decisions most critical to our success. (1, 2, 3, 4) Current decision making status: 1. Over 35: You are doing great, keep it up. 2. 31 – 35: Good but room for improvement. 3. 26 – 30: There are major barriers to decisions. 4. 10 – 25: Major organization transformation is required. Total scoring method: Total score (add all the scores) 26 Ron McFarland, Tokyo, Japan
  13. 13. Step 2 (Identify): Identifying critical decisions 13 List all major department project decisions and the value they create. Use surveys, interviews, and workshops to assess the value and degree of attention required of each. Determine the single decision with the greatest company value potential and risk. Ron McFarland, Tokyo, Japan
  14. 14. Categories of critical decisions 14 Small but critical decisions that is made and remade frequently and add up to value over time. These are made every day and none by themselves carry much value, but add up over time. An example would be how sales people meet customers on a daily basis. Small, frequent decisionsLarge, one-time decisions Big decision that carry enormous value and risk. Usually, onetime or infrequent organizational or operational decisions. If these decisions are not made and executed effectively, shareholder value could be lost. Once made, they usually can not be modified or undone. Ron McFarland, Tokyo, Japan
  15. 15. 15 Finding major decisions along the value chain Operations & processing Outbound items & services Marketing & sales After sales support (Processing) End Users Technology Development Direct Activities Suppliers Human Resource Management Infrastructure Procurement Support Activities Inbound items & services (Shipping) (Marketing) (Service)(Receiving) Value Chain Activities Valued added, cost incurred over time and a profit margin Ron McFarland, Tokyo, Japan
  16. 16. Analyzing the status of the most critical decision 16 Once the most critical decision is determined, its status must be reviewed. Is it getting the priority and attention required? Ron McFarland, Tokyo, Japan
  17. 17. 17 Critical decision status review Rating 4-strongly agree; 3-agree; 2-disagree; 1-strongly disagree Organization strengths and barriers to efficient decision making Decision roles are clear and appropriate. (1, 2, 3, 4) (1, 2, 3, 4) (1, 2, 3, 4) (1, 2, 3, 4) (1, 2, 3, 4) (1, 2, 3, 4) (1, 2, 3, 4) (1, 2, 3, 4) (1, 2, 3, 4) (1, 2, 3, 4) We use a very effective decision making process. We have the right information at the right time. People’s objectives and incentives reinforce the right decision and action. Participants have the right atmosphere and environment to make and execute decisions. We use the appropriate decision style. (described below) We have the right skills and talent in the right decision making roles. Participants demonstrate good decision behavior. Our overall culture reinforces making and executing the decision well. Our structure facilitates making and executing the decision well and quickly with the right effort. Were “1” or “2” selected? Those are the concerns that must change. Source: Bain & Company, Inc. Ron McFarland, Tokyo, Japan
  18. 18. Four common decision making styles 18 1. Directing – Management tells people what to do. 2. Participating – All related personnel are involved in the decision making process, but one person finally decides and is accountable. 3. Democratic - All related personnel vote on what is best. The most popular decision is selected. 4. Consensus - All related personnel must agree to move forward. Ron McFarland, Tokyo, Japan
  19. 19. 19 Step 3 (Improve): Decision Clarification What? Make sure everyone knows exactly what is to be done and why. Who? The roles of decision makers, recommenders, experts and executers are decided. How? The approach and total process are decided. When? A timeline of each process is decided, including milestones and progress reporting. Making decisions work The decision goals must be specific and understandable to all! Ron McFarland, Tokyo, Japan
  20. 20. 20 Decision Clarification – What is it? What? Tips for success 1. Start all discussion with reminder of what goal is to be achieved. 2. Explain the situation and reasons to make the decision. 3. Break down the decision into specific tasks and confirm task dependences (one is finished first before another task starts). Ron McFarland, Tokyo, Japan
  21. 21. 21 Decision Clarification – Who should do it? Who?Use the RAPID system to assign roles 1. R - RECOMMEND 2. A - AGREE 3. P - PERFORM 4. I - INPUT 5. D - DECIDE Source: Bain & Company, Inc. Ron McFarland, Tokyo, Japan
  22. 22. 22 Who performs the decision process (Rapid)? R - Recommend A - Agree I - Input P - Perform D - Decide 1. R – Recommend: Who will be responsible for making the recommendation that something should be done? What options or alternatives does he recommend? What is his final recommendation? This person is usually close to the problem or opportunity. 2. A – Agree: Who are experts or specialists that know many of the concerns that may arise with the recommendation(s) given? 3. P – Perform: Who will actually execute the decision until it is successfully completed? 4. I – Input: Who will be responsible for gathering information, data and facts? This includes resource/skill requirement facts. This is the gathering point of information. 5. D – Decide: Who will make the final decision and be responsible for its outcome? For major decisions, several people for these tasks should be assigned. Source: Bain & Company, Inc. Usual sequence #1#2 #4 #3 Ron McFarland, Tokyo, Japan
