Effective decision-making: Understanding and optimising its role in modern business
Decision-making is fundamental to good leadership. Read this article to learn how to optimise decision-making models in the world of modern business.
Effective decision-making is fundamental to leadership. In essence, decision-making is the primary function of a good leader. Decisions allow leaders to respond to changing market conditions, threats, and opportunities, in order to secure the future success of their organisation. With the increasing velocity of information, shifts in the business environment, and external events, the task making effective decisions is getting more complicated every day.
Management science is no longer a nascent field of study, and academics have long posited that good decision-making is the backbone of successful businesses. Therefore, it is troubling to learn that organisations are still plagued with poor decision-making, to which there are huge costs. In research published by Gartner, the estimated cost of bad decisions is upwards of 3% of companies’ profits, which is staggering.1
Leaders are busy individuals, with conflicting priorities and often a huge number of business meetings to attend. This means that their strategic decision-making process needs to be streamlined and efficient in order to maximise their decision-making ability. Thankfully, there is light at the end of the tunnel: decision-making models, when coupled with technology, achieve exactly this, and enable leaders to make informed decisions quicker than ever before.
In this article, we will explore the DNA of decision-making, to understand its meaning and why it matters. Then we will explore an established decision-making model, and ensure it is distilled into rigours of the present day. This article seeks to help leaders to optimise their decision-making in the modern world of business.
So, first of all, what is decision-making?
What is decision-making?
Decision-making arises from the need to solve a problem, or from the need to respond to a threat or an opportunity. According to a paper published by the University of Massachusetts, decision-making can be defined as ‘the process of making choices by identifying a decision, gathering information, and assessing alternative resolutions.’2
The process of decision-making can be broken down into the following:
- identifying goals and objectives
- gathering all relevant information
- engaging key stakeholders and contributors, and
- weighing up alternatives
Let’s think of decision-making as a cross-roads. The road itself is your business strategy, your business is the vehicle in which you are travelling, and the cross-roads is the opportunity to change your approach to a specific issue, and shift the direction of travel, or stay on your existing course. A clear example of this can be found in the COVID-19 pandemic: An external event, the magnitude of which was unprecedented, created a number of crossroads for leaders, and urgent action was required. How would their organisation respond to this global pandemic? What changes to business as usual were necessary in order to keep their employees and clients safe?
The ultimate outcome of decision-making is to provide a way forward for your organisation through the situation ahead. At each crossroads, you could decide to continue with the existing direction of travel, or you may choose to turn and move in a new direction altogether.
All of this sounds simple enough, but what we need to acknowledge is that for most businesses, there is often more than one crossroads to consider at any given time, with numerous decisions required. Most organisations are a convoy rather than a single vehicle. This issue is accelerated by the increasingly connected nature of the business world, with faster flows of information requiring more precise decision-making.
So, now that we understand what decision-making is, we can explore the steps involved in the decision-making process.
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Effective decision-making models: A sequence
To help simplify the decision-making process, it is helpful to follow a decision-making model. Decision-making models are a step-by-step guide to decision-making, that help increase effectiveness and efficiency of decision-making.
Given that leaders are exceptionally busy, with their attention drawn in multiple conflicting directions at once, decision-making models are powerful tools. There is also the issue of risk. Risk is inseparable from the concept of decision-making, and by following robust decision-making models, leaders are able to evaluate and mitigate the associated risks of each decision. Decision-making models also help to make the most of leaders’ time, and, when implemented effectively, ensure that a structured and strategic approach to decision-making is always taken.
One of the earliest decision-making models are attributed to Quakers in the 17th century, who established a process that, even by modern standards, is considered a ‘paragon of efficiency, openness, and respect’3 Another early example is Benjamin Franklin’s Decisional balance sheet in 1776, which used a basic tabular process to evaluate the pros and cons of a decision. The transplant of decision-making models into the world of business, however, began with ‘The Function of the Executive’ by Chester Barnard in 1938. It was here that decision-making models began to replace more narrow terms of political economy such as ‘resource allocation’ and ‘policy making.’ Throughout the 20th Century, a great number of management theorists advanced the concept of the decision-making model, including, perhaps most notably, Peter F. Drucker, who is referred to as the father of modern day management theory.4
In his seminal piece in the Harvard Business Review in 1967, ‘The Effective Decision.’, Drucker outlines the steps of his decision-making model.5 According to Drucker, effective decision-making can be broken down into a sequence of six steps.
