Superior market performance. By contrast, middle managers say they are most familiar with delegated decisions and least so with big bets. According to the results, the key ingredients for empowerment are giving people a strong sense of ownership and accountability for the decisions in which they’re involved, as well as fostering a bias for action—especially when people are making time-sensitive decisions. For more advice on sparking debate, see Morten T. Hansen, “How to have a good debate in a meeting,” Harvard Business Review, January 10, 2018, hbr.org. Escalating decisions can also reflect deeper challenges in the organization’s culture. People create and sustain change. And cross-cutting decisions were the ones that executives in our survey had the most exposure to, regardless of their seniority. Root out micromanagers who are both hands-on and controlling, as well as “helicopter autocrats” who are hands-off and controlling, occasionally swooping in, barking orders, and disappearing again. Never miss an insight. 5 Respondents who reported that decision making was fast were 1.98 times more likely than other respondents to say that decisions were also of high quality. McKinsey's consumer decision journey can help to model how your customer comes to the moment of purchase and discover what makes buy. The model was developed in the late 1970s by Tom Peters and Robert Waterman, former consultants at McKinsey & Company. Bet-the-company decisions require productive interactions and healthy debate that balance inquiry and advocacy. 7 Among the three, respondents report the greatest exposure to cross-cutting decisions and the least exposure to big-bet decisions (Exhibit 1). These include providing clear rules and using meeting charters to clarify which decisions are in and out of scope for each committee, as well as establishing criteria for when decisions made lower down should be escalated. Then you put those in a simple spreadsheet with a scoring table so you can rate candidates on ea… In his April 2017 letter to Amazon shareholders, CEO Jeff Bezos introduced the concept of “disagree and commit” with respect to decision making. of respondents say the same for cross-cutting decisions, and just 46 percent for delegated decisions (Exhibit 3). 2. Many theories have been proposed for the decision-making conducted by nurses across all practices and disciplines. They identified seven internal elements of an organization that need to align for it to be successful. Press enter to select and open the results on a new page. With delegated decisions, for instance, respondents are 1.7 times as likely to say their organizations are winners if they follow both types of best practices than if they follow only the foundational ones (Exhibit 7). We define these winning organizations—which are represented by only 20 percent of respondents—as those making high-quality decisions fast, executing them quickly, and demonstrating higher growth and/or overall returns from their decisions, relative to their peers (see sidebar, “Our survey methodology”). Our sources for this estimate included fortune.com and the US Bureau of Labor Statistics (for salary data). 1 Assuming that at an average Fortune 500 company of 56,400 employees, 20 percent are managers who work 220 days per year: these managers spend an average of 37 percent of their time making decisions, and 58 percent of this time is used ineffectively. As many studies show, greater diversity brings greater collective wisdom and expertise, along with better performance. We often find companies maintaining a dozen or more senior-executive-level committees and related support committees, all of which recycle the same members in different configurations. 3. The companies that excel at making cross-cutting decisions emphasize effective coordination among different stakeholders. Aaron De Smet is a senior partner in McKinsey’s Houston office, Gregor Jost is a partner in the Vienna office, and Leigh Weiss is a senior expert in the Boston office. Something went wrong. The meetings were purposely kept informal, but top management nonetheless established ground rules to ensure that the stories would be meaningful (not trivial) and that employees telling the stories would be protected. One might expect that consistently excellent decisions involve much deliberation and therefore take longer to make, so companies must compromise quality if they want to make decisions more quickly. Sixty-five percent of respondents agree that their organizations’ big-bet decisions are high quality, while 54 percent 1. Designing an organization to deliver its strategic objectives—setting a clear mission, aligning incentives—is a big topic and outside the scope of this article. Ending each scenario, you would get a brief summary of your result. “Fortune 500,”. Those that do focus on enterprise-level value in this way are much more likely (2.9 times) than others to be a winner. In practical terms, this might mean drawing a bright line between the portion of a meeting dedicated to decisions from the parts of a meeting meant to inform or discuss. Consistent with our earlier work, In this survey, we did not ask about this decision type, because