| ESSENTIALS FOR LEADERS AND THOSE THEY LEAD
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| Business lore is rife with high-profile examples of bad decisions, some of which sank entire companies. But questionable decisions that make headlines aren’t the only ones that can fail. The common, routine decisions we make every day can easily go awry and delay projects, alienate employees and customers, or hurt financial performance. In today’s uncertain environment, leaders are under constant pressure to make smart decisions fast. This week, let’s explore some decision-making practices that can make the process easier. |
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| Contrary to what you might expect, it doesn’t take very long to make a good decision. A McKinsey survey shows that fast, high-quality decisions correlate strongly with good company performance. This applies to all types of decisions—big bets that affect the company’s future; cross-cutting decisions, which are smaller in scope and made in collaboration with different groups across the company; and delegated decisions, which are the province of individuals or specific business units. Just 37 percent of our survey respondents say that their organizations’ decisions show both speed and high quality, and only 20 percent make fast, high-quality decisions that also deliver strong financial returns. The top performers’ formula for success? Make decisions at the right level (for example, don’t be afraid to delegate down to lower levels of the organization), focus on enterprise-level value, and get commitment from accountable stakeholders. |
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| That’s the number of ingrained myths that could trip up leaders who are trying to justify a decision. These might include beliefs such as, “I don’t have the time to give to this decision,” “I know I’m right,” “I trust my gut,” or “There’s just one way to do this.” An effective way to counter decision-making myths is slowing down and making a strategic stop—taking what the author of this Harvard Business Review article calls a “cheetah pause.” Cheetahs are known not just for their incredible speed but also for their ability to slow down quickly when they spot their prey. Pausing in a calculated way, rather than racing toward a decision, can help you bust the myths and evaluate whether to move in a new direction or stay the course. |
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| That’s Stanford University professor Chip Heath in this discussion with McKinsey on how senior leaders can boost their decision-making effectiveness. For example, considering just one more option can make good decision making up to six times more likely. Heath suggests using a four-pronged decision-making framework, known by the acronym WRAP: explore a wider set of options to create more debate, reality-test your assumptions through research, step back and attain some distance from your choice, and—although it may be hard to acknowledge—prepare to be wrong at the end of the process. |
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| A series of biased decisions led to time and cost overruns in a major investment project at the German electric utility RWE. “What became obvious is that we had fallen victim to a number of cognitive biases in combination,” says CFO Bernhard Günther in this McKinsey Quarterly interview. “We could see that status quo and confirmation biases had led us to assume the world would always be what it used to be.” The project’s disappointing performance led Günther to spearhead fundamental changes in decision-making processes at the company. This included launching training programs for leaders and managers on becoming aware of biases, being more open to dissent and conflict, and learning debiasing practices—all of which eventually resulted in better decisions. A key factor in the success of RWE’s debiasing program was that top management set an example. “That’s true of any kind of change, not just debiasing,” Günther says. “If it’s not modeled at the very top, it’s unlikely to happen further down the hierarchy.” |
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Research shows that having too many choices can confuse people, forcing them to make snap decisions or not decide at all. A well-known study of consumer psychology reveals that shoppers are ten times more likely to make a purchase if they choose among six rather than 24 flavors of jam. Business leaders confronted with a long list of potential courses of action can pare down the choices by using a simple checklist-based approach to eliminating biases and screening bad decisions before they happen—freeing up resources to implement better alternatives.
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| — Edited by Rama Ramaswami, a senior editor in McKinsey’s Stamford office |
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