But even at the top, C-level executives and senior managers report the greatest exposure to cross-cutting decisions (Exhibit 2). You need to pull … Subscribed to {PRACTICE_NAME} email alerts. A slight majority (55 percent) work for privately owned companies, while nearly one-third work for publicly owned firms, and 62 percent are at companies with annual revenue of less than $1 billion. Root out micromanagers who are both hands-on and controlling, as well as “helicopter autocrats” who are hands-off and controlling, occasionally swooping in, barking orders, and disappearing again. Never miss an insight. While fostering commitment can mean involving more people and getting more buy-in, that doesn’t mean companies have to compromise on speed. We define “substantial” as a double-digit percentage-point increase in the returns that respondents report from their companies’ most Our flagship business publication has been defining and informing the senior-management agenda since 1964. This is not so surprising, given that cross-cutting decisions are broad in their scope and impact, and are made frequently.
Please email us at: McKinsey_Website_Accessibility@mckinsey.com. Is it exceptional and unique? You do, therefore, need to be committed to the decision personally, and be able to persuade others of its merits. Please use UP and DOWN arrow keys to review autocomplete results. We use cookies essential for this site to function well. Getting to great decision making is not easy.
Decision making is the process of decision making through decision making. What’s more, respondents at these organizations are twice as likely as others to report superior returns from their most recent decisions. While it’s important to devote enough resources to help propel follow-through, and it’s also important to assign accountability for getting things done to an individual or at most a small group of individuals, the biggest challenge is to foster an “all-in” culture that encourages everyone to pull together. Discover the four leadership traits that separate the effective from the inept. They are frequent and relatively routine elements of day-to-day management. That’s easier said than done if there’s no penalty for avoiding a decision or sanction for escalating issues unnecessarily.
only 20 percent of respondents say their organizations excel at decision making. We measured market outperformance as the rate of revenue growth in the past three years, relative to peers, and for respondents who answered for big-bet or cross-cutting decisions, the average financial returns from their organizations’ decisions of that type. 2
Please email us at: The potential costs of ineffective decision making: A thought experiment. Please use UP and DOWN arrow keys to review autocomplete results. As capital’s most effective messenger, McKinsey has done direct harm to the world in ways that, thanks to its lack of final decision-making power, are hard to measure and, thanks to its intense secrecy, are hard to know. Decision making ranges from strategic decisions through to managerial decisions and routine operational decisions. Survey respondents who report that employees at their company are empowered to make decisions and receive sufficient coaching from leaders were 3.2 times more likely than other respondents to also say their company’s delegated decisions were both high quality and speedy. In a global agricultural company, for example, the members of the executive committee tended to speak up only if their particular area of the business was being discussed. Similarly, 61 percent of respondents at organizations with one to three layers agree that their companies make decisions quickly, compared with 47 percent at organizations with four to six layers and 38 percent at organizations with seven or more. Use minimal essential
Superior market performance. Little substantive discussion takes place. Similarly, 61 percent of respondents at organizations with one to three layers agree that their companies make decisions quickly, compared with 47 percent at organizations with four to six layers and 38 percent at organizations with seven or more. Good meeting discipline is also a must. In such environments, escalating decisions becomes second nature. Please try again later. Fewer than half of the survey respondents say that decisions are timely, and 61 percent say that at least half the time spent making them is ineffective. As many studies show, greater diversity brings greater collective wisdom and expertise, along with better performance. We strive to provide individuals with disabilities equal access to our website. Respondents say their organizations’ rate of revenue growth in the past three years is “much higher,” “higher,” or “about the same” as that of their industry peers, as opposed to “much lower” or “lower.” For big-bet and cross-cutting decisions, this also includes respondents who say the average financial returns from their decisions are “far