In such environments, escalating decisions becomes second nature. Decisions that bubble up to where they don’t belong waste time and effort and often result in poorer outcomes. 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. In our experience, ensuring that responsibility for delegated decisions is firmly in the hands of those closest to the work typically delivers faster, better, and more efficiently executed outcomes, while also enhancing engagement and accountability. 1. 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. suggesting that a commonly held assumption among executives—namely, “We can have good decisions or fast ones, but not both”—is flawed. 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. Indeed, every decision is a risk-taking judgment. We have also observed a fourth decision type: ad hoc. McKinsey offered a lot of formal training on problem-solving, leadership and communication. It’s as if there is an unspoken understanding that the meeting should proceed like a short, three-act play. Of them, 1,228 are familiar with decision making at their organizations. Effective decision making Topic Gateway Series 3 . Aaron De Smet, Gerald Lackey, and Leigh M. Weiss, “. Here’s a variation of a conversation we have with some frequency: in talking with a manager about her work, we ask about a routine decision we would expect her to make—about hiring, for example, or pricing or marketing. In staff meetings, company executives would quickly agree to take on new tasks because it made them look good in front of the CEO, but they weren’t truly committed to following through. Learn about In a global agricultural company, for example, the members of the executive committee tended to speak up only if their particular area of the business was being discussed. 1. Please email us at: McKinsey_Website_Accessibility@mckinsey.com. That’s easier said than done if there’s no penalty for avoiding a decision or sanction for escalating issues unnecessarily. Overall, 57 percent of respondents agree that 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. We measured market outperformance as the rate of revenue growth in the past three years, relative to peers, and for respondents who answered for big-bet or cross-cutting decisions, the average financial returns from their organizations’ decisions of that type. Specifically, the winners make good decisions fast, execute them quickly, and see higher growth rates and/or overall returns from their decisions. On average, 54 percent of respondents to our survey report spending more than 30 percent of their time on decision making. our use of cookies, and 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. 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. Today, a typical session includes 40 to 50 of the company’s top 150 leaders. Please email us at: The potential costs of ineffective decision making: A thought experiment. 1 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). 3. 1 2. For example, having high-quality big bets can deliver substantial increases in the returns from recent decisions. We asked about three decision types in particular: big-bet, cross-cutting, and delegated decisions. 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. If they took the decision to increase costs and new orders failed to materialize, their remuneration would suffer; if the sales team managed to win new business, the sales representatives would get the kudos, but the operations team would receive no additional credit and no additional reward. And just 37 percent of respondents say their organizations’ decisions are both high in quality and velocity. 1. Delegated decisions are frequent but low risk and are effectively handled by an individual or working team, with limited input from others. 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. 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. Only 30 percent of all respondents report familiarity with all three decision types. The climate of trust and openness the sessions encourage has translated into better ideas, including practical lessons that have helped the company speed up its release of new products. 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. The elements do not by themselves “make” the decisions. cookies, McKinsey_Website_Accessibility@mckinsey.com. When these practices are followed, organizations are 4.5 times more likely to be a winner. Something went wrong. The authors wish to thank Iskandar Aminov, Alison Boyd, Elizabeth Foote, Kanika Kakkar, and David Mendelsohn for their contributions to this article. Please click "Accept" to help us improve its usefulness with additional cookies. Striving to increase workplace diversity is not an empty slogan — it is a good business decision. The question on organizations’ speed at executing decisions was asked only of respondents who answered the survey with respect to big-bet or cross-cutting decisions. Strategic decisions: When can you trust your gut. Flip the odds. And a chemicals company CEO we know found himself devoting precious time to making hiring decisions four levels down the organization. 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. As capital’s most effective messenger, McKinsey has done direct harm to the world in ways that, thanks to its lack of final decision-making power, are hard to measure and, thanks to its intense secrecy, are hard to know. In his April 2017 letter to Amazon shareholders, CEO Jeff Bezos introduced the concept of “disagree and commit” with respect to decision making. We'll email you when new articles are published on this topic. Nonetheless, the decision was made, the products launched—and sales lagged expectations. But there are ample opportunities for organizations to increase their odds for success, including the practices that follow: The survey content and analysis were developed by Iskandar Aminov, an associate partner in McKinsey’s Perth office; Aaron De Smet, a senior partner in the Houston office; Gregor Jost, a partner in the Vienna office; and David Mendelsohn, an analyst in the New York office. Similarly, ask the leaders of business units, regions, or functions to examine the decision from outside their own point of view. Organisations are constantly making decisions at every level. The McKinsey Digital Assessment is a video game style online simulation used to assess a candidate’s cognitive abilities. The survey asked about three common decision types, ranging from those that are infrequent but significant in scope to smaller, routine decisions that can be delegated. Classifying the problem.Is it generic? While fostering commitment can mean involving more people and getting more buy-in, that doesn’t mean companies have to compromise on speed. You cannot solve a problem without making a decision. Sixty-five percent of respondents agree that their organizations’ big-bet decisions are high quality, while 54 percent 2. 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. For more, see Tim Koller, Dan Lovallo, and Zane Williams, “How to catch those fleeting investment opportunities,” December 2014. As a result, the top team developed a “meeting manifesto” that spelled out required behaviors, starting with punctuality. The question on organizations’ speed at executing decisions was asked only of respondents who answered the survey with respect to big-bet or cross-cutting 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. 1 For managers at an average Fortune 500 company, this could translate into more than 530,000 days of lost working time and roughly $250 million of wasted labor costs per year. Managers at a typical Fortune 500 company may waste more than 500,000 days a year on ineffective decision making. Not surprisingly, the operations managers, in their weekly planning meeting, opted not to take the risk, rejected a proposal to set up a new production line, and thereby hindered (albeit inadvertently) the group’s higher growth ambitions. Decision making is the process of decision making through decision making. Decision making ranges from strategic decisions through to managerial decisions and routine operational decisions. The temptation was too great: the fee changes helped the leader’s own business unit—albeit ultimately at the expense of other units whose revenues were cannibalized. They are frequent and relatively routine elements of day-to-day management. tab, Engineering, Construction & Building Materials, Travel, Logistics & Transport Infrastructure, McKinsey Institute for Black Economic Mobility. These findings confirm our earlier research on decision making. This result is closely related to another finding: both high-quality decisions and quick ones are much more common at organizations with fewer reporting layers. 