Make Better Decisions

In recent years decision makers in both the public and private sectors have made an astounding number of poor calls. For example, the decisions to invade Iraq, not to comply with global warming treaties, to ignore Darfur, are all likely to be recorded as injudicious in history books. And how about the decisions to invest […]

Traditionally, decision making in organizations has rarely been the focus of systematic analysis. That may account for the astounding number of recent poor calls, such as decisions to invest in and securitize subprime mortgage loans or to hedge risk with credit default swaps.

Business books are rich with insights about the decision process, but organizations have been slow to adopt their recommendations. It’s time to focus on decision making, Davenport says, and he proposes four steps: (1) List and prioritize the decisions that must be made; (2) assess the factors that go into each, such as who plays what role, how often the decision must be made, and what information is available to support it; (3) design the roles, processes, systems, and behaviors your organization needs; and (4) institutionalize decision tools and assistance.

The Educational Testing Service and The Stanley Works, among others, have succeeded in improving their decisions. ETS established a centralized deliberative body to make evidence-based decisions about new-product offerings, and Stanley has a Pricing Center of Excellence with internal consultants dedicated to its various business units.

Leaders should bring multiple perspectives to their decision making, beware of analytical models that managers don’t understand, be clear about their assumptions, practice “model management,” and—because only people can revise decision criteria over time—cultivate human backups.

The Idea in Brief

• In many organizations, decisions are left up to individuals and the process for making them receives little if any scrutiny. The recent plague of poor financial decisions is one result.

• Smart organizations can help their managers improve decision making in four steps: by identifying and prioritizing the decisions that must be made; examining the factors involved in each; designing roles, processes, systems, and behavior to improve decisions; and institutionalizing the new approach through training, refined data analysis, and outcome assessment.

• Chevron, the Educational Testing Service, and The Stanley Works are three organizations that have overhauled decision-making processes with great success. This article will help like-minded companies give decisions the attention they deserve.

In recent years decision makers in both the public and private sectors have made an astounding number of poor calls. For example, the decisions to invade Iraq, not to comply with global warming treaties, to ignore Darfur, are all likely to be recorded as injudicious in history books. And how about the decisions to invest in and securitize subprime mortgage loans, or to hedge risk with credit default swaps? Those were spread across a number of companies, but single organizations, too, made bad decisions. Tenneco, once a large conglomerate, chose poorly when buying businesses and now consists of only one auto parts business. General Motors made terrible decisions about which cars to bring to market. Time Warner erred in buying AOL, and Yahoo in deciding not to sell itself to Microsoft.

Accelerate your career with Harvard ManageMentor®. HBR Learning’s online leadership training helps you hone your skills with courses like Decision Making. Earn badges to share on LinkedIn and your resume. Access more than 40 courses trusted by Fortune 500 companies.