Unit 430 Topic 6: Leaders as decision makers

Effective decision making

We may describe effective decisions according to the formula proposed by Mankin and Steele (2006: 76)—more, better and faster. Making more decisions in a given timeframe may be seen as a virtue because it indicates a high level of organisational responsiveness to change in the external environment, both in terms of threats and opportunities that arise. A test of quality would be whether the decision set the best direction, given the circumstances and the
information held at the time. Working with this second test, we might judge the effectiveness of a decision in terms of whether:
* information was comprehensively gathered at the time
* all information was given equal weight
* a wide range of options were generated and thoroughly tested.

Mankins and Steele identify that much of the dysfunction found in strategic decision making can be traced back to two factors which render the process ineffective. The first of these is the time factor. The second factor relates to the practice of conducting strategic planning at the business unit level. Where strategic planning commences at this level, it is difficult for planners to look at an issue from an organisation-wide perspective. From these observations, Mankins and Steele propose a model for effective and strategic decision making that is issues-based, rather than limited to the individual business unit. It may also be time-consuming, so Mankins and Steele recommend that the organisation focuses on a few, key issues. They also suggest that strategic decision making should be conducted continuously, given that business threats and opportunities do not neatly schedule themselves to set times in the year.

Drucker (2004) notes that great managers may display a wide variety of personal characteristics, attitudes and behaviours. However, he argues that every effective executive adheres to eight crucial practices in fulfilling their role. Significantly, each of the practices he identifies pertains to the executive's decision making function. Drucker finds that effective executives:
1. Ask 'what needs to be done?'
2. Ask 'what is right for the enterprise?'
3. Develop action plans
4. Take responsibility for decisions
5. Take responsibility for communicating
6. Are focused on opportunities rather than problems
7. Run productive meetings
8. Think and say 'we' rather than 'i'.

Within this methodology, Brousseau, Driver, Hourihan and Larsson (2006) examine the impact of the executive's decision making style on the effectiveness of the decisions reached. Having analysed a range of characteristics for 120,000 executives, these researchers found that decision making styles may vary in two key regards: the way in which information is used, and the way in which options are generated. People who insist on consulting all of the information available may be referred to as 'maximisers', while those who prefer to restrict themselves to only the key facts may be termed 'satisficers'. In terms of options, 'single focus' decision makers feel most comfortable with a single direction, while 'multifocused' leaders prefer a range of options
and may pursue concurrent courses of action (Brousseau et al., 2006: 112).

A decision making model

In the previous section, we discussed an approach to effective decision making at the strategic level, as set forth by Mankins and Steele. In this section, we examine a more structured decision making model that is designed to deliver effective results—the Process Model.

The Process Model is comprised of four key phases:

1. The input phase
2. The processing phase
3. The output phase
4. The review phase.

Input is the first phase for decision making within the Process Model. The primary objective of this phase is to gain a clearer understanding of the problem or situation. Identifying the problem is the first step of the input phase. This step is concluded with the solver producing a problem statement, which is a summary of the problem or opportunity. The problem statement is an extremely useful because it clarifies the problem. The second step of the input phase is to determine success criteria for the problem statement. Success criteria may be thought of as a checklist that is used after the solution or decision is implemented and determines whether the problem has been solved, and if the solution is effective.

In the processing phase of this model, a solution to the problem is identified. The solver begins by generating a wide range of options. During this step, it is important not to be critical of the options raised; genuinely creative solutions often appear outlandish on first appraisal, and in any case there will be an opportunity to vet out unsuitable options later in the phase. The second step is to evaluate all of the options generated against the success criteria established in the previous phase. Testing options against success criteria provides a focussed assessment of their effectiveness. Of the options that address all the success criteria, the one that does so most comprehensively is then selected and developed into a fully detailed solution.

The output phase implements the solution developed in the processing phase. It begins by translating the solution into an implementation plan and then involves executing this plan using standard project management principles. Throughout execution, the implementation plan is continuously monitored and corrective actions are taken to ensure that the end result is achieved. Continuous review also means that poor decisions may be corrected early, before any real damage is done.

The final phase of the Process Model involves reviewing the solution. Rather than needing to work purely on a reactive basis, or reinventing the wheel each time a problem arises, this phase gives the decision maker the potential to develop standard solutions to problems, and to avoid problems before they

The review phase involves comparing the results of the implemented solution with the success criteria determined during the processing phase. This comparison may lead to one of the following conclusions:
1. The solution was extremely effective and should be developed into a standard methodology or decision for future cases.
2. The solution was more or less effective and may be applied to the next similar problem scenario, with a number of adjustments indicated by failure against specific success criteria.
3. The solution was ineffective and should not be applied in the future.

