SAVING MONEY: STREAMLINING DECISIONS & EDUCATING ABOUT COSTS

A recent article from MIT Sloan Management Review looked at informal networks--within teams and throughout organizations—and how they can systematically bias the way decisions are made and carried out. Are you leveraging your networks to their maximum benefit?

 

Over the past several decades, research has shown how both cognitive (how we think) biases and small group dynamics can undermine effective decision making in organizations. A recently published book by Rob Cross and Robert J. Thomas, “Driving Results through Social Networks: How Top Organizations Leverage Networks for Performance and Growth” examines the ways that informal networks impact the framing and execution of decisions, and how that correlates to costs.

Here are some key findings from their work.

Who we know does impact what we know

Leaders can be unaware of the way their own informal network bias affects how they frame decisions. A summary of a decades worth of studies focused on how people solved problems and found that engineers and scientists looking for information were roughly five times more likely to turn to friends or colleagues than to electronic or paper-based repositories. Studies continue to prove that even with the explosion of information technology, people continue to rely on other people for the information they need to get their work done.

Networks play a pivotal role in how organizational decisions are made and executed

One of the companies studied was a pharmaceutical firm whose business had grown over a ten year period from 5 people to more than 3,000 employees. Senior management credited their success to their entrepreneurial culture of collaboration and inclusion, which fed innovation. However the CEO was worried that the company’s culture was interfering with efficient and effective decision making. Having a network perspective helped managers understand what was happening and see what was required.

When decision rights are not clearly delineated, mundane approvals have high collaborative costs. In the case of the pharmaceutical company,  examination of the decision costs found examples like a $39,000 purchase decision which generated $17,000 in labor costs over two months; another routine decision took five months to finalize, costing the company more than $60,000 in staff time spread among 25 people.

Streamline core decision processes

Both small, dynamically growing companies and large, established companies alike can find themselves in decision gridlock. Another recent study examined how companies could improve efficiency and effectiveness of their decision making processes and found that most decisions:

• involved too many people;
• demanded too much attention from senior management, and
• were revisited too many times.

More collaboration is often erroneously seen as the remedy to inefficient and ineffective decision making.

The researchers examined both the time spent in decision-making and roles that colleagues played in these interactions (such as decision maker, input provider, advice provider, someone who “wanted to know” or someone who simply felt “a need to know”). The study found that often as much as 60% of the time employees spent on decision making was engaging with colleagues who were input providers or advice providers—that is, people who weren’t involved in making the actual decision and similarly, a lot of time was spent persuading people who either wanted or simply felt they needed to know specifics about a given decision. When the drug company compiled its survey results into interaction costs for the different levels of management, it found that management consumed a total of 17,400 hours each month on decision-making, incurring labor costs that totaled $1.4 million per month, which was a surprisingly staggering cost for an organization of its size.

The technique of network analysis enables leaders to see where they are overloaded and where they are missing contributions from the periphery.

Combining process mapping and network analysis techniques can be a powerful means for companies to evaluate and improve the effectiveness and efficiency of their core decision processes. Equally impressive improvements can be achieved by understanding the roles senior managers play in information and decision-making networks.

Some common network-related decision problems and consequences were identified:

• Unclear decision rights tend to push decisions up the hierarchy to the VP level, overwhelming high level people and causing delay at lower levels of the organization. Additionally, important decisions are delayed by the failure to define roles and responsibilities properly and empower others.
• Lack of clarity about when to involve lawyers often results in too many administrative decisions involving legal departments and can be alleviated by clarifying guidelines on a range of routine decisions.
• Excessive consensus seeking, extended decision cycles, and diffusion of effort can be the result when efforts to improve decision-making focus on symptoms, for example engaging in team building to enhance collaboration, when the underlying problem is something else.
• Pervasive cultural tendencies can perpetuate decision-making problems. For example, when being “right” is highly valued, fear of being “wrong” in a public setting can result in employees consulting too a wide range of people before making a decision. Another effect can be not disagreeing in meetings and seeking out influential people after a course of action has been decided to voice objections, thus creating turmoil.

In an environment of fierce and rapidly shifting competition, poor decision-making processes can result in significant higher costs to any organization.

In the “New Normal” brought about by the Great Recession, managers would be wise to rethink how decisions are made, what is the network lens in their organizations, and make the necessary changes to be more effective and efficient.

Contact Software Consortium or call 1-877-850-9393 to discuss how to leverage our top-level talent to empower your business.

 

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