When we think about decision making we probably think first about decision quality: getting decisions right. And why not? Rio Tinto would prefer it made a better decision when it spent $39B on the Alcan acquisition (since written off ca. $33B). Or Woolworths, with its decision to pursue Bunnings with its Masters debacle (cost ca. $5B). The doozy of all was the Time Warner-AOL merger in 2000. Initially valued at ~$350B, The merger failed, and 10 years later the two companies combined value was ~$50B. Ouch!
Tichy and Bennis[i] argue that “with good judgement, little else matters; without it, nothing else matters … leadership at its marrow is the chronicle of judgement calls”.
But good judgement also requires that sound decisions can be taken fast, before the solution is obvious[ii]:
"judgement is the sine qua non of effective leadership … the ability to grapple at speed with complexity. And judgement is what you do when you don’t (and can’t) know what to do … but you sense you have to do something fast!"
The interaction between decision quality and speed is a little more complicated than you might imagine. A recent HBR article reports that among CEO’s who were fired over issues related to decision making only 1/3rd were fired for poor decisions; 2/3rd were ousted for being indecisive. Why? In many instances, decisions can be adjusted or even reversed as we learn from the experience. As one management writer argued: chaotic action is preferable to orderly inaction, action enables the organisation to learn.
The reality is that many companies know they are too slow, but struggle to change up the decision dynamics. Here’s just one story. A new CEO announced a major strategic shift for the business to the extended leadership team. Their initial reaction made it clear that many thought this decision was long overdue. What did they think the business needed to do differently? Speed and agility[iii].
Richard Rumelt[iv] asked 20-30 executives in the global electronics industry in the mid 1990’s: which company is the leader in your market and how did they get there? In each case some sort of window of opportunity opened, and they were the first ones to get it right. Speed matters.
We can learn a lot from Amazon’s approach to decision making[v].
Jeff Bezos (Amazon CEO) describes ‘high velocity decision making’ as central to maintaining what he calls a ‘Day 1’ mindset. By contrast, ‘Day 2’ companies make high quality decisions, but they make them slowly. And for Bezos, Day 2 is stasis, followed by irrelevance and excruciating, painful decline.
Bezos spells out their decision making philosophy in his 2015 letter to shareholders. Amazon doesn’t apply the same process to all decisions. Decisions that are consequential and irreversible – one way doors – are labelled Type 1 decisions. These decisions are made “methodically, carefully, slowly, with great deliberation and consultation”. But most decisions are Type 2 decisions: if they are sub-optimal you don’t have to live with the consequences too long. Prime Now, offering 1 hour delivery on a subset of critical items, was launched just 111 days after it was dreamed up: a type 2 decision. Type 2 decisions should be made by high judgement individuals or small groups.
Amazon embraces a unique approach to conflict resolution: ‘disagree but commit’. If there is not agreement, they ask: I know you disagree, but are you willing to gamble with me on this? The reality is that no-one can know for sure: all strategy is a bet. But senior executives must realise that this goes both ways. Jeff Bezos is willing to ‘disagree but commit’: are you?
A final strategy is to more explicitly recognise the cost of delay. Bezos’ believes you need to make a call with around 70% of the information you need. How do you get comfortable with that approach? Another CEO asks two questions. What is the impact if I get it wrong? And how much will it hold other things up if I don’t move on this?
Finally, it turns out there’s a third element in the decision equation[vi]:
Effectiveness = f(quality, speed, yield)
Yield is a measure of how well a company turns its decisions into action. Discussing GE’s extraordinary performance over the 1980’s-1990’s, a former executive observed: ‘many people believe we made better decisions than our competitors. That’s just not true … what we did was make decisions a lot faster than anyone else, and once we made the decision we followed through to make sure we delivered the results we were expecting’.
What now? Here’s three simple approaches:
- Ask your leadership team: how well do we rate on quality; speed; and yield?
- Explore the barriers to speed in your organisation
- Develop your own organisational practices that will accelerate decision speed
DDB ... a strategist's view
[i] Authors of Judgment: How wining leaders make great calls. Advisers to Jack Welch (former GE CEO) and Howard Schulz (founder and former CEO Starbucks). Note that ‘judgement’ encompasses the preparation, the call, and the execution.
[ii] Alistair Mant (1997). Intelligent Leadership
[iii] Agility has become the new ‘black’ in organisational dynamics. Agility is inextricably linked to speed: speed is a necessary but not sufficient condition for agility.
[iv] Author of Good Strategy, Bad Strategy (2011)
[v] Amazon is to agile what Toyota is to lean. They are writing the manual.
[vi] Blenko, M. W., Mankins, M. C., & Rogers, P. (2010). Decide & deliver