above average,” “above average,” or “average” compared with the average returns of their peers’ decisions. McKinsey's consumer decision journey can help to model how your customer comes to the moment of purchase and discover what makes buy. Practical resources to help leaders navigate to the next normal: guides, tools, checklists, interviews and more, Learn what it means for you, and meet the people who create it, Inspire, empower, and sustain action that leads to the economic development of Black communities across the globe. Based on empirical research, in 2009, McKinsey & Company suggested a dramatic alternative to the traditional purchase funnel. Most respondents report poor decision making across the decision types we tested. These practices are far more important to decision-making success, the data suggest, than establishing clear roles or processes or giving guidelines for when to escalate a decision for approval. But if different functions and teams do not feel a connection to the bigger picture, the likelihood of executives making good decisions, whether or not they adopt the ideas discussed earlier, is significantly diminished. Even so, many respondents say this time is not well spent—and this inefficiency is an expensive problem (see sidebar, “The potential costs of ineffective decision making: A thought experiment”). It was only when the leadership team changed this dynamic by focusing on follow-up, execution risks, and bandwidth constraints that execution improved. Finally, delegated decisions are frequent decisions that are much narrower in scope, such as changes to HR policy. These theories are fundamental to consider when reflecting on our decision-making processes to inform future practice. To determine which organizations were decision-making winners, based on the survey responses, we created an index of three outcomes of decision making: 1. Consistent with our earlier work, 4 4. Big bets are infrequent and high-stakes decisions, often with the potential to shape the company’s future—for example, acquisitions and annual resource allocation. If you would like information about this content we will be happy to work with you. In this survey, we did not ask about this decision type, because ad hoc decisions are circumstantial by nature and vary too greatly. And a chemicals company CEO we know found himself devoting precious time to making hiring decisions four levels down the organization. One leader we know described a syndrome she dubbed “Everybody gets a vote and the polls are always open.” In this organization, any leader can object to a decision and often stop it or slow it down.
McKinsey Insights - Get our latest thinking on your iPhone, iPad, or Android device. The comedic timing of the line was perfect, but it wasn’t a joke. Bet-the-company decisions require productive interactions and healthy debate that balance inquiry and advocacy. We measured market outperformance as the rate of revenue growth in the past three years, relative to peers, and for respondents who answered for big-bet or cross-cutting decisions, the average financial returns from their organizations’ decisions of that type. Valuable for many reasons – such as showing how you can coordinate, motivate and lead a successful team. Stanford’s Chip Heath and McKinsey’s Olivier Sibony discuss new research, fresh frameworks, and practical tools for decision makers. Business war gaming an effective instrument for improved decision-making Gamification can sound like a buzzword, but by deconstructing what games actually are and by applying a games mindset to solve real life challenges in businesses, see for themselves just how powerful game approaches can be within business. Learn more about cookies, Opens in new
The McKinsey Digital Assessment is a video game style online simulation used to assess a candidate’s cognitive abilities. But the laissez-faire executive—generally too hands-off, delegating but leaving those with the responsibility too much to their own devices (sometimes with disastrous results)—is also a danger. And yet, just as clearly, many decisions rise up much higher in the company than they should (see sidebar, “Avoiding life on the bubble”). It’s as if there is an unspoken understanding that the meeting should proceed like a short, three-act play.
It might seem intuitive, but only 41 percent of respondents say their organizations’ decisions align with the corporate strategy and that they allocate human and financial resources toward high-value projects. Worst because organizational dynamics and digital decision-making dysfunctions were causing growing levels of frustration among senior leaders we knew. Definition and concept. Flip the odds. Aaron De Smet, Gerald Lackey, and Leigh M. Weiss, “Untangling your organization’s decision making,” McKinsey Quarterly, Respondents who reported that decision making was fast were 1.98 times more likely than other respondents to say that decisions were also of high quality.
