How to Improve Leadership Decision Making

Effective Leadership Decision Making Requires the Right Context
When it comes to leadership decision making, very few important decisions are easy to make.  A recent survey by Gartner found that 65% of today’s decisions are more complex (i.e., involving more stakeholders and/or choices) than they were two years ago. Great decision makers are committed to the quality of how decisions are made and their impact on both their people and the organization.

Leadership teams and organizations that can follow clear, structured, and healthy decision-making strategies move more surely and swiftly in the direction that makes the most sense.

The Cost of Bad Decisions at Work
Let’s start by understanding the cost of bad decisions.  Every choice — from allocating resources to promoting talent — has the potential to drive success or erode it. Yet, despite its importance, McKinsey research found that:

• Less than 50% of managers think that decisions are timely.
• 61% of leaders believe that at least half the time spent making decisions is ineffective.
• One in five major business decisions fails outright, and poor judgment costs companies millions annually.

The costs of ineffective decision making can be staggering.

A Research Experiment: The Importance of Context in Decision Making
Our frame of reference — the context within which we interpret our surroundings, evaluate various choices, and reach conclusions — greatly influences the decisions we make.  For example, Daniel Kahneman and Amos Tversky conducted an experiment with two similar first-person scenarios about going to see a play, with tickets priced at $10.

• Scenario #1: Losing a $10 Bill
  In the first version, as you arrive at the theatre, you notice you have lost $10: will you still pay $10 for a ticket?  88% of their participants said they would do so.
• Scenario #1: Losing a $10 Ticket
  In the second version, you have bought the ticket in advance, but upon arriving you notice you lost it. In this case, only 46% of their respondents would buy a new ticket.

The actual loss is exactly the same in both cases, yet the reaction is very different because the decision making context caused participants to feel differently about their choices.  The key to effective decision making lies in the ability to collectively frame the decision-making context before you seek data or try to decide.

Three Leadership Decision Making Categories to Consider for Smarter Decision Making Context
Based on decision making training best practices, the fundamental first step toward improving leadership decision making is to ensure that you correctly categorize the decision you face.  Because decisions vary in importance and in the risk they pose, different decisions should be handled differently.  From the weightier to the lower-stakes decisions, here are three categories of leadership decision making that can help you move forward wisely.

1. High Stakes Leadership Decision Making
   High stakes leadership decisions have a clear line of sight to the company’s current or future strategic priorities.  When the stakes are high, company leaders should follow a proven decision making process with five key components:

   Problem Statement
   Craft a simple and agreed-upon problem statement that describes what you are deciding, what the decision will impact, and why the decision matters.

   Criteria
   Agree upon the decision making criteria and the metrics for both success and failure.

   Roles & Responsibilities
   Define clear roles and responsibilities, including who needs to participate in the decision, what each person needs to contribute, and what is needed for full commitment.

   Manageable Chunks
   Separate the decision into manageable “chunks.”

   Continuous Improvement
   Review and communicate progress frequently.

   A caution: It’s important not to get bogged down in perfection or detail.  When the stakes and levels of complexity are high, leaders rarely have all the information but will have to be satisfied with “just enough.”

2. Cross-Functional Leadership Decision Making
   Cross-functional decisions require input from a variety of stakeholders and occur in a series of decisions that are interdependent. An example is the launch of a new product.  For a successful new product launch, multiple departments need to be involved and there needs to be a detailed, coordinated plan for success.  According to research by McKinsey, team collaborations account for 51% of the difference between success and failure regardless of industry.

   The challenge is to define the key points of collaboration and to avoid involving too many people at any one stage.  Beware of letting important decisions get bogged down with too many unnecessary levels of approvals.

   The Idea in Action
   Map out the process as simply as possible and then use it to test a likely scenario with those who will be responsible for the decision’s success. Once you have learned and tweaked the process, set clear expectations, timing, and cultural accountability parameters.

3. Low Risk Leadership Decision Making
   Low risk decisions typically occur frequently and appear rather routine.  In order for low risk decisions to be made efficiently and effectively, it is necessary to establish clear processes and responsibility.  It is often best to assign responsibility to those closest to the work.

   Be clear about how you want the decisions to be executed, when and where the decisions will be communicated, and how you will know if the decision is successful.

Some Notes from Leaders in the Field:

• Data-Driven vs. Data-Inspired Decision Making
  We know from strategic decision making simulation results that far too many executives think they’re making data-driven decisions when they look at a small sample of statistics even when they are not taking the full decision making context into account. Due to the inherent biases and lack of organizational context, Cassie Kozyrkov, the Chief Decision Scientist at Google, calls these “data-inspired decisions at best.”

  Be clear about how much data is required to make a “good enough” decision.

• The Expert Trap
  Making ill-informed decisions can be an even greater problem for leaders who perceive themselves to be experts in their field.  While it can be a highly efficient problem solving approach in familiar and isolated situations, it can become a liability when facing novel or complex problems.  Study after study has shown that people who perceive themselves as highly experienced often forgo doing homework, seeking disconfirming evidence, and questioning assumptions.

  For better decisions, push all experts to open their minds.

The Bottom Line
Effective leadership decision making creates shared accountability, empowers stakeholders, removes complexity, reduces unintended consequences, and improves decision making speed.  Companies that establish a clear process around decision making have a leg up on those companies mired in murky processes, ambiguous ownership of the results, overlapping responsibilities, and weak accountability.

To learn more about how to create the alignment required for effective leadership decision making, download 3 Research-Backed Steps to Set Your Team Up to Make Better Decisions