2 yanuar.pdf

Understanding decision making inorganizations to focus its practices where itmatters

L. Michel

Summary

Purpose – The ability to make good decisions is the defining attribute of a high performance

organization. The challenge is to ensure that good decision-making practices permeate the entire

organization. As organizations grow, employees make decisions in an increasingly complex,

ambiguous, and uncertain environment. Formal practices enable employees to make decisions that

are meaningful to the firm’s stakeholders and guide their behaviours to align with the strategic intent of

the firm as well as its values and norms.

Design/methodology/approach – Through case studies and consultancy work the author has

developed an approach to focus on management decision making and improved effectiveness.

Findings – This paper describes a diagnostic tool which helps companies understand how well their

management systems support decision making and where CEOs should invest to focus leadership time

and attention. The decision-making scorecard and tools help CEOs design effectiveness management

systems and focus its use to drive their specific business agenda.

Originality/value – With formal decision-making practice in place, CEOs rely on delegation and control

practices to ensure that employees make decisions in line with the organization’s vision and values.

Using the described approach, CEOs and employees focus their attention on the relevant control levers

and use their time for interaction and learning rather than control. Furthermore they successfully apply

more relevant decision-making practices than before, and have abandoned extensive and expensive

performance management projects in favour of more differentiated and focused initiatives that support

their immediate goals with a direct impact. The tools have been used to ensure that the next strategic

move delivers the expected value. In summary, good decision-making practices translate the CEOs’

power and responsibility into higher performance, growth and lower risk.

Keywords Decision making, Management techniques

Paper type Technical paper

Why it matters

The company that wins today is the one that makes the best decisions and is able to act on

them quickly. These decisions have to be aligned with the strategic intent of the company,

with the developments in the markets, and support the company’s ability to perform. CEOs

are faced with a dual challenge. On the one hand, they need to drive decision making as far

as possible out to the periphery of their organization. For this, they need to be able to rely on

people who have good judgment. Good judgment means that people know which signals

from the market matter, which options are available, can pick the right ones and act on them

quickly, all this with substantial autonomy. On the other hand, CEOs need to ensure rigor of

thought, accountability and discipline. These trends are accelerating and are posing new

challenges to leadership. Because good leadership now means developing good judgment

in people, helping them make sense of signals and know what it means for the strategy of the

firm, to their business environment and to the firms’ ability to compete. In large companies,

this kind of leadership cannot only happen face to face. It must be supported by formal

management systems (The foundation goes back to literature on modern bureaucracy in

DOI 10.1108/13683040710740916 VOL. 11 NO. 1 2007, pp. 33-45, Q Emerald Group Publishing Limited, ISSN 1368-3047 j MEASURING BUSINESS EXCELLENCE j PAGE 33

L. Michel is Managing

Director, based at i3

Performance Solutions,

Appitalstrasse 5, Au,

Switzerland.

Weber, 1947) that facilitate these new requirements and challenges and that create a distinct

culture (Donaldson and Lorsch, 1983). As the ‘‘big systems’’ of firms, these managerial

practices traditionally integrate the processes, systems and principles for learning, strategy

development, performance measurement and management, risk management, and

governance.

Decision-making systems need design (Martin, 2005), and re-jigging formal management

systems is a sensitive, difficult, slow (Roberts, 2004) and potentially risky undertaking. So,

CEOs really want to know where specifically their systems are already supporting at scale

the development of good judgment, creativity, discipline and rigor of thought, and where

specific changes and investments need to be made. To help CEOs focus their investments

and to speed-up change, we have developed a diagnostic tool which helps leaders

understand the decision-making culture and routines in their organization. The tool includes

an online-diagnostic, a scorecard and tool box with the ability to drill-down to more than 100

items for measurement. With this, CEOs can focus their investments into formal management

systems in line with their priorities on effectiveness, growth, innovation, expectations,

complexity, speed, flexibility, uncertainty and efficiency.

Over 20 top leaders of one of the world’s largest natural resources firm were challenged on

the organization’s managerial effectiveness. Their organization grew over the years through

substantial M&A activities. And, the CEO felt that the degree of decentralization had its

benefits. But, that the organization would not use its synergies as much as it could. The

diagnostic revealed that the organization was very strong in getting things done, but that it

would not use its collective capacity to think about the future. Moreover, the control

mechanisms of its holding structure prevented employees from capturing opportunities and

taking risks. Through intense discussion on the scorecard, the team learned that if it aligned

its support structure, e.g. the corporate CFO, HR, communications, planners and risk

managers, to integrate their management and control systems and to make them interactive,

that they would gain substantial platforms for thinking, collaboration and sharing. The

solution was a new approach to strategy development rather than the redesign of structure.