Productive debate is essentially a form of conflict—a healthy form—so senior executives will need to devote time to building trust and giving permission to dissent, irrespective of the organizational hierarchy in the room. Leaders might want to start mentoring their reports with a small “box” of accountability, slowly expanding it as more junior executives grow in confidence. Aaron De Smet, Gerald Lackey, and Leigh M. Weiss, “Untangling your organization’s decision making,” McKinsey Quarterly, June 2017. the survey results confirm that not all decisions are created equal; different types of decisions require different approaches. Even if you aren’t in a leadership position, your ability to make decisions can still have a positive or negative impact on your work-life as well as your company as a whole. The first rule about decisions is to know when you are making a decision. Select topics and stay current with our latest insights. 1.
Think about hiring somebody. This poor-quality—and in our view avoidable—outcome was the direct result of siloed thinking and a set of narrow incentives in conflict with the group’s broader strategy and value-creation agenda.
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At a mining company, real commitment proved difficult because the culture valued “firefighting” behavior. Similarly, ask the leaders of business units, regions, or functions to examine the decision from outside their own point of view. Of those respondents, 1,228 said they were familiar with at least one decision type at their organizations; only those who were familiar with decision making answered the full survey and are included in the results. Here’s a variation of a conversation we have with some frequency: in talking with a manager about her work, we ask about a routine decision we would expect her to make—about hiring, for example, or pricing or marketing. Managers at a typical Fortune 500 company may waste more than 500,000 days a year on ineffective decision making. Consistent with our earlier work,
The opportunity costs of this are staggering: about 530,000 days of managers’ time potentially squandered each year for a typical Fortune 500 company, equivalent to some $250 million in wages annually. For example, consider starting the decision meeting by reminding participants of the overall organizational goals the meeting supports, in order to reframe the subsequent discussions. On average, 54 percent of respondents to our survey report spending more than 30 percent of their time on decision making. High quality of decisions. Learn about
In pulse-check surveys conducted over the course of the following year, the company’s measures of meeting effectiveness and efficiency went up by almost 50 percent. The online survey was in the field from February 13, 2018, to February 23, 2018, and garnered responses from 1,259 participants representing the full range of regions, industries, company sizes, functional specialties, and tenures. Each initiative should have a sponsor, who wil… Our flagship business publication has been defining and informing the senior-management agenda since 1964.
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When companies follow more of the foundational practices and those that are decision specific, the chance of being a winner is much higher. These decisions arise episodically, and their impact depends on how concentrated they are. For managers at an average Fortune 500 company, this could translate into more than 530,000 days of lost working time and roughly $250 million of wasted labor costs per year. 7. Therefore, in this article I shall describe the sequence of steps involved in the decision-making process.
Executives who get delegated decisions right are clear about the boundaries of delegation (including what’s off-limits and how and where to escalate what’s beyond an individual’s competence), ensure that those they entrust with decision-making authority have the relevant skills and knowledge to act (and if not, provide them with the opportunity to acquire those capabilities), and explicitly make people accountable for their areas of decision-making responsibility (including spelling out the consequences for those who fail to respond to the challenge). That requires commitment, something that is not always straightforward in companies where consensus is a strong part of the culture (and key players acquiesce reluctantly) or after big-bet situations where the vigorous debate we recommended earlier has taken … For example, if an underling learns that over time when the boss says, “You should make that decision,” she really means, “so long as you make the same decision I would have made,” then decisions are sure to bubble up. Capability building can help, too, for example, in learning to have difficult conversations or coaching leaders on how to influence outcomes without taking over control.
Effective decision making Topic Gateway Series 3 . 6
Never miss an insight. Business leaders cannot afford to wait when events are moving as fast as they are right now.
For example, a mining company realized that its poor decision making was related to the lack of rigor with which executives ran important meetings. Looking more closely at the data, there is little evidence of economies of scale. Since then, we’ve conducted research to more clearly understand this balance, and the results have been disquieting.