  23. 23. 23 Decision Clarification – How should it be done? How? Use best practices to determine each required task throughout the decision making and execution process. Ron McFarland, Tokyo, Japan
  24. 24. 24 Clear steps and sequences - Logical steps and sequence for how decision roles and process will work in practice - Clear guidelines on how and when to escalate and when to slow down. Source: Bain & Company, Inc. Best-practice decision process - How How? Closure and commitment Structured decision approach Feedback system Meetings and committees - Key meetings required for the decision are scheduled with purpose and participants clearly understood. Why is the meeting needed, who should attend and what is to be achieved? - Meetings are reviewed and assignments confirmed afterward in writing. - Final decision communicated to key personnel. - The resources allocated (people and money) - The execution plan in place (actions, accountable people, check-points). - Ongoing review of execution progress for fast corrective action or expand on successes. - Conscious approach to decision: sets goals to achieve, considers relevant facts, develops alternatives (at least two others) and makes a clear decision after analysis. Ron McFarland, Tokyo, Japan
  25. 25. 25 Decision Clarification - How Tips for success 1. Handle (1) information gathering, (2) alternative selection and (3) final decision at different times so they can be thought over (not at once). 2. Set a target of seven people to attend every meeting. More or less is usually counter- productive (information, perspectives opinions). 3. Track all bottlenecks and learn why. How? If there are too many people in meetings, decision speed could suffer. If there are too few people quality decision making could suffer. Ron McFarland, Tokyo, Japan
  26. 26. 26 Decision Clarification – When should it be done? When? Best companies make explicit schedules, timetables, milestones, and deadlines. Ron McFarland, Tokyo, Japan
  27. 27. 27 Visualizing a decision process– Time (When) A Gantt chart can track the progress of each task throughout the decision process. Note: Reasons for all 1-rework, 2-rediscussions and delays should be recorded, reviewed and analyzed. Ron McFarland, Tokyo, Japan
  28. 28. 28 Step 4 (Organize): Decision making & organization Concerns 1. Does the organization structure support decision making? 2. Does the organization support fast, accurate information flow? 3. Are the decision maker’s, researchers’, experts’ and executers’ roles and responsibilities defined? 4. Are resources proper for the decision? Ron McFarland, Tokyo, Japan
  29. 29. 29 Decision-centered organization Does the information flow well between them? Has the decision maker, recommender, expert(s), researcher(s) and performer(s) been decided? In any decision, how many interactions does this involved? Is that number appropriate? A traditional organization chart must be flexible for every decision- making and executing situation. One decision to purchase equipment could be made in three departments. Ron McFarland, Tokyo, Japan
  30. 30. COMMON CONCERNS: Critical decision-making locations 30 Should cover decisions that cross product lines, regions and functions. National level decisions Local level decisions Choosing the right people and locations for decisions to be made and executed is an important common concern. Global level decisions Should cover the local operations, but be coordinated with other parts of the organization. Should cover the national operation, but be coordinated with other parts of the global operation. Strong global-national- local communication link Decisions made in the wrong place is frustrating! Ron McFarland, Tokyo, Japan
  31. 31. Where is the information and how well and fast is it shared? 31 If information is lacking, people give up. At the world HQ In an individual Needed Information Concerns 1. Is it shared at all? 2. Is it understandable? 3. Is it distributed fast? Ron McFarland, Tokyo, Japan
  32. 32. 32 Step 5 (Promote): Multiply good decision making & execution Action plan 1. Make good decision-making a priority in the whole organization. 2. Leaders actively use good decision making skills. 3. Promote successful decisions. 4. Train others on good decision making techniques. 5. Measure the impact on profit. Ron McFarland, Tokyo, Japan
  33. 33. Managing the Decision Making process 33 Source: Decide & Deliver, Bain & Company, Inc. Harvard Business Review Press, Copyright, 2010 Thank you Putting your attention and focus on decision-making could give you a strong competitive advantage. Decision making focus Ron McFarland, Tokyo, Japan

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