The results were more collaboration and a shared mind-set without losing the rigor of

implementation.

In larger organizations, formal decisions-making practices are owned by various

professionals: The Head of HR maintains the individual performance management, the

CFO leads planning and measurement, the CRO conducts the risk reviews,

Communications informs on vision and values, and the Planner maintains the strategy

office. Naturally, all these leaders develop their systems with best intentions and

state-of-the-art technologies. But, too often, the practices are not linked as they are

maintained in silos. The diagnostics integrate all parties involved in formal decision making

and align the development of these practices. With this, CEOs reduce the implementation

risks by involving employees to create this shared understanding.

Decision making drives performance

Does decision making matter for performance? The literature suggests that leadership style,

operating constraints, endogenous factors and serendipity are the factors that determine

much of organizational performance (see reviews of Bass, 1990; Cannella and Monroe,

1997). Opportunities and risks, as the endogenous factors, explain much of the variability in

performance. And, the choices on strategy, structure, and capabilities, as operating

constraints (Barnard, 1938; Child, 1972; Hambrick and Mason, 1984), together with the

decision making approach (Simons, 1991) of the leader describe much of the value and

performance in organizations. Leaders address the complexity, uncertainties and

ambiguities of doing business by structuring accountability Simons, 2005), delegating

decision-making and the use of control systems (Simons, 1995) in their organizations.

Formal decision-making practices are a competitive advantage. They can not walk away,

and they can not be copied easily (Seemann and Huppi, 2001). In that sense, leadership

matters for performance.

PAGE 34 jMEASURING BUSINESS EXCELLENCEj VOL. 11 NO. 1 2007

When organizations grow and add new geographic locations, functions, layers of

management and/or products and services, the complexity of the decision making rises.

With this, CEOs need to reconcile various trade-offs that these new choices create. They

balance these tensions by reducing complexity and delegating some of their responsibilities

to employees at the periphery. To do this successfully, CEOs need to put effective practices

in place that support employees to accept their responsibilities.

Employees that accept greater responsibilities, require context to help them address the

opportunities and uncertainties. Modern technologies and the knowledge economy have

fundamentally shifted the way CEOs apply their formal decision-making practices (Table I).

In the past, most decisions were taken by the leaders at the top and employees were

expected to report results bottom-up. However, for most decisions at the top, information is

incomplete and biased. Today, employees at the periphery make thousands of decisions

every day. These employees want to understand, contribute and deliver results. They know

about the opportunities and uncertainties being close to customers. With this, they can

capture growth opportunities and know about the barriers that keep the organization from

reaching its potential. With modern decision making, employees inform management so

they can update and refine the strategy.

The challenge for CEOs is to create this context for good decision making (Minzberg, 1987a,

16-17), and that it permeates the entire organization. In the past, top-down decision making

often resulted in competing demands, conflicting goals, uncertainty about purpose, stress

or temptations. As the sole source for making sense, employees had to rely on their

manager’s ability to translate the CEOs vision into the desired behaviors. With employees

taking charge in an increasingly networked environment, CEOs need to ensure that their

strategy, the vision and values are shared among all employees and consistently throughout

the organization. They do this by creating the shared context (Table II) such that employees

have a shared understanding, mind-set, agenda, beliefs, and norms. Shared context helps

employees make decisions in a culture with less ambiguity. Effective leaders create the

shared context with their formal management systems (Michel and Seemann, 2005). Such

formal systems ensure the necessary discipline for decision making in organizations. They

help CEOs establish the formal rules, decompose complexity, set goals and decentralize the

responsibility for decision-making. In such, decision making is the linchpin between the

CEOs power, the delegation of authority and the performance of an organization. It drives

performance when it is organized to create shared context.