ad hoc decisions are circumstantial by nature and vary too greatly. McKinsey Insights - Get our latest thinking on your iPhone, iPad, or Android device. tab. The elements do not by themselves “make” the decisions. While 68 percent of middle managers say most of their decision-making time is inefficient, 57 percent of C-level executives report the same. A pharma company hesitated so long over whether to pounce on an acquisition target that it lost the deal to a competitor. Rather, good decision-making practices tend to yield decisions that are both high quality and fast. 3. Leaders may not have visibility on who is—or should be—involved; silos make it fiendishly hard to see how smaller decisions aggregate into bigger ones; there may be no process at all, or one that’s poorly understood. If you would like information about this content we will be happy to work with you. Indeed, respondents at the few companies that excel at decision making, which we call decision-making “winners,” report the ability to perform well on both measures while also seeing better financial results. Use minimal essential Please try again later. Strategic decisions: When can you trust your gut. It’s as if there is an unspoken understanding that the meeting should proceed like a short, three-act play. We strive to provide individuals with disabilities equal access to our website. Capability building can help, too, for example, in learning to have difficult conversations or coaching leaders on how to influence outcomes without taking over control. The underlying management challenge is part of a dynamic we see repeated again and again: when senior executives fail to explore—and then explain—the context and underlying strategic intentions associated with various targets and directives they set, they make unintended consequences inevitable. Reinvent your business. Respondents “agree” or “strongly agree” that the decisions made by their organizations (or their senior executives, in the case of big bets) are consistently of high quality. 2 Decision making is the process of decision making through decision making. When respondents say their companies are committed to execution—which requires that accountable stakeholders know the decision process was robust and that these people were involved in a meaningful way—they are 6.8 times more likely to be at winning companies. 6 The ideal in our experience are hands-on and delegating leaders who coach, challenge, and inspire their reports, are there to help those who need help, and stay well clear of actually making the decision. In response, the company broke down complex processes into key decisions, clarified roles and responsibilities for each one, defined inputs and outputs for each process, and made one person accountable for each outcome. That may seem obvious, but it bears repeating because all too often it simply doesn’t happen. An executive we know joked during a meeting that “a committee is born every day in this organization.” Just then, another executive nearby looked up from his computer to announce he had just been invited to join a new committee. Practical resources to help leaders navigate to the next normal: guides, tools, checklists, interviews and more, Learn what it means for you, and meet the people who create it, Inspire, empower, and sustain action that leads to the economic development of Black communities across the globe. On average, just over half of respondents report spending more than 30 percent of their working time on decision making, and more than one-quarter spend a majority of their time making decisions. The only way out of the logjam is to escalate it to the company’s senior-most executives, which wastes time and risks lowering decision quality. The resulting benefits included a significant financial boost (as employees used the freed-up time in higher-value ways), as well as an arguably more important boost in employees’ morale and sense of work–life balance, which in turn has helped the company attract and retain talent. 1. With their bonuses linked exclusively to cost targets, they faced a dilemma. 2. The key to effective decision-making on energy transition Leaders in the energy system have highlighted the need for: 1) An effective and inclusive platform for action-oriented dialogue 2) A fact-based framework that supports an unbiased approach to energy transition Over the course of the last year, the Fostering Effective Indeed, every decision is a risk-taking judgment. Subscribed to {PRACTICE_NAME} email alerts. Since then, we’ve conducted research to more clearly understand this balance, and the results have been disquieting. These organizations have adopted a few foundational best practices that support good decision making across all three decision types: 1. Doing both makes the odds of being a winning organization 3.9 times greater. A rotating devil’s advocate role can bolster critical thinking, while premortem exercises (in which you start by assuming the initiative in question turned out to be a failure, and then work back for likely explanations) can pressure test for weak spots in an argument or plan. This is also true in decision making. Given that McKinsey consultants operate as advisers, with government officials charged with making final decisions, it can be hard to identify the firm’s responsibility for any given decision. In the survey, respondents were asked the extent to which they agree that their organizations—or their organizations’ senior executives, for big bets—consistently make high-quality decisions. Yet when it comes to cross-cutting decisions (involving, for example, pricing, sales, and operations planning processes or new-product launches), only 34 percent of respondents said that their organization made decisions that were both good and timely. 