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Cool HARVARD MANAGEMENT UPDATE - Performance growth - June 6th, 2006


Improving your company’s decision-making competency can have a direct impact on performance. Richard Luecke tells you how to get started

Can you imagine how your company’s bottomline would im prove if all its managers’ decisions improved by as little as 20 per cent? One out of five costly mistakes or missed opportunities — in developing new products, making acquisitions and strategy formulation — would be replaced by better choices with greater value to the organisation. The impact could be enormous.

The only way to obtain that level of improvement is to pursue decision quality broadly. A handful of sharp decision-makers at the top is not enough. We know that individuals can be trained to make better decisions, but can entire organisations do the same? Can a company’s process for making decisions be progressively improved to ensure better results?

Yes, says Carl Spetzler, Chairman of Palo Alto, a Strategic Decisions Group. Building organisational decision competence, in his long experience, is achievable. It creates a huge value opportunity with relatively little attached cost. “I know of nothing else that can give you so much bang for the buck in terms of significantly increasing the value of a firm.” And developing a decision competency, he contends, is becoming more important as greater authority is moved into the hands of frontline managers. We looked at two companies — General Motors (GM) and Chevron — to learn how they developed programmes for improving decision quality.

GM’s crushing legacy costs and competitive problems are widely known. But these woes have overshadowed the progress made by the giant automaker. OnStar, GM’s profitable subscriber-based vehicle safety, security and communications system, already has nearly four million subscribers and is the largest reseller of cellular time in the US. The company took more long-term durability awards in the 2005 J.D. Powers and Associates quality rankings than any other automaker. And its plants are now rated among the best in North and South America. These improvements were influenced in no small way by good decisions made years earlier.

Under the direction of Vincent Barabba, then General Manager of Corporate Strategy and Knowledge Development, GM adopted a decision approach called the dialogue decision process, or DDP, which had been developed by the Strategic Decisions Group in the early 1980s. The DDP involves two teams, a decision team comprising executives with the power to allocate resources and an investigative team made up of managers and employees with relevant expertise.

The decision team kicks things off by framing the problem or issue. The investigative team then assesses the problem in terms of its drivers and its business and technical dimensions. The decision team further refines the problem and then asks the investigative team to develop several feasible alternatives for dealing with it.

Once the executives on the decision team are satisfied with the alternatives offered to them, they ask the investigative team to analyse each alternative in terms of costs, risks, potential value etc. The team may even combine two alternatives into a superior hybrid solution. A final decision is then based on that analytical work. Barabba says adoption of the DDP has had a positive effect on the company’s culture. The old culture of advocacy has given way to a new culture that values learning. If GM emerges from its current legacy-cost woes, this new culture stands to get some of the credit.

Like their counterparts at GM, leaders at Chevron felt they needed a more rigorous approach to make the huge capital commitments that define their business.

So, in the 1990s, the company offered decision training to managers. But, due to Chevron’s decentralised structure, adoption was uneven. Some project teams embraced the new processes and used them successfully; others said, “These aren’t for us.” Despite some progress, Chevron still hadn’t achieved its ultimate goal: across-the-board decisionmaking competence. So, with the backing of CEO David O’Reilly, a Capital Stewardship Capability programme was rolled out in 2000 to train key people in decision methods. Today, according to Frank Koch, leader of Chevron’s Decision Analysis Practice, the programme is made available to company personnel through six computer-based training modules. These aim to ensure that people know how to frame decisions, apply analytical tools, and work with other decision-makers. It focuses on decision-making best practices, interprets analytic output, helps interact with other decision makers, handles behavioural issues etc. Testing and certification follow training.

It’s assumed that managers already know how to make good decisions, but Chevron insisted that they prove it. CEO O’Reilly and his direct reports demonstrated their backing for the programme by being among the first to work through the 24-hours training and certification. Since then, critical decision-makers — approximately 6,000 people (10 per cent of Chevron’s workforce) — have been trained and certified. And like airline pilots, they are subject to periodic retesting. The company doesn’t want people with rusty skills in the decision “cockpit.” Senior managers get a second level of training in the form of two-day workshops. These provide opportunities to sharpen skills and develop new ones.

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