Over the past years, the World Economic Forum organization refined its formal

decision-making practices to cope with growth and a refined strategy. With the use of the

manual diagnostic method during a workshop, the leaders concluded that their ambitions

and their strategic capacity would not sufficiently translate into action. Too many good ideas

Table I Formal decision-making practices

Controls Processes Interactions Principles

Past ‘‘Top down’’ decisionmaking and ‘‘bottom up’’reporting

Lack of understanding ofvision, strategic intent, andgoals

Lack of focus, competingand conflicting demands

Uncertainty aboutpurpose, lack of meaning,stress, temptations

Today Information andknowledge are with theemployees. They want tocontribute and perform

Employees makedecisions. They recognizeopportunities and risksand behave in line with theintent, the values and thegoals

Conversation enablesleaders to provide directionand convey their values andpreferences. They enablecoordination and alignment

Shared values, mind-setsand norms create toframework for what ‘‘is in’’and what ‘‘is out’’

Practices Measurement, feedbackand information

Setting direction, learning,decision making,implementation

True leadershipconversations, listening,influencing, providingdirection

Beliefs and boundaries

VOL. 11 NO. 1 2007 jMEASURING BUSINESS EXCELLENCEj PAGE 35

got lost in the daily operation of the organization. Too much was concentrated on a few key

executives. After reflection on the decision-making scorecard, they decided to integrate

more rigorous measurement and business reviews into their management agenda. As a

result, more leaders got involved in sharing ambitions, goals and expectations. And, more

employees were able to contribute to a shared agenda.

Measuring decision making

As decision making is the main driver of performance in organizations, CEOs need to put the

same rigor to the design of decision making as they apply to the hard factors such as the

financials and the operations. The first step in putting decision making discipline and rigor in

place is to measure its effectiveness. Measurement provides CEOs with a base line, and it

helps them to address the critical control levers. The second step is to focus attention on

those practices that add the most value in line with their goals.

What does a successful entrepreneur do when his business has grown to the point where he

realizes that he cannot take all major decisions anymore? He is the limiting factor to further

growth. He knows it and everybody around him too. And now what? As advisors to this

successful Middle East bank, we have used the diagnostic and the scorecard to focus his

attention to those things that deliver best value and to set priorities. As one might expect, the

formal decision-making capabilities of the organization, as delineated in the scorecard, were

mostly ‘‘on red’’. Where does one start with building these capabilities? By combining the

scorecard with R. Simons’ (1995, p. 128) approach to control systems in specific life cycle

stages, the CEO decided to start the systems work focused on diagnostic controls, strategy

documentation and behavioral boundaries. He focused all the scarce development

resources to get just that done.

Decision-making can not be measured directly (Hammond et al. 1999). The best alternative

is to address it through three perspectives: The result of good quality decisions as content

(Yates et al., 2002) or organizational performance, the use of formal decision-making

practices and how they create leadership team alignment (Kopeikina, 2005), e.g. the

culture, and the quality of the underlying practices as the standards of formal decision

making.

The scorecard

The first step is to understand how well decision making creates value in organizations. The

decision-making scorecard (Figure 1) provides leaders with a simple tool that helps leaders

assess the decision making in their organization. Fourteen distinct metrics address how well

the processes, practices and principles help leaders create the rigor and discipline in

decision making, and they measure how well the systems are used to deliver the expected

performance.

Table II Creating shared context

Controllevers

Trusteddiagnostics Strategic responses Measurable actions Adaptable beliefs Relevant boundaries

Features Measurement,information andfeedback

Strategy, strategic plans,diagnostic processes forlearning

Performance plans,business reviews,interactive delegationpractices

Vision, values andindividualobjectives

Mission, norms,leadership standards,risk limits

Benefits Enable informeddecisions

Focus attention on whatis important

Determine what needs toget done

Establish howthings get done

Establish what ‘‘is inside’’and what ‘‘is outside’’ oflimits

Sharedcontext

Create a sharedunderstanding

Create a shared mind-set Create a shared agenda Create sharedbeliefs andbehaviors

Create shared norms


Reading the scorecard: Scores that are greater than 75 indicate decision-making

capabilities that are well developed and that have the potential to deliver performance,

reduce risks, or stimulate growth. Scores between 55 and 74 indicate decision-making

capabilities that require refinement. These capabilities are about industry average. Scores

below 54 indicate decision-making capabilities that do not deliver value.

The metrics

The first perspective addresses the decision-making performance by looking at the ultimate

outcome of doing business: the value created for stakeholders. We use the intangible value

that organizations create as the approximate measure of how well decision making

performs. These metrics (Ulrich and Smallwood, 2003) best represent the hard results of the

aggregate decisions in organizations. With leaders and employees making better decisions,

they reach higher scores on these ‘‘intangibles’’ metrics. Decisions making performance

represents the average score of the following four metrics:

1. Keeping promises: The degree to which the organization keeps its promises with

customers, shareholder, employees and other stakeholders – the table stakes of

competing in the market. The outcome standard is trust and consistency.

