The 4 types of decisions: How to make better, faster, and more profitable decisions
Effective decision-making is crucial for any organization to achieve success. What’s more, the faster high-quality decisions and change initiatives can be put in place, the more responsive an organization will be and therefore the happier its customers, and employees will be.
Customer retention and employee engagement are key drivers for growth. Forrester reports that Customers are 2.4 times more likely to stick with a brand when their problems are solved quickly.
Brands that have the best customer and employee engagement also typically have the highest growth metrics as well. So responsive decision-making should be at the top of every C-Suite’s agenda going forward.
However, not all decisions are created equal. In fact, McKinsey & Company identified four types of decisions that organizations make, each requiring a different approach. Additionally, 72% of senior executives believe that their company makes bad decisions as often as or more often than they make good decisions and 61% of these executives believe that the time spent making decisions is ineffective. These statistics highlight the importance of improving the decision-making process in businesses.
There are several reasons why companies may be making poor decisions. One reason is that there may be a lack of diversity among decision-makers. If decision-makers come from similar backgrounds and have similar experiences, they may have blind spots and overlook important factors that could impact the decision. Additionally, companies may be prioritizing short-term gains over long-term benefits. This can lead to decisions that are not sustainable in the long run and may harm the company’s reputation.
Another reason why companies may be making poor decisions is that they may not be utilizing data effectively. Decision-makers may be relying on intuition or past experiences rather than data-driven insights. This can lead to decisions that are not based on accurate information and may not be the best for the company.
The amount of time spent making decisions is also an important factor. While it is important to take the necessary time to make informed decisions, executives may be spending too much time in the decision-making process. This can lead to delays in implementation and may cause the company to miss opportunities.
So, what can companies do to improve their decision-making process?
One solution is to increase diversity among decision-makers. By including people with different backgrounds and experiences, companies can ensure that decisions are made from different perspectives and take into account a broader range of factors.
Another solution is to prioritize data-driven decision-making. By utilizing data, companies can ensure that decisions are based on accurate information rather than assumptions or past experiences. Additionally, companies should ensure that they have access to the right data and analytics tools to support the decision-making process.
Lastly, companies should also focus on streamlining the decision-making process. This can involve setting clear decision-making frameworks, assigning decision-making roles, and creating timelines for decision-making. By doing so, companies can ensure that decisions are made efficiently and effectively.
In this blog post, we will explore these four types of decisions and how organizations can approach them to make the best possible choices.
Type 1: Big-bet decisions
Big-bet decisions are high-risk, high-reward choices that have a significant impact on an organization’s future. These decisions typically involve investing significant resources, either financial or human, in pursuit of a major opportunity or goal. Examples of big-bet decisions include launching a new product, entering a new market, or making a major acquisition.
Given the high stakes involved in big-bet decisions, organizations must approach them with a rigorous decision-making process that involves careful analysis, cross-functional collaboration, and risk mitigation. Leaders should start developing a “decision factory” approach to big-bet decisions, which involves breaking down the decision into smaller, more manageable components and using data to inform each stage of the process. By taking a structured approach, organizations can reduce the risk of making a costly mistake and increase the likelihood of success while also speeding up the decision-making process.
Type 2: Cross-cutting decisions
Cross-cutting decisions are those that impact multiple functions or business units within an organization. These decisions can be challenging to make because they require balancing the competing priorities and perspectives of different stakeholders.
These types of decisions are usually where we spend the bulk of our time in meetings discussing the logistics of the various business units working together and the desired outcome from each group.
You can think of Cross-cutting decisions as big changes that are internal. They don’t change the long-term external position of the company but they may change how we do business.
To make effective cross-cutting decisions, organizations must ensure that they have a transparent and collaborative decision-making process that involves all relevant stakeholders. This process should include a clear set of decision criteria, regular communication and feedback loops like data dashboards, and a mechanism for resolving conflicts and making trade-offs like Commander’s Intent. By involving all relevant parties, using data to empower everyone with information, and providing a framework for decision-making, organizations can ensure that cross-cutting decisions are made with a shared understanding of priorities and goals while also being fast and profitable.
Type 3: Delegated decisions
Delegated decisions are those that are made by individuals or teams within an organization who have been given the authority to make decisions on a particular topic or issue. Examples of delegated decisions include hiring decisions, project management decisions, and day-to-day operational decisions.