Let’s briefly review Drucker’s sequence for an effective decision-making, before we distill it into the context of modern business:
1. Clarify the problem
Is the problem unique or generic? Has a problem of this kind been encountered before, or does a new approach need to be formulated? It could be that the problem is the result of a one-off event, however it could also be a symptom of a wider issue that needs addressing.
2. Define the problem
What exactly are you dealing with? It is important at this stage to zero in on the root of the issue and focus your attention on what is important. According to Drucker, a key stage of effective decision-making is ensuring that you correctly define the problem, and avoid misdiagnosis.
3. Specify the answer
As the scientific community would say, set the ‘boundary conditions’ for your problem. You must be very clear as to what your decision-making needs to achieve in the context of your problem. How will you know when it is solved? What are the minimum conditions that must be satisfied?
4. Decide what is ‘right’ rather than acceptable
It is important to set out with what is optimal, as compromise is inevitable. Therefore, the more concentrated your vision is at the outset, the less dilute it will be once compromises do occur.
5. Build actions into the decision
The fifth stage of this process is transposing your decision into actions. Many decisions are flawed because they include no action commitment. What have you decided is the way forward, and who will make it happen?
6. Test the validity
Measure your decisions against the course of events that follow. It is important to understand how effective your decision-making is, and to identify any gaps or areas for improvement. Did the decision have the desired outcome? Is there something that you missed? Use this information to iterate your approach to decision-making to ensure that you are continuously improving.
Therefore, only once the problem is clear and defined, the answer is specified, the outcomes are made operational, and the validity is tested, can we know that an effective decision has been made.
Whilst it is true that this sequence is established and widely accepted as an effective decision-making model, it is also true that Drucker was writing in a far simpler time. In fact, in his book ‘The Effective Executive’, Drucker even preempts the dating of his work, by acknowledging that computers will facilitate swifter decision-making by undertaking many of the mundane tasks.6
Therefore, it is necessary to distill these principles into the context of the present day, where technology has drastically accelerated the rate of change, the flow of information, and the need for precise decision-making.
Optimising your decision-making model for modern business
Drucker’s decision-making model was written around ten years before Steve Wozniak completed the Apple-1, and four years before the invention of email. Therefore, it’s safe to say that his world is unrecognisable when compared with the technological crucible of modern business. That isn’t to say that Drucker’s thoughts are irrelevant - quite the contrary - but it is necessary to frame this decision-making model in the context of today’s world.
In the present day, seismic shifts have become commonplace. Whether it is embracing new technologies, responding to shifting marketing conditions, or reacting as industries are disrupted by innovation and new entrants to the market, we are used to having the proverbial rug pulled from beneath our feet. So, how does our decision-making model need to be refined to account for this?
In this section, we will review how this decision-making model can be successfully applied by reviewing the areas of business that have, arguably, changed most dramatically.
Modern leadership is a product of its environment. As a generational shift takes place in the workforce, new values and expectations are brought to the table, and leadership has had to flex in order to stay relevant. As the world of business embraces new technology and agile ways of working, leaders need to morph to become agile. Agile leadership involves openness, trust, and a flat organisational hierarchy, all of which allows subject matter experts to deploy their skills in the most effective ways possible. Therefore, decision-making has undergone a significant update: it now involves a far more democratic process, involving the relevant experts regardless of their status or title. In addition to this, greater protection is afforded during decision-making, such as the Business Judgement Rule. Decision-making is no longer the sole responsibility of leaders, it has become the responsibility of the entire workforce, especially with respect to consensus decision-making, where teams make decisions as a collective.
In the 1960s, communication was either blissfully simple or drastically inefficient depending on your perspective. The avenues of communication were far narrower, involving either face-to-face conversations, telephone calls, facsimile, or mail. All of this meant that the rate of communication was far slower - especially when factoring multiple geographies and timezones into the equation. In the present day, we are all accustomed to immediate, direct communication facilitated by technological advancements such as virtual meetings, instant messaging services, email, and more specialist software such as meeting management tools.
