Why do managers find decision-making difficult?

After ICICI Securities' management committee made a strategic decision to extend its private equity intermediation services to smaller companies last year, it had to decide how to execute it. From a minimum cut-off of $30 million, the firm was preparing to service clients with a turnover of $10 million and this required a different mind-set. There were also issues of profitability since servicing small companies brought in less income for the same amount of work.

After much deliberation, the management committee (internally called the man-com, though it's headed by a woman), narrowed it down to two alternatives: the firm could either create an independent team for servicing small clients or it could embed a team within the existing private equity intermedition set-up. The man-com decided to go with the second option.

"We believed it would be best if the existing team could handle the new business," says managing director Madhabi Puri-Buch. "The work was essentially the same and we hoped they would maximise synergy."

It turned out to be a wrong decision. Six months down the line, it became obvious that the new business was not taking off, mainly because it was not receiving adequate attention. The executives in private equity continued to pursue larger, more profitable clients. They were clearly not prepared to spend their limited time and energies on smaller ones.

"It was a matter of bandwidth," says Buch. "We couldn't blame them since they were pursuing the more profitable options. But at the same time, we wanted to get into the smaller segment of the business."

Headed by Buch, the seven-member man-com at ICICI Securities consists of the heads of the retail and corporate broking business, the CFO, head of HR, compliance and strategic planning. It meets every week and is collectively responsible for every big decision the com-pany makes. Like most corporate man-coms, it tends to seek a consensus on decisions, which occasionally leads to compromises and bad decisions.

In the case of private equity intermediation services, the man-con reversed its original decision after six months, creating a separate team whose mandate was to build, operate and eventually transfer small-company business to the mainline team. "We lost six months, but we learnt something," says Buch. "That's the way it is with most decisions. There are very few decisions which are permanent, where you can't go back and revise."

At Infosys Technologies , managing director Kris Gopalakrishnan counts the decision to honour all job offers jobs made on campus just before the economic downturn as one of the most complex decisions the company has recently taken. It was, in many ways, an irrevocable decision, impossible to go back on if things went awry. The issue was subject to a fair amount of debate in the top echelons of Infosys and it took much analysis — including long term financial analysis — before a final decision could be arrived at.

"We have a consensus based decision making style," says Gopalakrishnan. "But every decision has a deadline. We try to build consensus for a specified period of time but if consensus can't be reached, then a designated person decides. Once the decision is made, everyone implements it or supports the implementation — there are no more debates."

How to improve decision-making abilities ?

Once hailed as the paragon of a modern corporation, ABB was on the verge of bankruptcy in 2002. The Zurich-based power technology mammoth had created such a complex, unwieldy organisational structure — 5000 profit centres, 65 business units — that every decision it was taking seemed to go awry, sinking it further into the quagmire.

In line with the thinking of the 90s, ABB's factories were encouraged to compete with each other. In bidding for global power projects, participating business units would each put forward a price that would be so high as to make the final bid untenable. The organisation had a matrix structure where the average manager had at least three bosses, but that didn't seem to provide the co-ordination required to optimise overall performance. It just slowed things down and lowered morale. "ABB had become too complex," says Paul Rogers , managing partner, Bain UK . "There were too many different ABBs. What it needed was a 'one ABB' approach to decision making."

ABB, which eventually bounced back under the chairmanship of Jurgen Dormann, is one of the main examples in Decide & Deliver: 5 Steps to Breakthrough Performance in Your Organisation, a new book authored by Rogers with two other Bain colleagues. In a telephonic interview from his offices in London, he says: "You can't improve decision making and execution in a company without looking at the entire organisational system. That's the theme of our book and ABB is one of the best examples of it."

Four years ago, in an article titled Who Has The D? in Harvard Business Review, Rogers coined the acronym RAPID, where D is for 'decide', standing at the centre of a diagram surrounded by R (recommend), A (agree), P (perform) and I (input). Together, they make for RAPID, a term registered by the consulting firm as a 'tool for allocating decision roles in an organisation.'

RAPID is a way of looking at the who's who of big-time decision making. The recommender is the one responsible for gathering and analysing all the information required for big strategic decisions and this role often goes to consultants like Bain. The job of inputting to the recommender belongs to employees down the line and sometimes to lesser consultants like market research firms. The people who must agree to a recommendation — the legal department, for example — have veto power, but are not the ones who decide.

And finally, there are the performers, responsible for executing the decisions, without whom the big D is helpless indeed. Decide & Deliver gives the real example of International Energy, where the COO decided to scrap a turbine model that wasn't selling, only to find that the factory producing it had simply ignored the decision and continued to crank out the turbine.

"We've changed the name of the company because of the nature of the example, but there are many out there who fail to make and execute critical decisions. They dither, or revisit the decision repeatedly or are unable to translate it into action," says Rogers.

Indeed, the nature of today's organisations is such that it can no longer be taken for granted that a decision taken by managers higher up in the hierarchy will be readily executed by those below — especially if the decision involves major changes that people don't fully understand or believe will affect them negatively. "A lot of companies still look to the organisational chart when they think about decisions, but it's no longer adequate. Things are more complex now," says Rogers. 

Source :- The Economic Times