2. A compelling strategy: The quality of the strategy, e.g. how well the organization attracts

customers, shareholders, employees and other stakeholders with a compelling strategy.

The outcome standard is growth.

3. The technical capabilities: The quality of the technical capabilities and the ability to

establish competitive advantage. The outcome standard is competence and quality.

4. The social capabilities: The readiness of the social capabilities that embed these

advantages as sustainable value. The outcome standard is reliability.

The second perspective addresses the decision-making culture in organizations. These

metrics are good indicators of how well leaders and employees use their processes,

practices and systems to make good decision. High scores on these metrics indicate a high

degree of alignment of the people with the processes, systems and practices and how well

they create the shared context. The decision-making culture represents the average score of

the following metrics:

1. Shared understanding: The metric measures the degree to which organizations use

information and feedback to create a shared understanding of the context in which

employees make decisions. The use standard is the ability to learn.

Figure 1 The decision-making scorecard (example)


2. Shared mind-set: The degree to which management teams and employees have a shared

mind-set about the future (Ulrich and Smallwood, 2003). The use standard is the ability to

think.

3. Shared agenda: The degree to which management teams and employees share the

same agenda that determines how the strategy is implemented. The use standard is the

ability to act.

4. Shared beliefs: The degree to which management teams and employees share the

beliefs that help them make decisions (Donaldson and Lorsch, 1983) in line with strategy

and values. The use standard is the ability to achieve.

5. Shared norms: The degree to which leaders and employees share the same norms that

govern what employees do and what they do not do. The use standard is the ability to

contribute.

The third perspective represents the design of decision-making standards as the formal

norms that translate the soft factors into hard results. These standards establish the shared

context and determine the desired decision-making culture. The decision-making standards

(Adapted from Simons’ levers of control, 1995) include the processes, practices and tools

that enable employees to make good decisions. These metrics are calculated as the

average score of the following metrics:

B Trusted diagnostics: The adequacy and quality of the measurement systems and

capabilities for sensing opportunities and trends, to set the performance standards, to

monitor and communicate performance. The design standard is that diagnostics can be

trusted.

B Strategic responses: The adequacy and quality of strategic management systems and

capabilities that focus the attention of employees, e.g. capture, review and decide on

opportunities and risks, align capabilities, allocate capital, review businesses. The design

standard is that strategies provide a response to the challenges.

B Measurable actions: The adequacy and quality of performance management systems

and capabilities that determines the commitment of employees to implement the strategy.

The design standard is that implementation can be tracked.

B Adaptable beliefs: The adequacy and quality of beliefs systems, capabilities and

standards that delineate the context and guidance for decisions and behaviours, e.g. the

vision, values, and individual performance objectives. The design standard is that beliefs

are flexible enough to be adapted for change.

B Relevant boundaries: The adequacy and quality of the boundary systems and policies

that rule decision making and behaviors and frame our system functioning, e.g.

decision-making standards such as governance standards, incentives systems, HR

policies, accounting standards, risk limits and leadership standards. The design

standard is that boundaries are relevant for balancing trade-off decisions.

The tool box

In summary, the decision-making tool box (Figure 2) includes the ‘‘big systems’’ and their

respective capabilities that ensure the standards in the organization (Michel and Seemann,

2005). The design and use of these practices determines much of the routines, habits and

the agenda of corporate decision making. A total of 47 distinct capabilities are addressed in

more detail.

Measurement

Depending on the client needs, either the online diagnostics or the manual method is used to

understand decision making in organizations. The online diagnostic addresses over 120

metrics. They are measured through a set of questions that are evaluated on a seven point

scale. Even so the diagnostic allows for unlimited participants, with 5 or more reviewers, the

results for the scorecard and the tool box are statistically significant. The manual method is


designed for workshop use. With a limited set of questions and in about 30 minutes, leaders

determine their decision-making scorecard and the performance on their tool box.

The design of the scorecard and the tool box is the result of many years of practical

experience with the diagnostic tool, and it is based on our understanding that the use of

decision-making practices is more relevant to performance than their technical design

(Simons 1991; Abernethy and Brownell, 1999; Bisbe and Otley, 2004). The initial idea grew

out of a systemic approach to measurement combining output metrics (measuring the

results of good decision making), input metrics (measuring the design of decision-making

practices) and throughput metrics (measuring the use of decision-making).