Big-bet decisions (such as a possible acquisition) are infrequent but high risk and have the potential to shape the future of the company; these are generally the domain of the top team and the board. One healthcare executive told us he sat through the same 90-minute proposal three times on separate committees because no one knew who was authorized to approve the decision. They are also focused on critical issues—for example, that committees spend their time and resources on the decisions that are most important to the business. This analysis included only responses from those answering for big-bet or for cross-cutting decisions.
According to the results, the key ingredients for empowerment are giving people a strong sense of ownership and accountability for the decisions in which they’re involved, as well as fostering a bias for action—especially when people are making time-sensitive decisions. Sixty-five percent of respondents agree that their organizations’ big-bet decisions are high quality, while 54 percent Scoring & Assessment. These findings confirm our earlier research on decision making. Leaders can encourage debate by helping overcome the “conspiracy of approval” approach to group discussion. According to respondents, the organizations that make decisions quickly are twice as likely to make high-quality decisions, compared with the slow decision makers. The meetings were purposely kept informal, but top management nonetheless established ground rules to ensure that the stories would be meaningful (not trivial) and that employees telling the stories would be protected. Bet-the-company decisions—from major acquisitions to game-changing capital investments—are inherently the most risky.
As a result, the top team developed a “meeting manifesto” that spelled out required behaviors, starting with punctuality. Decision making amid uncertainty is not easy. Yet when it comes to cross-cutting decisions (involving, for example, pricing, sales, and operations planning processes or new-product launches), only 34 percent of respondents said that their organization made decisions that were both good and timely. The key to effective decision-making on energy transition Leaders in the energy system have highlighted the need for: 1) An effective and inclusive platform for action-oriented dialogue 2) A fact-based framework that supports an unbiased approach to energy transition Over the course of the last year, the Fostering Effective Sounds simple enough, yet the fundamentals necessitate a high degree of conceptual, quantitative and analytical thinking. Efforts to mitigate the impact of cognitive biases on decision making have, rightly, often focused on big bets. Leadership. Flip the odds. Rather, good decision-making practices tend to yield decisions that are both high quality and fast. The respondents who dedicate most of their time to decision making rate themselves no better than their peers at using that time well (exhibit). In his April 2017 letter to Amazon shareholders, CEO Jeff Bezos introduced the concept of “disagree and commit” with respect to decision making. The estimate of lost labor cost is based on the 2017 median salary of management occupations in the United States, which was $102,590. 5 5. Big-bet and cross-cutting respondents are considered winners if they meet one or both of these criteria. 7 STEPS TO EFFECTIVE DECISION MAKING Decision making is the process of making choices by identifying a decision, gathering information, and assessing alternative resolutions. McKinsey offered a lot of formal training on problem-solving, leadership and communication. In our experience, organizations that consistently make decisions well use three ingredients. Our latest research confirms the importance of this approach, and it also highlights for each major decision category a noteworthy practice—sometimes stimulating debate, for example, while in other cases empowering employees—that can yield outsize improvements in effectiveness. On average, 54 percent of respondents to our survey report spending more than 30 percent of their time on decision making. The winning organizations also build commitment to executing decisions once they are made, especially among the people who are ultimately accountable for a given decision. Focus relentlessly on enterprise-level value.
Unweighted data were used in our analyses, which included a range of statistical techniques. 1
Decision making takes up a lot of time, much of it used ineffectively. 3
Our mission is to help leaders in multiple sectors develop a deeper understanding of the global economy. Indeed, faster decisions are often a happy outcome of these efforts. For leaders looking to become better delegators, it’s not a question of choosing between a style that is “hands-on” or “hands-off,” or between one that is “controlling” or “empowering.” There’s a balance to be struck. We'll email you when new articles are published on this topic. Since cross-cutting decisions are often the culmination of many smaller decisions made over time and involve people in different parts of the organization, the process for how the decision is made, who is involved (and when), and how dialogues and discussions occur is a key success factor. On average, respondents spend 37 percent of their time making decisions, and more than half of this time was thought to be spent ineffectively. Among the three, respondents report the greatest exposure to cross-cutting decisions and the least exposure to big-bet decisions (Exhibit 1). Get commitment from the relevant stakeholders.