2. Leaders can encourage debate by helping overcome the “conspiracy of approval” approach to group discussion. Since cross-cutting decisions are often the culmination of many smaller decisions made over time and involve people in different parts of the organization, the process for how the decision is made, who is involved (and when), and how dialogues and discussions occur is a key success factor. Today, a typical session includes 40 to 50 of the company’s top 150 leaders. Flip the odds. While it’s important to assign accountability for getting things done to an individual, the biggest challenge is to foster an “all-in” culture that encourages everyone to pull together. Our analysis of their responses points to the specific decision-making practices that are most associated with being a winner. Stanford’s Chip Heath and McKinsey’s Olivier Sibony discuss new research, fresh frameworks, and practical tools for decision makers. Discover the four leadership traits that separate the effective from the inept. For more, see Tim Koller, Dan Lovallo, and Zane Williams, “How to catch those fleeting investment opportunities,” December 2014. For more, see Tim Koller, Dan Lovallo, and Zane Williams, “. Cross-cutting decisions (such as a pricing decision), which can be high risk, happen frequently and are made in cross-functional forums as part of a collaborative, end-to-end process. 1 In the first act, the proposal is delivered in a snappy PowerPoint presentation that summarizes the relevant information; in the second, a few tough yet perfunctory questions are asked of the presenter and answered well; in the final act, resolution arrives in the form of an undramatic “yes” that may seem preordained. 9. Our research supports this view. Indeed, any agreement voiced in the absence of a strong sense of collective responsibility can prove ephemeral. Forty percent of respondents work in the general-management or strategy functions, and the sample skews toward upper management: one-third of respondents are C-level executives, and 35 percent are senior managers. That often means involving as many people as possible in the outcome—something that, paradoxically, in the end will enable the decision to be implemented more speedily. It’s good advice that often goes overlooked. “Fortune 500,” Fortune, 2018, fortune.com. The new rules also required leaders to clarify their decision rights in advance, and to be more deliberate about managing the number of participants so that meetings wouldn’t become bloated, on the one hand, or lack diverse views, on the other. Practical resources to help leaders navigate to the next normal: guides, tools, checklists, interviews and more. The opportunity costs of this are staggering: about 530,000 days of managers’ time potentially squandered each year for a typical Fortune 500 company, equivalent to some $250 million in wages annually. While emotions often cloud judgment, strong decision making uses the rational side of our brain, relying on the evaluation of … Effective decision making Topic Gateway Series 3 . The strength of a decision is only as strong as the strength of the set of decision choices. Similarly, 61 percent of respondents at organizations with one to three layers agree that their companies make decisions quickly, compared with 47 percent at organizations with four to six layers and 38 percent at organizations with seven or more. Specifically, the winners make good decisions fast, execute them quickly, and see higher growth rates and/or overall returns from their decisions. This analysis included only responses from those answering for big-bet or for cross-cutting decisions. But given the multiplier effect, there is a lot of value at stake here, and when the organization’s approach is flawed it’s costly. New survey results offer lessons for effective decision making that supports outperformance. Similarly, 61 percent of respondents at organizations with one to three layers agree that their companies make decisions quickly, compared with 47 percent at organizations with four to six layers and 38 percent at organizations with seven or more. Our mission is to help leaders in multiple sectors develop a deeper understanding of the global economy. collaboration with select social media and trusted analytics partners You can go with your gut, but the typical best practice is to create a decision matrix to evaluate different candidates against each other. In the absence of clear decision rights or rules, for example, there may be little to stop people from escalating decisions they simply don’t like. At a mining company, real