Over the years, we have constantly refined the measurement of the metrics. The metrics

themselves have evolved with the use of the tool. We consistently apply the ‘practice &

reality’ test with our clients by comparing the actual situation on the client site with the results

of our own measurements (Merchand and Simons, 1986). Our clients confirm that they gain

unprecedented insights into decision making from the results.

Using the scorecard to address the control levers

As the second step and with the understanding of how the various metrics relate to each

other, CEOs can then focus their attention on their business issues by addressing the

following principles (Figure 3).

The scorecard combines nine principles that can be triggered through various control levers

(Table III). They ensure that employees take decisions that balance the various trade-offs.

Ultimately, the design and use of the decision-making practices determines how leaders and

employees focus their attention and use their time.

1 – Aligning the organization to higher effectiveness

The CEOs first challenge is to achieve high effectiveness as an organization that delivers on

its promises. High effectiveness is the result of various decisions that resolve the trade-offs

between organizing for global scale and local flexibility. On the one hand, CEOs need to

organize in ways to benefit from scale advantages and experience. On the other hand, the

goal is to remain flexible and adaptable to changing local customer requirements. CEOs

reconcile these conflicting goals by making sure that employees take decisions that align

Figure 2 The tool box (example)


the strategy, the structure, the capabilities and the culture of the organizations. An

approximate measure of the quality of this alignment is to look at the intangible value that an

organization creates. Keeping promises, compelling strategy, technical and social

capabilities describe ‘‘effectiveness’’.

Organizations that score high in the four areas of intangible value have well aligned

capabilities in place. CEOs establish these capabilities with an integrated and formal

Figure 3 The nine principles

Table III Using the scorecard to address the control levers

Principles Levers Benefits

1 – Align the organization for highereffectiveness

Design and use of integrated and formalmanagement systems

An organization that delivers on itspromises

2 – Remove interferences for higher growth Convergence of systems, practices andprinciples

Employees that capture opportunities –develop

3 – Create the shared context for innovation Use of a formal leadership cycle Employees that adapt and focus4 – Use information and feedback to clarifyexpectations

Design and use of measurement Employees that understand and takeinformed decisions – learn

5 – Decompose complexity Design and use of diagnostic andinteractive strategic management

Employees that do the right things – think

6 – Clarify accountabilities for greaterspeed

Design and use of diagnostic andinteractive organizational performancemanagement

Employees that get things done – act

7 – Enable freedom to act for moreflexibility

Design and use of diagnostic andinteractive individual performancemanagement

Employees that know how things are beingdone – achieve

8 – Establish risk limits and standards toaddress the uncertainties

Design and use of governance principles Employees that know what is inside andoutside of scope – contribute

9 – Standardize decision making for higherefficiencies

Design and use of formal controls Employees that do things right


management system that supports employees in taking decisions that are in line with the

strategy. The result is an effective organization that gets the right things done.

Distribution effectiveness is the key to insurance firm performance. The ability to identify

profitable clients and the capability to precisely serve these clients is the challenge. For a

small local insurance firm, connecting the employees that know what clients want and those

that develop the products is easier as it is for a larger organization. Organizational

boundaries often prevent the things that logically make sense. Our client has recently

acquired another similar organization. After eliminating all relevant duplications, it faces the

same challenges as it had before. Sales did not reach product development and vice versa.

After review of the decision-making practices, it was clear that not structure would solve

these issues. Rather, a shared decision-making approach is required in alignment with the

strategy and the structure. The scorecard clearly indicated the need for integrated and

formal management systems beyond the traditional financial controls. The organization

started redoing its entire performance management and compensation system to address

the issues. The results were not surprising: Higher performance and people that seek each

other to do the right things.

2 – Removing interferences to capture growth opportunities

The second challenge is to activate the growth potential of the organization. Growth is the

result of employees taking risks and capturing opportunities as they arise. At the same time,

the strategy, the values and the boundaries ensure that employees maintain their attention

on the given priorities. An approximate measure of how well the organization achieves these

goals is to look at the standards, the culture and the performance of decision making.

Organizations with high scores in all three areas have decision making in place with

converging systems, practices and principles.