The impact of this on decision-making is vast. The lag between decision-making and implementation has been cut significantly, and the ability to involve stakeholders and experts in the process, no matter where they are in the world, has increased exponentially. The ability to invoke the 6th principle of Drucker’s decision-making model has also improved significantly. With the availability of data and analytics, we are able to test the validity of decisions made in a far deeper and more implicit way than in the past. This helps to learn, iterate, and optimise decision-making in powerful ways.
Meetings have always been a company’s intersection, and show no sign of decreasing in significance. In the context of our crossroads example, meetings are the means of directing the traffic at each crossroads as you reach them to ensure that each vehicle in your convoy remains on course, or that your people remain aligned.
Meetings have, however, undergone significant changes, and whilst in the 20th century they involved physical congregation in a specific place at a specific time, they have now been broadened to be free of geography, and the meeting process now allows participants to collaborate asynchronously, before, during, and after meetings.
All of this means that the importance of meetings in decision-making has been enhanced, with easier communication and enhanced collaboration. In addition, with the ability to optimise the meeting process with purpose-built technology, leaders are equipped to involve the most relevant experts from within their organisation to ensure that informed decisions are the result.
As already discussed in this article, the technology at our disposal now surpasses the wildest dreams of those in the 20th Century. The explosion of personal computing, the internet, and the development of sophisticated devices in the form of smartphones and tablets has all revolutionised the way we communicate, collaborate, work, evaluate, and perform. The role of technology in decision-making is multi-faceted, and it touches multiple stages in the decision-making process.
Consider the crossroads example from earlier. With continuous flows of information and constant change leading to an increasing number of decisions, or crossroads, it’s safe to say that the complexity of the road has increased dramatically. In addition to this, organisations have grown increasingly complex, with more and more vehicles being added to the convoy. Therefore, the volume of traffic, and therefore the likelihood of congestion, has increased exponentially. In this example, Sherpany meeting management software can be viewed as the roundabout that keeps this traffic flowing in an orderly manner, enabling leaders to make informed decisions by regulating the meeting process in the way that a roundabout regulates intersections.
Technology, therefore, enables leaders to continue making effective decisions, despite the growing complexity of the business world.
Decision-making: 20th Century principles at work in the modern day
The world may be unrecognisable when compared with the 20th Century, but the principles of decision-making largely remain unchanged. A decision-making model developed in the 1960s is perhaps even more powerful in the modern day, owing to the advancements in leadership, communication, meetings, and technology that the world of business has achieved.
Therefore, having unravelled the DNA of decision-making, we can say with confidence that the importance of effective decision-making cannot be understated. Effective decision-making helps leaders to mitigate risk, develop and execute business strategy, and respond to shifts in the business environment and external events. On this journey, crossroads are unavoidable, as illustrated by the recent global pandemic. By following a robust decision-making model, leaders can formulate timely and impactful responses that offer their organisations a clear way forward.
Meetings play a vital role in this process, and through advancements in technology, have evolved to provide enhanced opportunities for collaboration, no matter where participants are in the world. Sherpany meeting management technology ensures that organisations’ informational traffic flows seamlessly through each crossroads that is reached. By regulating and optimising meeting processes, leaders are able to reach effective and informed decisions more swiftly than ever before.
If you would like to learn more about how Sherpany is helping leaders to optimise their decision-making, please get in touch.
If you would like to learn more about Sherpany’s role in modern decision-making, please get in touch today.
1 Corporate DNA: Using Organizational Memory to Improve Poor Decision-making, A. Kransdorff, 2007.
2 The Effective Decision, P. F. Drucker, HBR, 1967.
3 A Brief History of Decision-Making, L. Buchanan et al, HBR, 2006
4 Peter F. Drucker, British Library, 2005.
5 The Effective Decision, Peter F. Drucker, HBR, 1967.
6 The Effective Executive: The Definitive Guide to Getting the Right Things Done, Peter F. Drucker, 1966.