commitment proved difficult because the culture valued “firefighting” behavior. Models of organizational effectiveness go in and out of fashion, but the McKinsey 7-S framework has stood the test of time. Leaders might want to start mentoring their reports with a small “box” of accountability, slowly expanding it as more junior executives grow in confidence. “Management occupations,” Occupational Outlook Handbook, US Bureau of Labor Statistics, 2018, bls.gov. This often means senior leaders engaging in conversations and dialogue, encouraging those newly empowered to seek help, and in the early days subtly and invisibly monitoring the performance of those participating in “delegated” forums so as not to appear to be taking over. Worse, the lack of clarity makes it very difficult for colleagues further down in the organization to use their judgment to see past the silos and remedy the situation. Get commitment from the relevant stakeholders. Never miss an insight. Respondents say their organizations’ rate of revenue growth in the past three years is “much higher,” “higher,” or “about the same” as that of their industry peers, as opposed to “much lower” or “lower.” For big-bet and cross-cutting decisions, this also includes respondents who say the average financial returns from their decisions are “far above average,” “above average,” or “average” compared with the average returns of their peers’ decisions. That share of time increases with seniority; for example, 14 percent of C-suite respondents say they spend more than 70 percent of their time making decisions. In this article three of these theories are juxtaposed with a case … 5 5. Of them, 1,228 are familiar with decision making at their organizations. This was true at a US-based global financial-services company, where a business-unit leader initially agreed during a committee meeting not to change the fee structure for a key product but later reversed course. Exhibit In some cases, the root cause might be unclear processes. The authors wish to thank Iskandar Aminov, Alison Boyd, Elizabeth Foote, Kanika Kakkar, and David Mendelsohn for their contributions to this article. These findings confirm our earlier research on decision making. Further, a majority say much of the time they devote to decision making is used ineffectively. Respondents who answered the survey with respect to delegated decisions were not asked about the financial returns from their organizations’ most recent delegated decisions. For example, a mining company realized that its poor decision making was related to the lack of rigor with which executives ran important meetings. Good meeting discipline is also a must. Assuming that at an average Fortune 500 company of 56,400 employees, 20 percent are managers who work 220 eight-hour days per year: these managers spend an average of 37 percent of their time making decisions, and 58 percent of this time is used ineffectively. Take the manufacturing company whose operations managers, faced with calls from the sales team to raise production in response to anticipated customer demand, had to consider whether they should spend unbudgeted money on overtime and hiring extra staff. ... McKinsey Study Reveals the 4 Behaviors That Account for 89% of Leadership Effectiveness. the survey results confirm that not all decisions are created equal; different types of decisions require different approaches. That requires commitment, something that is not always straightforward in companies where consensus is a strong part of the culture (and key players acquiesce reluctantly) or after big-bet situations where the vigorous debate we recommended earlier has taken place. Clearly, it is important that these types of decisions happen at the appropriate level of the company (CEOs, for example, shouldn’t make decisions that are best delegated). Of them, 1,228 are familiar with decision making at their organizations. Decision making is often an integral part of a leader’s role in the workplace. For example, having high-quality big bets can deliver substantial increases in the returns from recent decisions. And just 37 percent of respondents say their organizations’ decisions are both high in quality and velocity. In our experience, organizations that consistently make decisions well use three ingredients. Or perhaps the joke is on the rest of us? our use of cookies, and Any recurring meetings (particularly topic-focused ones) where the nature of the decision isn’t clear are ripe for a rethink—and quite possibly for elimination. Scoring & Assessment. Effective Decision-Making Decisions need to be capable of being implemented, whether on a personal or organisational level. A social-network analysis, meanwhile, allowed a global consumer company to identify time wasting around decision making on a heroic scale—as many as 45 percent of interactions were found to be potentially inefficient, and 23 percent of the individuals involved in an average interaction added no value. 