Organizations with high scores on these metrics support their employees in taking decisions

that maintains this fine line between the taking risks and focus. They achieve this by apply

the following principle: The greater the challenges an organization, a team or a leader

accepts, the more important is the minimum interference occurring from within (Gallwey,

2000)! Interferences are all those things that keep the organization from reaching its true

potential. In particular, with less interference occurring from within the organization,

employees search for new market growth opportunities and take decisions that grow the

business. Well synchronized systems reduce these interferences.

3 – Creating the shared context for more creativity

The third challenge is to establish favorable conditions for innovation (Brown et al., 2006).

They include a shared understanding, a shared mind-set, a shared agenda, shared beliefs

and norms. These capabilities are the result of a formal leadership cycle. The purpose of a

leadership cycle is to establish this shared context and decision-making culture as a

prerequisite for innovation. With this, employees rely on consistent rules, stable procedures

and relevant boundaries as they unfold their creativity and search for new opportunities.

Organizations with high scores ensure that employees continuously look out for alternative

options and remain focused at the same time.

4 – Using information and feedback to understand

The fourth challenge is to balance the various stakeholder expectations. Organizations use

information and feedback mechanisms to balance these competing demands and take

informed decisions. Such formal control systems support CEOs to establish the necessary

shared understanding (Malina and Selto, 2001) that helps employees adequately address

the requirements and contributions of stakeholders. Traditional measurement focuses on a

‘‘top down’’ management approach. Modern approaches ensure that information is

available where the work is being done. Feedback loops enable both, the control where

decisions are taken and ensure that top management can update the strategy with new

insights. As such, diagnostics simultaneously serve the learning about future opportunities


and the management of current performance. It reduces the knowledge asymmetries

(Abernethy et al., 2004) that go along with increasing decentralization.

Organizations that score high on ‘‘trusted diagnostics’’ and ‘‘shared understanding’’ enable

employees to balance the various expectations of short term performance and future market

opportunities.

5 – Decomposing complexity to do the right things

The fifth challenge is to reduce the complexity of decision making (Hammond et al., 1999) in

larger organizations. To achieve this, CEOs use strategic management systems that help

them decompose their business issues into digestible pieces such as strategy, structure,

capabilities, systems and culture. Moreover, well designed and properly used strategic

management systems create the necessary shared mind-set. Conducting honest

conversations about the business strategy (Beer and Eisenstat, 2004) is a practical

application that supports that objective.

With this, CEOs can rely on employees that take decisions within the right context. The

results are less complexity and employees that do the right things.

6 – Clarifying accountability for fast implementation

The sixth challenge is to ensure fast implementation. Many great strategies fail because they

are not implemented well or in time. To strengthen the implementation capabilities, CEOs put

organizational performance management practices in place. This creates accountability

(Charan, 2001) and ensures that the organization implements the right things fast. Planning

and business review practices help CEOs participate in their subordinates’ agenda. By

sharing ambitions and objectives (Waldmann et al., 2001; Koene et al., 2002), CEOs provide

direction to their team. In return, CEOs learn about the implementation and the performance

of their subordinates.

Organizations with high scores on these metrics have implementation practices in place that

create a strong and shared agenda.

7 – More flexibility by knowing how to do things

The seventh challenge is about flexibility and responsiveness to change. Beliefs standards

with the vision, values and individual objectives provide employees with the guidance how

things are being done. With individual performance management practices (Beer, 1997),

employees align their behaviors and decisions with the organization’s standards. Well

developed standards are broad enough to leave employees with a high degree of freedom

and to respond to their challenges. And, good standards are accurate enough to guide the

decision making and actions. Because employees with shared beliefs can apply the same

standards to new situations, organizations remain flexible enough to respond to a changing

context. Both, shared beliefs and individual performance management are a powerful

change management tool when the stakes are high. CEOs can rely on employees that make

decisions in line with the strategic intent and the values.

Employees that share strong beliefs know how things are being done. The result is an

organization that is flexible enough to address challenging goals.

8 – Establishing the boundaries for what ‘‘is inside’’ and what ‘‘is outside’’

The eighth challenge is to systematically address how employees address uncertainties.

When employees capture new opportunities, they take risks. Without risk taking,

organizations do not outperform their competitors. To guide the risk taking of employees,

organizations establish appropriate governance principles for decision making. With the

relevant boundaries, employees know what ‘‘is inside’’ and what ‘‘is outside’’ of scope.

Boundary policies help organizations create the shared norms. They are articulated as

mission statements, leadership principles, governance policies or risk limits. Organizations

with a high degree of shared norms can extend their risk boundaries as employees know the


limits of their decisions and behaviors. High scores on these metrics are signs of

organizations that have the practices in place to deal with uncertainties.

