McKinsey Global Survey on Strategic Decision Making

Consulting group McKinseys global survey, in November 2008, of over 2000 corporate executives on how their decision making processes impacted outcomes. Questions included:

1. Decision makers involved
2. Drivers of the decisions
3. Depth of analysis
4. Openness of the discussions
5. Impact of politics on process and outcomes
6. Analysis of expected financial and operational outcomes
7. Hard business benefits

The results of the survey highlighted the benefits of decision making disciplines, ensuring the right people are included and adopting organizational-wide approaches to risk and outcome analysis. It also highlighted flaws in strategic decision making, especially around the impact of irrational thinking on corporate planning.

Good Decision Process

• Process steps strongly associated with good outcomes
• Include people with the right skills and experience in decision making
• Clearly defining decision criteria
• Making decision on facts not personal assumptions
• Contributing politics, such as some consensus and alliance building

Types of Decisions Made in Organizations

The survey also revealed some interesting data on the split between different types of decisions made. More than 75% of investment decisions were aimed at revenue growth rather than cost savings and just over half [57%] of decisions related to human resources were aimed to improve efficiency or productivity.

Organization Change - Expansion [New products, services, markets] 34%

Organization Change – Other 21%

Growth - Existing products, services, markets 15%

Growth – Infrastructure 12%

Growth - M&A’s 11%

Maintenance – Infrastructure 5%

Decision Outcomes

Most decisions were driven by the executive team, most of these outside the annual planning process. Whilst the survey showed that overall, outcomes for decisions were good, it also supported other findings that execution is too often overlooked when making decisions, with operations executives only being consulted in less than one third of the most financially unsuccessful decisions. Decision outcomes were assessed in terms of met or exceeded executives’ expectations for revenue growth and cost savings, speed, implementation cost, and gains in market share or efficiency. The expected payback period of decisions was less than 2 years.

Good financial and operational outcomes

• Strong relationships linking financial success to goals set around benchmarks
• Clarity about who is responsible for implementation
• Involvement of implementers in the decision-making process
• Appropriate level of analysis, discussion, and corporate politics for the decision type

Common Decision Making Mistakes

Decisions initiated and approved by the same person - generate the worst financial results. This indicates the value of good discussion.

Decisions made without any strategic planning process are twice to fail or deliver substandard results

Lack of or insufficient risk and impact analysis

Good Decision Making Principles

Analysis

The breadth and depth of analysis was a clearly defined divider between good and poor outcomes. Analysis must include:

Financial - sensitivity analysis and financial-risk models

Implementation - speed of project completion, cost to implement, impact on whole organization not just area of implementation

Outcomes – benchmarking expectations for both financial and productivity improvements

Implementation

In many cases, operational personnel responsible for the implementation of decisions are not included in decision making. Where operational staff are consulted, the outcomes are significantly more reliable, and ensured that the following variables were included in the decision making process:

Financial success and completion of the project in less time than expected

Encouragement of participation on the basis of individuals’ skills or experiences

Reliance upon transparent approval criteria for the decision

Discussion of this decision as part of the firm’s whole portfolio of decisions

Politics – effect depends on the nature of the tactics used. Having an understanding of how the decision will impact the whole organization allows for relationship and alliance building ahead of implementation, positively impacting the success of both the speed of implementation and the outcome.

One interesting paradox emerging from the results was that the most successful and the most unsuccessful projects were those where the CEO was highly involved. Certainly, the CEO has a major impact in managing the internal politics of a program and ensuring that impact and risk are assessed at organizational levels, not departmental. This ensures that departmental goals remain aligned with the overarching organizational goals.

For detail results of the survey.

The survey closely followed a previous McKinsey survey [October 2008] on strategic thinking and how companies make good decisions. This survey revealed the error in relying on decision makers using rational thinking even when highly strategic outcomes were at stake. Irrational thinking adversely impacts both individual economic decisions and corporate strategic planning.

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