Why Optimizing Decisions is the Most Important Thing You Can Do, Part III
1 Comments Published by John Dillard on Monday, July 09, 2007 at 12:36 PM.
In our last post in this series, we introduced a simple, four-step approach to optimize decisions that we call Decision-Centric Business Improvement. The critical decisions identified through that four-step process represent the resource-intensive turning points of every organization’s growth. These decisions are diverse; some are large: corporate acquisitions, multi-billion dollar procurements, and 5-year strategic goals. Some are smaller: choosing a commodity supplier, making a hiring decision, or choosing the functionality of a software solution. Some decisions are manual, while some are automated. Some require one person; some require groups or even multiple organizations.
The last step in Decision-Centric Business Improvement is optimizing decisions along three angles: strategic relevance, technique, and technology. When optimizing decisions, it is critical that an organization work through each of these angles to build a coherent, balanced approach to the decision in question. The figure below illustrates these three “angles” of decision making.
The Decision Strategy Angle
The first angle of effective decision making is how the decision influences advancement of the organizational strategy. To clearly understand this angle, an organization should isolate the most important strategic metrics of the organization and describe the decision in terms of those metrics. If a decision cannot be shown to have a measurable impact on strategic goals, there is little chance that the decision can be successful.
The right approach in this angle is not to develop a new strategy, but rather to understand the strategy (whether implicit or explicit) and to define a particular decision in the context of the strategy. Traditional strategic planning tools—such as SWOT analysis, multiple forces analysis, or Value Chain Analysis—may be useful in this angle but should be focused on the decision.
The Decision Technique Angle
The second angle of effective decision making is the selection and application of the right tool for the job. A carpenter wouldn’t use a sledgehammer to drive carpet tack; similarly, a good decision maker chooses the tool that is just complex enough—but no more complex—to do the job. In this angle, an organization must understand both the soft and hard aspects of the decision. Hard aspects include the required speed and frequency of a decision, as well as the number of variables involved and whether the decision requires descriptive (backward-looking) or predictive (forward-looking) results. Soft aspects invlude the level of organizational buy-in required, political consequences, human factors, and transparency requirements.
For an automated supply chain decision, an organization might choose to develop a sophisticated algorithm that completes on the fly multivariate analysis. For a one-time strategic decision at a board meeting, it might use a decision tree or a consensus building method. Hypothesis testing, analytic network process, analytic hierarchy process, real options are other approaches that might be used to aid decision making.
The Decision Technology Angle
The third angle of effective decision making is the application of appropriate technology to enable the decision. Most organizational decisions will benefit from better management and distribution of information aided by technology, but not all. Knowing if, when, and how to apply technology is the component of decision optimization least understood and most prone to error.
Good decisions result from a qualified decision maker armed with the right information, delivered at the right time in the right context.
Rather than selecting one-off technology solutions, an organization should understand their “Decision Architecture” – an architecture optimized for effective decision-making. In many cases, this architecture may be comprised of existing systems rather than expensive new ones. Effective organization and adaptation of organizational IT can transform decision-making capabilities in many organizations.
While “hard” decisions—those with many variables or high speed requirements—are the most obvious candidates for the application of technology, technology can be a critical enabler of softer decisions too. Collaboration tools, role-based access control, and innovative application of existing technology (like wikis) can be critical enablers of infrequent, collaborative decision-making. In every analysis of a critical decision, whether “hard” or “soft,” technology should be considered as a important enabler of long-term success.
The last step in Decision-Centric Business Improvement is optimizing decisions along three angles: strategic relevance, technique, and technology. When optimizing decisions, it is critical that an organization work through each of these angles to build a coherent, balanced approach to the decision in question. The figure below illustrates these three “angles” of decision making.
The Decision Strategy Angle
The first angle of effective decision making is how the decision influences advancement of the organizational strategy. To clearly understand this angle, an organization should isolate the most important strategic metrics of the organization and describe the decision in terms of those metrics. If a decision cannot be shown to have a measurable impact on strategic goals, there is little chance that the decision can be successful.