One of the leading European insurance groups recently came out of a major successful

restructuring with rising profits. Its challenge was, to restore motivation and ambitions of its

employees. Our diagnostic and the scorecard provided the leadership team with a solid

base line on all aspects of formal decision making. Underwriting decisions are the key to

performance in insurance firms. And, employees make many of these decisions every day.

Hence, the improvements focused on communicating the context and boundaries for all

these decisions to employees. After 12 months, the after action measurement with the

diagnostic resulted in clear improvements on shared beliefs, the norms and social

capabilities. In addition, the financial results of the organization further improved.

9 – Standardizing decision making to do things right

Challenge number nine is to establish high efficiencies. With employees making thousands

of decisions every day, CEOs need to put formal controls in place. They frame recurring

decisions to achieve higher efficiencies and enable employees to do things right.

Standardized protocols such as metrics, strategic plans, performance reviews, or individual

objective agreements facilitate communications. With this, employees concentrate on

substance. Process and interaction facilitate sharing, coordination and alignment. With

formal controls in place, overall efficiencies improve.

Applying best practices in decision making

The decision-making scorecard and tools help CEOs design effectiveness management

systems and focus its use to drive their specific business agenda. With formal

decision-making practice in place, CEOs rely on delegation and control practices to

ensure that employees make decisions in line with the organization’s vision and values. We

learn from our clients, that the tool focuses their attention on the relevant control levers.

Moreover, CEOs and employees use their time for interaction and learning rather than

control. We see our clients successfully apply more relevant decision-making practices than

ever before. And, we learn that clients have abandoned extensive and expensive

performance management projects in favor or more differentiated and focused initiatives

that support their immediate goals with a direct impact. Other clients have used the tools to

ensure that the next strategic move delivers the expected value. In summary, good

decision-making practices translate the CEOs power and responsibility into higher

performance, growth and lower risk.

References

Abernethy, M.A. and Brownell, P. (1999), ‘‘The role of budgets in organizations facing strategic change:

an exploratory study’’, Accounting, Organization and Society, Vol. 24 No. 3, pp. 189-205.

Abernethy, M.A., Bouwens, J. and van Lent, L. (2004), ‘‘Determinants of control system design in

divisionalized firms’’, The Accounting Review, Vol. 79 No. 3, pp. 545-70.

Barnard, C. (1938), The Function of the Executive, Harvard University Press, Cambridge, MA.

Bass, B.M. (1990), Bass & Stogdill’s Handbook of Leadership, Free Press, New York, NY.

Beer, M. (1997), ‘‘Conducting a performance appraisal interview’’, Class room note, Harvard Business

School case study, Boston, MA.

Beer, M. and Eisenstat, R.A. (2004), ‘‘How to have an honest conversation about your business

strategy’’, Harvard Business Review, Vol. 82 No. 2.

Bisbe, J. and Otley, D. (2004), ‘‘The effects of the interactive use of management control systems on

product innovation’’, Accounting, Organization and Society, Vol. 29 No. 8, pp. 709-37.

Brown, J., Courtney, N. and Hendry, C. (2006), ‘‘Innovation and the performance management system’’,

paper presented at Performance Measurement and Management 2006: Public and Private, Cranfield

School of Management, Cranfield.


Cannella, A.A. and Monroe, M.J. (1997), ‘‘Contrasting perspectives on strategic leaders: towards a more

realistic view of top managers’’, Journal of Management, Vol. 23, pp. 213-37.

Charan, R. (2001), ‘‘Conquering a culture of indecision’’, Harvard Business Review, Vol. 79 No. 4,

pp. 74-82.

Child, J. (1972), ‘‘Organizational structure, environment and performance: the role of strategic choice’’,

Sociology, Vol. 6, pp. 1-22.

Donaldson, G. and Lorsch, J. (1983), Decision Making at the Top, Basic Books, New York, NY.

Gallwey, W.T. (2000), The Inner Game of Work, Random House, New York, NY.

Hambrick, D.C. and Mason, P.A. (1984), ‘‘Upper echelons: the organization as a reflection of its top

managers’’, Academy of Management Review, Vol. 9 No. 2, pp. 93-206.

Hammond, J.S., Keeney, R.L. and Raiffa, H. (1999), Smart Choices: A Practical Guide to Making Better

Decisions, Harvard Business School Press, Boston, MA.