3. our use of cookies, and We define “substantial” as a double-digit percentage-point increase in the returns that respondents report from their companies’ most Decision making in business is about selecting choices or Please use UP and DOWN arrow keys to review autocomplete results. Please click "Accept" to help us improve its usefulness with additional cookies. This poor-quality—and in our view avoidable—outcome was the direct result of siloed thinking and a set of narrow incentives in conflict with the group’s broader strategy and value-creation agenda. and quality (how good was the decision? The impetus for this is understandable—cross-cutting decisions, in particular, are the culmination of smaller decisions taking place elsewhere in the company. And for more on premortem techniques, see Daniel Kahneman and Gary Klein, “Strategic decisions: When can you trust your gut?,” McKinsey Quarterly, March 2010. 1. 4. like? But what does a good process look Or is it the first manifestation of a new genus for which a rule has yet to be dev… The meetings started small but became popular quickly. The McKinsey Digital Assessment is a video game style online simulation used to assess a candidate’s cognitive abilities. Decision speed. Organisations are constantly making decisions at every level. Overall, 70 percent of respondents at organizations with one to three reporting layers agree that their companies make high-quality decisions, compared with 53 percent at organizations with four to six layers and 45 percent of those with seven or more. As a result, the top team developed a “meeting manifesto” that spelled out required behaviors, starting with punctuality. The reasons for the dissatisfaction are manifold: decision makers complain about everything from lack of real debate, convoluted processes, and an overreliance on consensus and death by committee, to unclear organizational roles, information overload (and the resulting inability to separate signal from noise), and company cultures that lack empowerment. Best because of more data, better analytics, and clearer understanding of how to mitigate the cognitive biases that often undermine corporate decision processes. When improvements in these areas are coupled with an organizational commitment to implement decisions—embracing not undercutting them—companies can achieve lasting improvements in both decision quality and speed. Our flagship business publication has been defining and informing the senior-management agenda since 1964. The first rule about decisions is to know when you are making a decision. Most transformations fail. We asked about three decision types in particular: big-bet, cross-cutting, and delegated decisions. We asked about three decision types in particular: big-bet, cross-cutting, and delegated decisions. Even if you aren’t in a leadership position, your ability to make decisions can still have a positive or negative impact on your work-life as well as your company as a whole. It was only when the leadership team changed this dynamic by focusing on follow-up, execution risks, and bandwidth constraints that execution improved. Two years ago, we wrote about how it was simultaneously the best and worst of times for decision makers in senior management. For example, if an underling learns that over time when the boss says, “You should make that decision,” she really means, “so long as you make the same decision I would have made,” then decisions are sure to bubble up. McKinsey research shows that executives on average spend almost 40 percent of their time—that’s 40 percent—making decisions and believe most of that time is poorly used. Efforts to mitigate the impact of cognitive biases on decision making have, rightly, often focused on big bets. Decisions that bubble up to where they don’t belong waste time and effort and often result in poorer outcomes. Even those businesses that do make decisions at the right level, however, complain about slow and bad outcomes. Decision making amid uncertainty is not easy. We use cookies essential for this site to function well. For leaders looking to become better delegators, it’s not a question of choosing between a style that is “hands-on” or “hands-off,” or between one that is “controlling” or “empowering.” There’s a balance to be struck. Then assign someone to argue the case for, and against, a potential decision or the various options under consideration. They are also focused on critical issues—for example, that committees spend their time and resources on the decisions that are most important to the business. Business war gaming an effective instrument for improved decision-making Gamification can sound like a buzzword, but by deconstructing what games actually are and by applying a games mindset to solve real life challenges in businesses, see for themselves just how powerful game approaches can be within business. With respect to speed, only 48 percent of respondents agree that their organizations make decisions quickly. cookies, McKinsey_Website_Accessibility@mckinsey.com. The estimate of lost labor cost is based on the 2017 median salary of management occupations in the United States, which was $102,590. , companies can take steps to avoid spending quite so much time on decision across. Making at their organizations their time on decision making at their organizations excel decision! 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