While delegated decisions may seem less significant than big-bet or cross-cutting decisions, they are critical to an organization’s success. In order to ensure that delegated decisions are made effectively, organizations must provide clear guidelines and decision criteria, as well as training and support for those making the decisions. Additionally, organizations must establish a feedback loop to ensure that delegated decisions are aligned with overall strategic goals and to identify opportunities for improvement.
Type 4: Ad hoc decisions
Ad hoc decisions are those that are made on an as-needed basis, often in response to unexpected events or crises. These decisions can be especially challenging because they often require rapid action with limited information or time for analysis. Examples of ad hoc decisions include crisis management, responding to customer complaints, and addressing employee issues.
These decisions are also the most prone to mistakes and can have the worst consequences when taken lightly. It’s imperative to have a means to make these decisions quickly
To make effective ad hoc decisions, organizations must have a clear Commander’s Intent statement and advanced analytical tools and capabilities that enable rapid response while still ensuring that decisions are made with a thorough understanding of the situation and potential implications.
This framework should include the 5 parts of Commander’s Intent, clear roles and responsibilities, decision criteria, and escalation procedures. By having the right decision-making processes for ad hoc decision-making, organizations can respond quickly and effectively to unexpected events while still maintaining alignment with overall strategic goals.
Learn about 6 decision-making biases that may be holding your team back.
De-centralizing Decision Making: Delegate more decisions!
With these various types of decisions constantly moving across executive leadership’s desks is no surprise that CEOs spend more time working on average than anyone else in the company.
The CEO’s approval is sought at every turn, no matter the size or scale of the decision. However, in Michael Porter’s 2018 study on How CEOs Manage their Time, he suggests that CEOs have an agenda and focus on accomplishing that agenda.
After listening to many CEOs, I’ve found that most CEOs are trying to delegate the tasks that other employees would be good at completing so that they can spend more time focused on the work that only they can do.
To spend more time focused on their agenda, many CEOs take a first in, last out approach to solve the problem, so they arrive before their staff and leave after their staff. However, the rush of the day gets them off track and they spend a ton of time in meetings, responding to emails, and taking calls that don’t necessarily help the organization move closer to achieving its strategic goals.
To boot, data shows that executive burnout is only getting worse, and sadly, unlike many others in the organization, the CEO doesn’t really get a day off. CEOs work on average 62 hours a week and spend about 72% of that time in meetings. They work 79% of weekends for about 4 hours per day and 70% of vacation days for about 2 hours per day.
Passing authority to the people who are closest to the situation and have the most information about it is my recommended way to combat this issue. This approach is beneficial for several reasons. First, it frees up CEOs and other C-Suite Leaders to focus on more strategic initiatives and any other C-Suite-specific work. Second, it empowers employees to make decisions and take ownership of their work. Finally, it allows decisions to be made quickly, which is especially important in today’s economic climate.
I call this approach the Surgical C-Suite! It’s a program I designed to help the C-suite team delegate more decisions while also making sure those decisions drive growth and adhere to the company’s strategy.
However, decentralized decision-making is not without its challenges. For one, there can be a lack of consistency in decision-making across the organization. Without clear guidelines, different teams may approach similar situations in different ways, which can create confusion and inefficiency. Additionally, there is a risk of decision-making becoming siloed, with teams making decisions that are best for their own department rather than the organization as a whole. To mitigate these challenges, organizations can provide clear decision-making frameworks and guidelines, and establish processes for cross-functional collaboration and communication. In our practice, we call this Commander’s Intent.
Commander’s Intent is a clear and concise statement that outlines the overall mission and desired end state of a project or initiative. It provides guidance to team members by explaining what they need to achieve, and why it is important, without dictating how they should do it. In essence, it is a way to empower subordinates to make decisions in line with the overall goal, without micromanagement.
Effective decision-making is essential for any organization to achieve success. The way in which decisions are made can have a profound impact on the success and productivity of a company. However, not all decisions are created equal, and organizations must approach each type of decision with a different process and mindset. Furthermore, By understanding the four types of decisions and adopting a structured approach to each, organizations can ensure that they are sticking to their strategy and delivering high returns for shareholders, retaining their best employees, developing their bench strength, and most important of all retaining their customers. All of which drive growth!!!