Koene, B.A.S., Vogelaar, A.L.W. and Soeters, J.L. (2002), ‘‘Leadership effects on organizational climate

and financial performance: local leadership effect in chain organizations’’, Leadership Quarterly, Vol. 13

No. 3, pp. 193-215.

Kopeikina, L. (2005), The Right Decision Every Time: How to Reach Perfect Clarity on Tough Decisions,

Prentice-Hall, Upper Saddle River, NJ.

Malina, M.A. and Selto, F.H. (2001), ‘‘Selto communicating and controlling strategy: an empirical study of

the effectiveness of the balanced scorecard’’, Journal of Management Accounting Research, Vol. 13,

pp. 47-90.

Martin, R.L. (2005), ‘ ‘Why decisions need design’’, Business Week Online, available at:

www.businessweek.com

Merchand, K.A. and Simons, R. (1986), ‘‘Research and control in complex organizations: an overview’’,

Journal of Accounting Literature, Vol. 5, pp. 183-203.

Michel, L. and Seemann, P. (2005), ‘‘How CEOs organize their sphere of power’’, Critical Eye Review

Online, available at: www.criticaleye.net

Minzberg, H. (1987), ‘‘Five P’s for strategy’’, California Management Review, Vol. 30 No. 1, pp. 11-24.

Roberts, J. (2004), The Modern Firm: Organizational Design for Performance and Growth, Oxford

University Press, Oxford.

Seemann, P. and Huppi, R. (2001), ‘‘Social capital: securing competitive advantage in the new

economy’’, Financial Times, London.

Simons, R. (1991), ‘‘Strategic orientation and top management attention to control systems’’, Strategic

Management Journal, Vol. 12 No. 1, pp. 49-62.

Simons, R. (1995), Levers of Control: How Managers Use Innovative Control Systems to Drive Strategic

Renewal, Harvard Business School Press, Boston, MA.

Simons, R. (2005), Levers of Organization Design: How Managers Use Accountability Systems for

Greater Performance and Commitment, Harvard Business School Press, Boston, MA.

Ulrich, D. and Smallwood, N. (2003), Why the Bottom Line Isn’t: How to Build Value through People and

Organization, Wiley, New York, NY.

Waldmann, D.A., Ramirez, G.G., House, R.J. and Puranam, P. (2001), ‘‘Does leadership matter? CEO

leadership attributes and profitability under conditions of perceived environmental uncertainty’’,

Academy of Management Journal, Vol. 44 No. 1, pp. 134-43.

Weber, M. (1947), Bureaucracy, various publications on modern administration.

Yates, J.F., Veinott, E.S. and Patalan, A.L. (2002), ‘‘Hard decisions, bad decisions: on decision quality

and decision aiding’’, in Schneider, S.L. and Shanteau, J. (Eds), Emerging Perspectives on Judgment

and Decision Research, Cambridge University Press, Boston, MA.


Further reading

Abernethy, M.A., Bouwens, J. and van Lent, L. (2005), ‘‘Does leadership matter in the design and use of

control systems?’’, Critical Eye Review Online, July.

Simons, R. (1990), ‘‘The role of management control systems in creating competitive advantage: new

perspectives’’, Accounting, Organization and Society, Vol. 15 Nos 1/2, pp. 127-43.

Waldemann, D.A. and Yammarino, F.J. (1999), ‘‘CEO charismatic leadership: levels-of-management and

levels-of-analysis effects’’, Academy of Management Review, Vol. 24 No. 2, pp. 266-85.

About the author

L. Michel is owner and managing director of i3 Performance Solutions GmbH and COO ofSphere Advisors AG, both international top management advisory firms. He focuses onadvising CEOs and their teams in decision-making, management systems and organizationdesign. His experience spans 20 years in various organizations throughout the world. Asformer Head of Corporate Strategy & Performance Management and as a CEO for the EastAsia/Pacific businesses of a global financial services institution, he has developedperformance solutions in various cultures and for various business situations. He regularlyspeaks at conferences and publishes in the area of decision-making, performance andleadership. L. Michel holds degrees in Education, Business, Engineering and ManagementScience. He can be contacted at: [email protected]


To purchase reprints of this article please e-mail: [email protected]

Or visit our web site for further details: www.emeraldinsight.com/reprints

Reproduced with permission of the copyright owner. Further reproduction prohibited without permission.

2 yanuar.pdf

Documents