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. In this survey, we did not ask about this decision type, because ad hoc decisions are circumstantial by nature and vary too greatly. With their bonuses linked exclusively to cost targets, they faced a dilemma. A decision is a final choice made from a set of options. Creating a safe space for this is vital; at first it can be helpful for the most senior participants to ask questions instead of expressing opinions and to actively encourage dissenting views. We measured market outperformance as the rate of revenue growth in the past three years, relative to peers, and for respondents who answered for big-bet or cross-cutting decisions, the average financial returns from their organizations’ decisions of that type. Too frequently, executives charged with making decisions at the three levels discussed earlier leave the meeting assuming that once there’s been a show of hands—or nods of agreement—the job is done. This is also true in decision making. Since then, we’ve conducted research to more clearly understand this balance, and the results have been disquieting. Practical resources to help leaders navigate to the next normal: guides, tools, checklists, interviews and more. Digital upends old models. Many theories have been proposed for the decision-making conducted by nurses across all practices and disciplines. 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. 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. 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. Similarly, in corporate cultures that punish mistakes, there is little upside in making a decision that turns out to be right—and lots of downside if it’s wrong. Please use UP and DOWN arrow keys to review autocomplete results. You do, therefore, need to be committed to the decision personally, and be able to persuade others of its merits. 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. Unleash their potential. Unweighted data were used in our analyses, which included a range of statistical techniques. Our analysis of their responses points to the specific decision-making practices that are most associated with being a winner. Big-bet and cross-cutting respondents are considered winners if they meet one or both of these criteria. Make decisions at the right level. Efforts to mitigate the impact of cognitive biases on decision making have, rightly, often focused on big bets. Finally, delegated decisions are frequent decisions that are much narrower in scope, such as changes to HR policy. recent decisions. 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. We strive to provide individuals with disabilities equal access to our website. We use cookies essential for this site to function well. The McKinsey 7-S framework was developed by Tom Peters and Robert Waterman at McKinsey & Company. The dynamic inside many decision meetings doesn’t help. We strive to provide individuals with disabilities equal access to our website. The first rule about decisions is to know when you are making a decision. These organizations have adopted a few foundational best practices that support good decision making across all three decision types: 1. By contrast, middle managers say they are most familiar with delegated decisions and least so with big bets. 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. Two years ago, we wrote about how it was simultaneously the best and worst of times for decision makers in senior management. When respondents say decisions are made at the right level—which, in many cases, means delegating decisions down to lower levels of the organization—they are 6.8 times more likely to be part of a winning company. The largest proportion of respondents (36 percent) are located in Europe, followed by those in North America (25 percent), and no single industry represents more than 15 percent of the total responses. 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. Our mission is to help leaders in multiple sectors develop a deeper understanding of the global economy. 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”). Appoint an executive sponsor. Please use UP and DOWN arrow keys to review autocomplete results. 8. Embrace them, and continue to learn as you go. Nonetheless, companies can take steps to avoid spending quite so much time on the bubble. 5 Flaws in strategic decision making Nov 2008 McKinsey Quarterly survey on strategic decision making McKinsey Global Survey Results Further, regardless of what type of decision a company was making or what the outcome was, the best practice cited least often is that of … While it’s important to devote enough resources to help propel follow-through, and it’s also important to assign accountability for getting things done to an individual or at most a small group of individuals, the biggest challenge is to foster an “all-in” culture that encourages everyone to pull together. What’s more, respondents at these organizations are twice as likely as others to report superior returns from their most recent decisions. 1 On average, respondents spend 37 percent of their time making decisions, and more than half of this time was thought to be spent ineffectively. With respect to speed, only 48 percent of respondents agree that their organizations make decisions quickly. You need to pull … Yet in a new McKinsey Global Survey on the topic, 9. Focus relentlessly on enterprise-level value. But if different functions and teams do not feel a connection to the bigger picture, the likelihood of executives making good decisions, whether or not they adopt the ideas discussed earlier, is significantly diminished. Cross-cutting decisions, like big bets, are broad in scope, but they are more frequent and familiar. And while most organizations seem to make trade-offs between velocity (how fast was the decision made and executed?) To determine which organizations were decision-making winners, based on the survey responses, we created an index of three outcomes of decision making: 1. 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. 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. Executives who get delegated decisions right are clear about the boundaries of delegation (including what’s off-limits and how and where to escalate what’s beyond an individual’s competence), ensure that those they entrust with decision-making authority have the relevant skills and knowledge to act (and if not, provide them with the opportunity to acquire those capabilities), and explicitly make people accountable for their areas of decision-making responsibility (including spelling out the consequences for those who fail to respond to the challenge). For example, a mining company realized that its poor decision making was related to the lack of rigor with which executives ran important meetings. (The fourth category, ad hoc decisions, which are infrequent and low stakes, is not addressed in this article.) The winning organizations also build commitment to executing decisions once they are made, especially among the people who are ultimately accountable for a given decision. 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. They identified seven internal elements of an organization that need to align for it to be successful. Please email us at: McKinsey Insights - Get our latest thinking on your iPhone, iPad, or Android device. 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. 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. Reinvent your business. 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