Collaborative decision making

Eisenhardt, Kahwajy and Bourgeois have observed that 'autocratic leaders who manage through highly centralized power structures often generate high levels of interpersonal friction' (Eisenhardt, Kahwajy & Bourgeois, 1997: 82).

The first alternative is collaborative decision making, which involves the leader sharing a degree of their formal decision making power. Within this paradigm, other stakeholders have a real influence over the contents of the final decision and the manner in which it is made. There are three mechanisms through which collaborative decision making may occur: majority rule, compromise and consensus.

Collaborative decision making is often a time-consuming process. The need to find common ground may require much consultation or facilitation and well developed communication skills. However, these investments can pay great dividends. Where collaborative decision making embraces those who will be responsible for implementing the decision, it helps ensure that the decision is well understood by those parties.

Majority rule is allowing relevant stakeholders to vote on options that have been previously identified. The stakeholders may or may not have been involved in developing these options in the first place. As a technique for making decisions, majority rule allows stakeholders minimal impact on the contents of the decision.

Compromise is a mechanism whereby differences of opinion between stakeholders are resolved by trading off interests. Individuals start by identifying which of their interests are tradeable and which are non-negotiable. Then they seek to preserve or promote their non-negotiable interests by trading minor interests. Compromise allows stakeholders a fair degree of impact on the final decision, and all stakeholders should be reasonably satisfied
with the end result.

Consensus decision making seeks to avoid any trading of interests. Rather, it works on the basis of all stakeholders being completely satisfied with the decision reached. This outcome is approached from two different angles. In the first instance, the leader may attempt to convince stakeholders of the attractiveness of an option, by framing it in terms of their own interests. In the second instance, the option is tailored to match the interests of
the stakeholders.

Delegated decision making

A second way in which a leader may choose not to direct the decision making process is through delegated decision making. Under this paradigm, a leader may share all (or most of) their formal decision making powers.

This paradigm offers a number of distinct advantages:
* it allows decisions to be made at a level where a more intimate knowledge or experience of the decision making context may be available
* where the decision in question is routine (and so relatively straight forward), it frees up the leader to make more difficult or critical decisions
* it provides the leader with opportunities to develop subordinates' decision making abilities.

Delegated decision making is best illustrated within the framework of broader delegation theory. Modern approaches to delegation (particularly within the corporate environment) have been strongly influenced by the idea of 'stewardship delegation' (Covey, 1990).

This form of delegation is reliant upon mutual trust, partnership and common understanding in several areas:
* desired results
* guidelines for performance of the task
* identification of the resources required
* standards for measuring and reporting on performance
* an agreement to accept the consequences of success or failure, whatever the result.

The steward (or team of stewards) must have a clear understanding of the desired results, and be able to describe these results to the leader in terms that match the leader's expectations for quality and timing. This requirement obliges the leader to provide a comprehensive and unambiguous briefing of the prospective decision to the steward. Although this style of delegation allows the steward relative freedom to make the decision in the way they feel is most effective or expedient, the leader is able to provide a number of guidelines or boundaries to work within. The steward may need to conduct research or collaborate with other stakeholders in making the decision. It is the leader's responsibility to identify the resources that are needed to ensure that the steward can take the decision effectively. In a decision making context, performance measures could address two distinct issues: the quality of the decision's outcome, or the quality of the process for arriving at the decision. Measures of this type may provide a certain amount of additional control over the process adopted by the steward. Overall, it is this area of the stewardship agreement that confers accountability on the steward.

Negotiated decision making

Negotiated decision making represents a different type of departure from the leader-directed decision making paradigm. Leaders have no formal power over decision making in negotiations. At best they can wield only soft power derived from their communication skills, knowledge of negotiation techniques, and skill in applying these. Perhaps the best way to conceive the leader's role in negotiated decision making is as a participant who influences the outcome on either an adversarial (win-lose) or collaborative (win-win) basis.

Given the weight of these longer-term interests (and the reality that the leader cannot dictate the outcome in a negotiation), it is worth considering some features that favour a collaborative approach to decision making. The three features we will focus on are:
1. The enhanced ability to understand the decision making context and the interests of all parties to a decision.
2. The increased potential to form consensus.
3. The opportunity to improve implementation of the decision.