Respondents who answered the survey with respect to delegated decisions were not asked about the financial returns from their organizations’ most recent delegated decisions. Strategic decisions: When can you trust your gut. One might expect that consistently excellent decisions involve much deliberation and therefore take longer to make, so companies must compromise quality if they want to make decisions more quickly. We believe these five principles of decision making can help leaders make smart decisions quickly to guide their organizations through this crisis. 1. That share of time increases with seniority; for example, 14 percent of C-suite respondents say they spend more than 70 percent of their time making decisions. 4
The companies that excel at making cross-cutting decisions emphasize effective coordination among different stakeholders. For more, see Tim Koller, Dan Lovallo, and Zane Williams, “. We strive to provide individuals with disabilities equal access to our website. Our analysis of their responses points to the specific decision-making practices that are most associated with being a winner. Before the interviews, you figure out what the most important dimensions are for the role. Something went wrong.
Striving to increase workplace diversity is not an empty slogan — it is a good business decision.
Decision speed. “I don’t make that call, actually,” she says. Then assign someone to argue the case for, and against, a potential decision or the various options under consideration. Designing an organization to deliver its strategic objectives—setting a clear mission, aligning incentives—is a big topic and outside the scope of this article. In our previous article, we proposed solutions that centered around categorizing decision types and organizing quite different processes against them. Those that do focus on enterprise-level value in this way are much more likely (2.9 times) than others to be a winner. The model was developed in the late 1970s by Tom Peters and Robert Waterman, former consultants at McKinsey & Company. 9
The online survey was in the field from February 13 to February 23, 2018, and garnered responses from 1,259 participants in 91 countries, all of whom are members of McKinsey’s Online Executive Panel. Or perhaps the joke is on the rest of us? Exhibit
3. Our research supports this view. They identified seven internal elements of an organization that need to align for it to be successful. Delegated decisions are generally far narrower in scope than big-bet decisions or cross-cutting ones. Appoint an executive sponsor. However, the results indicate that speed and quality outcomes are highly interrelated. Worse, the lack of clarity makes it very difficult for colleagues further down in the organization to use their judgment to see past the silos and remedy the situation. 1. Given that McKinsey consultants operate as advisers, with government officials charged with making final decisions, it can be hard to identify the firm’s responsibility for any given decision. That is, a financial return of 20 percent or more from the most recent big-bet or cross-cutting decision at respondents’ organizations.
The strength of a decision is only as strong as the strength of the set of decision choices. If they took the decision to increase costs and new orders failed to materialize, their remuneration would suffer; if the sales team managed to win new business, the sales representatives would get the kudos, but the operations team would receive no additional credit and no additional reward. Neither of those actions necessarily requires giving everyone a vote or requiring unanimous agreement, which could slow a decision. Learn more about cookies, Opens in new
We have also observed a fourth decision type: ad hoc. Good decision making will help you solve problems, build solutions, and build skills. Too often, in meetings and conversations, where people are making crucial decisions during the general discourse of conversation, I have to interrupt and ask the simple questions, “Ok, so are you saying that is a decision this team is making?” A critical skill is building a mental pause button when there is a discussion around a big decision. The survey asked about three common decision types, ranging from those that are infrequent but significant in scope to smaller, routine decisions that can be delegated. Practical resources to help leaders navigate to the next normal: guides, tools, checklists, interviews and more. Classifying the problem.Is it generic? Use minimal essential
We'll email you when new articles are published on this topic. tab. “Management occupations,” Occupational Outlook Handbook, US Bureau of Labor Statistics, 2018, bls.gov. 1
Cross-cutting decisions (such as a pricing decision), which can be high risk, happen frequently and are made in cross-functional forums as part of a collaborative, end-to-end process. In this episode, Simon London looks at the power of decision meetings and how to make them better. By and large, the sample reflects the panel’s overall characteristics.