The right approach in this angle is not to develop a new strategy, but rather to understand the strategy (whether implicit or explicit) and to define a particular decision in the context of the strategy. Traditional strategic planning tools—such as SWOT analysis, multiple forces analysis, or Value Chain Analysis—may be useful in this angle but should be focused on the decision.
The Decision Technique Angle
The second angle of effective decision making is the selection and application of the right tool for the job. A carpenter wouldn’t use a sledgehammer to drive carpet tack; similarly, a good decision maker chooses the tool that is just complex enough—but no more complex—to do the job. In this angle, an organization must understand both the soft and hard aspects of the decision. Hard aspects include the required speed and frequency of a decision, as well as the number of variables involved and whether the decision requires descriptive (backward-looking) or predictive (forward-looking) results. Soft aspects invlude the level of organizational buy-in required, political consequences, human factors, and transparency requirements.
For an automated supply chain decision, an organization might choose to develop a sophisticated algorithm that completes on the fly multivariate analysis. For a one-time strategic decision at a board meeting, it might use a decision tree or a consensus building method. Hypothesis testing, analytic network process, analytic hierarchy process, real options are other approaches that might be used to aid decision making.
The Decision Technology Angle
The third angle of effective decision making is the application of appropriate technology to enable the decision. Most organizational decisions will benefit from better management and distribution of information aided by technology, but not all. Knowing if, when, and how to apply technology is the component of decision optimization least understood and most prone to error.
Good decisions result from a qualified decision maker armed with the right information, delivered at the right time in the right context.
Rather than selecting one-off technology solutions, an organization should understand their “Decision Architecture” – an architecture optimized for effective decision-making. In many cases, this architecture may be comprised of existing systems rather than expensive new ones. Effective organization and adaptation of organizational IT can transform decision-making capabilities in many organizations.
While “hard” decisions—those with many variables or high speed requirements—are the most obvious candidates for the application of technology, technology can be a critical enabler of softer decisions too. Collaboration tools, role-based access control, and innovative application of existing technology (like wikis) can be critical enablers of infrequent, collaborative decision-making. In every analysis of a critical decision, whether “hard” or “soft,” technology should be considered as a important enabler of long-term success.
Labels: automation, business process, decision optimization, Decision-Centric Business Improvement, decisions, Identity Management, IT, triangle
The Three C’s of Governance
0 Comments Published by Hanno Ekdahl on Thursday, May 10, 2007 at 1:42 PM.
Most companies struggle on some level with decision-making. Let’s face it; keeping a large company working in a coordinated manner is no simple task. In the case of IT, this problem tends to be exacerbated by the fact that there is a lack of common language between groups. The business speaks in terms of finance and marketing, while IT talks about projects in terms of features and technical feasibility. The result is a lack of alignment, which hurts both groups. The solution to this dilemma is governance. The goal of governance is to fix broken processes and bring focus back to the strategic priorities of the business. In this entry, I suggest that we can look at governance through three lenses: control, communication, and change.
Effective governance exerts control either through formal authority or influence, depending on the degree of (management) centralization and the authority granted by executive leadership. In either case, the governance board works to establish standards and policies for the organization to guide development efforts. In addition, establishing a project approval process is essential to managing priorities and keeping IT departments focused on key initiatives instead of working in reactive mode to respond to the request of the day. The goal here is to balance the needs of the business with technical requirements to develop solutions that deliver business value and are secure and efficient to maintain.
The benefits we hope to achieve through control begin with communication. Project selection, policies, and standards should all be established through conversations between the business and IT within the context of strategic objectives and desired outcomes. These decision points hinge on a common understanding of the value delivered, the risks mitigated, and the cost to implement. Alignment between the business and IT is essential to set the right policies and to ensure that organizational compliance is high. Furthermore, a formal project selection process allows the IT and the business to set priorities together, stop projects that aren’t delivering value, and redeploy resources where they are most needed.