In their article, 'Investigative negotiation', Malhotra and Bazerman (2007) identify five types of information that are critical for reaching an effective decision and may be discovered in negotiations:
1. The reasons why the other party is seeking a particular form of agreement.
2. The constraints experienced by other stakeholders.
3. The full list of the other party's demands.
4. The common ground you share with the other party.
5. Hidden issues that would not come to light in any other collaborative setting.

Another barrier that makes reaching collaborative decisions difficult is gaining consensus between the different parties involved.

In his article, 'Six habits of merely effective negotiators', Sebenius (2001) discusses a number of consensus-driving activities that may be undertaken in negotiations:
1. Preventing one issue or interest from outweighing all others.
2. Looking for useful differences between the parties' positions.
3. Correcting your own faulty perspective.

Ertel (2004) observes that many organisations have begun to realise that there is little point sending in cut-throat negotiators to squeeze the best deal out of the opposition, if at the same time they render the relationship unworkable for the future.

Overcoming barriers to effective decision making

In this final section we consider the barriers that may inhibit the decision making process or prevent an effective decision from being made. It is important for leaders to recognise and be aware of these barriers so they can take steps to avoid them.

The external barriers are well known and largely relate to some form of resource- or authority-based constraint. Common examples of these may include:
* short timeframes
* lack of budget
* lack of access to key stakeholders or information
* lack of material or equipment
* staffing shortages or limitations
* bureaucracy and red tape
* ineffective communication in the organisational structure (such as silos or a steep hierarchy)
* complex or onerous legislative or regulatory regimes.

External barriers prevent the decision maker from acting effectively in all phases of the Process Model.

The internal mental barriers, however, are far more insidious. Because they are not patently obvious in the decision making context, it is not always simple to recognise their effects, or even that one is in operation. Moreover, they are usually harder to recognise and counter for the people directly affected by them.

Hammond, Keeney and Raiffa (1998) draw on 50 years of research into heuristics to identify a number of mental traps that may pose as barriers to effective decision making.

* Clarity Heuristic
A common example that is frequently cited is the clarity heuristic, which means we commonly assume that clearer objects are physically nearer to us, while fuzzier objects are further away.

* Anchoring Heuristic
The anchoring heuristc means the decision maker is influenced by the first information they receive. Subsequent information is overlooked or minimised, and so a skewed decision results.

* Status Quo Heuristic
The status quo heuristic biases decision makers in favour of preserving the pre-existing state of affairs. It has been hypothesised that this heuristic may often benefit organisations by protecting them from the risk of change.

* Sunk Cost Heuristic
In economic terms, sunk costs are investments of time and money that are unrecoverable. Sunk costs may have an interesting effect on decision making, in that they may dissuade a decision maker from taking up an option that would otherwise be attractive. Viewed as a heuristic, this tendency to act by reference to sunk costs may be an effort to justify previous decisions, or to avoid the criticism of inconsistency.

* Confirming Evidence Heuristic
In decision making, it involves a strong bias in favour of evidence which confirms our existing beliefs or desires, to the detriment or exclusion of all other evidence. It has been suggested that this bias rests on a human tendency to decide subconsciously, prior to any conscious evaluation of the merits of that decision.

* The framing heuristic
The way in which a question is framed may tend towards a certain type of response, and the same is true for decisions.

MIT Sloan Management Review, Spring 2001, 42(3): 89–93.

Rational decision making has a clearly identified process:
define ? diagnose ? design ? decide
However, the rational approach turns out to be uncommon.

A theory for "doing first," popularized in academia by organizational-behavior professor
Karl Weick, goes like this:
enactment ? selection ? retention.

A theory in Gestalt psychology developed by G. Wallas in the 1920s identifies four steps in
creative discovery:
preparation ? incubation ? illumination ? verification.

"Thinking first" features the qualities of
science : planning, programming : the verbal : facts

"Seeing first" features the qualities of
art : visioning, imagining : the visual : ideas

"Doing first" features the qualities of
craft : venturing, learning : the visceral : experiences

"Thinking first" works best when: the issue is clear; the data is reliable; the context is structured; thoughts can be pinned down; and discipline can be applied ... as in an established production process.

"Seeing first" works best when: many elements have to be combined into creative solutions; commitment to those solutions is key; and communication across boundaries is essential .... as in new-product development.

"Doing first" works best when: the situation is novel and confusing; complicated specifications would get in the way; and a few simple relationship rules can help people move forward ... for example, when companies face a disruptive technology.