Principle 5: Improved Decisions (Item 10)
Effective use of facts, data and knowledge leads to improved decisions.
Most companies assume they are good at making decisions. Perhaps they
are. But, you cannot assume that you are. Good companies are always
looking to do better. One way to do this is to review how you make decisions.
You should use the checklist below to review several
- routine daily operational decisions
- process improvement decisions
- management decisions (eg, plan implementation and system performance)
- significant and important strategic decisions
The important issues about decision making are:
- at what level are decisions are made – how do you ensure that
decisions are made by the people who have the knowledge to make decisions
about process – how do you prevent bosses monopolizing the decision
making process
- how do you enable people to make decisions – by providing skills,
knowledge, information, power and authority
- how do you decide on what information do you base your decisions
- how do you ensure you are asking the right questions
- how do you seek to understand and challenge your assumptions
- how do you ensure you are making your decision based on full knowledge
of what is really going on; that you are not missing relevant information;
that your data is reliable, accurate, valid and timely; that your
information has not been distorted to tell a false story
- how do you keep challenging your thinking
- how do you ensure that the people who need the data receive what
they need and not what someone else thinks they need
- how do you deal with uncertainty - how you make decisions even though
important data and information may be uncertain or unavailable
- how do you review your decision making process
Principle 5 adds a different phpect to many decisions. With the old
ways of thinking about business, we saw companies acting in ways that
showed little clear benefit for the company. For example, exactly how
will the proposed merger provide what the customers value.
Owners, executives, managers and investors need clear and easy rules
of thumb to follow so they can assess strategic decisions.
Remember the discussion in Principle 2 (`Focus on Achieving Results')
about the Goal and necessary conditions. The Goal for most companies
is to make money now and in the future. In Its Not Luck, Goldratt
identified three necessary conditions for success in reaching the Goal:
Provide satisfaction to the market now and in the future. (Remember
that the market punishes companies that do not satisfy the market perception
of value.)
Provide a secure and satisfying environment for employees now as well
as in the future.
Provide value to the community now and in the future. (This is Principle
9 – the community punishes organizations it considers are not good
corporate citizens and takes away there right to operate.)
These four guidelines – one Goal and its three necessary conditions
– must be the underlying basis when deciding strategy.
- reject any strategy that contradicts or leads you away from any
of the four.
- make certain your strategies are in total alignment with all
four guidelines.
In strategic decision making, most of the information needed to make
the decision is unavailable, unknown or unreliable. We have all heard
of 20/20 hindsight vision – when we look back, with all the information,
we understand things perfectly. Unfortunately, no one has perfect foresight
vision. Although the emphasis in Principle 5 is for companies to base
decisions on data and information, at the strategic level, such data
is usually absent. Nevertheless, the strategic decision must still be
made.
How do you know the risk is acceptable? How do you reduce the risk?
Use the concepts described throughout Principle 5 to
- determine what information you should have to make the decision
- find what you can to close the gaps in your information
- challenge your assumptions
- use "what if" analysis, simulations, decision trees, scenarios
to determine the impact of different decisions
- assess the risk of the decision at different levels of uncertainty
- if you can, leave your options open – don't make the decision
irrevocable unless you have no choice
This "uncertainty" caused by unavailable data & information
on which to base strategic decisions should not be confused with `variability'
discussed in Principle 6.
This approach to data, information, analysis and decision making appears
completely logical. It makes very good sense to know how the company
is performing. Yet, it is rare to find anyone doing it. People in companies
everywhere find all kinds of reasons why this cannot be done. Why don't
people use data to manage?
We think that the reason stems from the need to make themselves look
good. Most companies are dominated by incentive schemes based on performance
data. When these exist, there is a real fear of performance data. It
might show that the performance delivered does not match the rhetoric.
Consequently, people dissemble. They put the best possible light on
the story that they can. They manage the data to make themselves
look good or at least not bad. They use indicators that show only success.
They discard indicators that might imply failure. They argue (against
Principle 6 `Variability') that "the (slight) upturn last
month indicates a reversal in the previous downward trend".
They lie. They modify graphs. They lose, omit or fail to display data
that does not show a positive trend.
They also provide data that will discredit others and so take the heat
off themselves.
When all senior managers are fully engaged in this form of KPI warfare,
it is very difficult to determine the real situation in the company.
These forms of survival are learned very early in a manager's career.
Usually as a result of seeing the ritual slaying of some poor manager
who let his or her guard down. `Managing the numbers' is usually where
most managers spend most of their time. If they do not do so, they are
out of a job. Overall, a strange unintended consequence of performance
incentive schemes.
If people were not so concerned that they would get the blame for poor
performance (which is often out of their control), they would be more
willing to provide data that showed real performance. And manage the
`performance', rather than the `data'.
The solution is to stop blaming people and not have the slightest hint
that a person's value to the company is linked in any way to the performance
indicated by data.
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