The last dimension of governance is change; how do we remove political obstacles and also get users to adopt the solution? Governance offers the opportunity to establish a structured, organized change management process to get us from our current state to a desired future state. Politics represent one barrier that can be challenging to overcome. It is the role of business stakeholders on the governance council to help IT overcome political barriers by identifying and addressing issues early on. User resistance to change is another matter entirely. Resistance to change is rooted in a desire to avoid disruption to the user’s established routine and to stay with the systems they know well. The best way to counteract this resistance is to improve communication and involve end users early in the development cycle. The project lifecycle should take care to generate user buy-in by asking for feedback, evaluating and incorporating changes from the user population, and supporting the transition to the new system.
Another look at the three C’s of Governance:
Control
· Formalize project selection/prioritization
· Employ IT portfolio management
· Establish standards
· Define policies
· Balance formal authority against influence
· Deliver consistent solutions
Communication
· Communicate business value – How will we benefit from this project?
· Gather business requirements – Does the solution meet our needs?
· Create transparency and better understanding of IT activities and performance
· Improve understanding of objectives and expectations
· Improve visibility of project issues and priorities
· Change perception of IT as a ‘cost center’ to strategic partner
Change
· Involve users earlier in the development cycle
· Capture enhancement requests
· Improve solution adoption
· Establish communication plan
· Identify and plan for objections/resistance to change
· Overcome organizational politics
· Provide end-user training
Effective governance exerts control either through formal authority or influence, depending on the degree of (management) centralization and the authority granted by executive leadership. In either case, the governance board works to establish standards and policies for the organization to guide development efforts. In addition, establishing a project approval process is essential to managing priorities and keeping IT departments focused on key initiatives instead of working in reactive mode to respond to the request of the day. The goal here is to balance the needs of the business with technical requirements to develop solutions that deliver business value and are secure and efficient to maintain.
The benefits we hope to achieve through control begin with communication. Project selection, policies, and standards should all be established through conversations between the business and IT within the context of strategic objectives and desired outcomes. These decision points hinge on a common understanding of the value delivered, the risks mitigated, and the cost to implement. Alignment between the business and IT is essential to set the right policies and to ensure that organizational compliance is high. Furthermore, a formal project selection process allows the IT and the business to set priorities together, stop projects that aren’t delivering value, and redeploy resources where they are most needed.
The last dimension of governance is change; how do we remove political obstacles and also get users to adopt the solution? Governance offers the opportunity to establish a structured, organized change management process to get us from our current state to a desired future state. Politics represent one barrier that can be challenging to overcome. It is the role of business stakeholders on the governance council to help IT overcome political barriers by identifying and addressing issues early on. User resistance to change is another matter entirely. Resistance to change is rooted in a desire to avoid disruption to the user’s established routine and to stay with the systems they know well. The best way to counteract this resistance is to improve communication and involve end users early in the development cycle. The project lifecycle should take care to generate user buy-in by asking for feedback, evaluating and incorporating changes from the user population, and supporting the transition to the new system.
Another look at the three C’s of Governance:
Control
· Formalize project selection/prioritization
· Employ IT portfolio management
· Establish standards
· Define policies
· Balance formal authority against influence
· Deliver consistent solutions
Communication
· Communicate business value – How will we benefit from this project?
· Gather business requirements – Does the solution meet our needs?
· Create transparency and better understanding of IT activities and performance
· Improve understanding of objectives and expectations
· Improve visibility of project issues and priorities
· Change perception of IT as a ‘cost center’ to strategic partner
Change
· Involve users earlier in the development cycle
· Capture enhancement requests
· Improve solution adoption
· Establish communication plan
· Identify and plan for objections/resistance to change
· Overcome organizational politics
· Provide end-user training
Labels: change management, governance, IT, policies, standards
