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
Why optimizing decisions is the most important thing you can do
4 Comments Published by John Dillard on Saturday, February 17, 2007 at 5:38 PM.
The most important piece of advice we can give to organizations and their leadership for the next 30 years is this:
Optimizing decisions is the single most important factor in long-term organizational success. It's more important than strategy, organization design, quality, customer relationship management, innovation, or any other business model, technique, or practice.
That statement is provocative, but it's the reason why we started a company. It also begs the question, "What has changed to make optimized decisions so important?" This post outlines some of the reasons why; the next post will discuss ideas on what to do about it. The reasons are far too many to list here, but below are my views of the key interdependent factors.
1) Business model innovation. Innovations in business models--the underlying mechanisms that define the way organizations operate to provide goods and services--have been changing at breakneck speed in the last 15 years, and there is no reason to expect a coming period of stabilization. Organizations that are successful don't adopt a model and stick with it; they are hyper-adaptive to new business model opportunities when they emerge. The number of choices in business models and the resulting consequences are rapidly multiplying.
2) Intensifying expectations for regulatory compliance. Companies and governments entered a new era after 9/11 and the Enron scandal marked by a dramatic intensification of oversight by shareholders, regulatory authorities, Congress, OMB, and others. Not only is there pressure to make critical decisions quickly and accurately, but organizations must explain to overseers why the decisions were made. This new emphasis on transparency of decision-making is not supported by 20th century decision-making processes.
3) Compressing decision cycles. As business models shift and information becomes more accessible and available, organizations are faced with compressing decision cycles, particularly in critical capability processes. They have less time to choose options, and more options to choose from. In any decision, data must be aggregated, criteria established, options considered, and decisions made. Organizations have less and less time to pass each gate.
4) Advancing decision automation. Advancements in artificial intelligence compound the severity of the decision making problem. More and more decisions may be automated every year, placing additional pressure on manual decisions to either be expedited or automated themselves. Critical decisions will either be severe time traps in critical processes, or the source of substantial competitive advantage. Ignore this technology at your peril--over the next ten years the ability of software to solve complex, unstructured problems will revolutionize what organizations define as their core capabilities. James Taylor writes the best blog out there on decision automation.
5) Accelerating acceleration. As everyone knows, the innovation in technology, business, and life is accelerating. This is well documented---Moore's Law and studies of technology adoption curves are just two good pieces of evidence. However, what places so much more pressure on decision cycles is that the rate of change is also accelerating. Why? Because enablers of innovation are themselves undergoing rapid, logarithmic change. Ray Kurzweil and Alvin and Heidi Toffler have done some great writing on this phenomenon.
These are just five thoughts on my list. . . it's certainly not exhaustive. Our next post will focus on how we view solutions to the challenge--specifically, decision-centric capability development.
Optimizing decisions is the single most important factor in long-term organizational success. It's more important than strategy, organization design, quality, customer relationship management, innovation, or any other business model, technique, or practice.
That statement is provocative, but it's the reason why we started a company. It also begs the question, "What has changed to make optimized decisions so important?" This post outlines some of the reasons why; the next post will discuss ideas on what to do about it. The reasons are far too many to list here, but below are my views of the key interdependent factors.
1) Business model innovation. Innovations in business models--the underlying mechanisms that define the way organizations operate to provide goods and services--have been changing at breakneck speed in the last 15 years, and there is no reason to expect a coming period of stabilization. Organizations that are successful don't adopt a model and stick with it; they are hyper-adaptive to new business model opportunities when they emerge. The number of choices in business models and the resulting consequences are rapidly multiplying.
2) Intensifying expectations for regulatory compliance. Companies and governments entered a new era after 9/11 and the Enron scandal marked by a dramatic intensification of oversight by shareholders, regulatory authorities, Congress, OMB, and others. Not only is there pressure to make critical decisions quickly and accurately, but organizations must explain to overseers why the decisions were made. This new emphasis on transparency of decision-making is not supported by 20th century decision-making processes.
3) Compressing decision cycles. As business models shift and information becomes more accessible and available, organizations are faced with compressing decision cycles, particularly in critical capability processes. They have less time to choose options, and more options to choose from. In any decision, data must be aggregated, criteria established, options considered, and decisions made. Organizations have less and less time to pass each gate.
4) Advancing decision automation. Advancements in artificial intelligence compound the severity of the decision making problem. More and more decisions may be automated every year, placing additional pressure on manual decisions to either be expedited or automated themselves. Critical decisions will either be severe time traps in critical processes, or the source of substantial competitive advantage. Ignore this technology at your peril--over the next ten years the ability of software to solve complex, unstructured problems will revolutionize what organizations define as their core capabilities. James Taylor writes the best blog out there on decision automation.
5) Accelerating acceleration. As everyone knows, the innovation in technology, business, and life is accelerating. This is well documented---Moore's Law and studies of technology adoption curves are just two good pieces of evidence. However, what places so much more pressure on decision cycles is that the rate of change is also accelerating. Why? Because enablers of innovation are themselves undergoing rapid, logarithmic change. Ray Kurzweil and Alvin and Heidi Toffler have done some great writing on this phenomenon.
These are just five thoughts on my list. . . it's certainly not exhaustive. Our next post will focus on how we view solutions to the challenge--specifically, decision-centric capability development.
Labels: artificial intelligence, automation, decision optimization, decisions