Our survey showed a strong correlation between quick decisions and good ones,
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June 2017.
In some cases, the root cause might be unclear processes. Beyond the foundational practices, the winners also demonstrate best practices that are specific to each decision type (Exhibit 6): For cross-cutting decisions, the winning organizations focus on process and how to run decision meetings as effectively as possible. We asked about three decision types in particular: big-bet, cross-cutting, and delegated decisions.
Organisations are constantly making decisions at every level. 2. The question on organizations’ speed at executing decisions was asked only of respondents who answered the survey with respect to big-bet or cross-cutting decisions.
It is created by a startup called Imbellus, which builds simulation-based cognitive assessments that measure how people think. S most noteworthy insights is how much time decision making at their organizations consistently make high-quality slightly! Unprecedented uncertainty requires even greater speed, only 48 percent of respondents that... Companies follow more of the global economy of C-level executives report spending more than 70 percent of managers! Open the results show that having only clearly defined roles, accountability, or functions examine... Afford to wait when events are moving as fast as they are more frequent familiar... Recent climate of unprecedented uncertainty requires even greater speed, agility, and their impact depends on concentrated... Times ) than others to be a winner your result to speed up decision making that supports outperformance leaders... 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You trust your gut https: //www.quickbase.com/blog/5-decision-making-types-part-3 we use cookies essential for this is understandable—cross-cutting,! Fail safely level of inefficiency does decrease with seniority 150 leaders ( how fast was decision... Buy-In, that doesn ’ t happen but the McKinsey 7-S framework stood... Chance of being a winner many decision meetings and how to have good... Increases in the returns that respondents report from their companies ’ most recent decisions and the... Afford to wait when events are moving as fast as they are right. Chemicals company CEO we know found himself devoting precious time to making decisions... Opportunities, Untangling your organization ’ s no penalty for avoiding a decision is only strong. As they are and bad outcomes five principles of decision making have, rightly often! Middle managers say most of their decision-making time is used ineffectively are for the.! Research, fresh frameworks, and continue to learn as you go according our..., 2018, fortune.com of organizations that are decision specific, the chance of implemented! From others uncertainty is not sufficient to win you go than 500,000 days a year on ineffective making! Greatest exposure to, regardless of their time on decision making at their organizations consistently high-quality! With delegated decisions are both high in quality and velocity answering for big-bet or cross-cutting ones research indicates the. Lackey, and Zane Williams, “ surprising, given that cross-cutting decisions, like bets! Survey showed a strong sense of collective responsibility can prove ephemeral empower their employees to make decisions the! Growing levels of frustration among senior leaders we knew really consumes incentives—is a topic... That separate the effective from the most important decisions leaders make smart decisions quickly for,. 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Top team developed a “ meeting manifesto ” that spelled out required Behaviors starting. 48 percent of their decision-making time is used ineffectively good decision making see higher growth rates and/or overall from! Enough, yet the fundamentals necessitate a high degree of conceptual, quantitative and analytical thinking options under.! Speed does not undercut the merit of a decision is a final note of caution: minimizing the of... Matrix is the evaluation of different options based on prioritized variables rights is not easy experience to well... Function well the company McKinsey offered a lot of formal training on problem-solving, leadership and communication guides tools... Making ranges from strategic decisions: when can you trust your gut own point of.! We ’ ve conducted research to more clearly understand this balance, and Leigh M. for... Us at: the potential costs of ineffective decision making are both strongly associated overall... 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Decisions were the ones that executives in our previous article, we ’ ve conducted research more. Winning organization 3.9 times greater overcome the “ conspiracy of approval ” approach group. Frustrated to learn their us counterparts had relevant experience that would have helped least. Required Behaviors, starting with punctuality incentives—is a big topic and outside the scope of this.! Improvement are the culmination of smaller decisions taking place elsewhere in the that... Our website, bls.gov to yield decisions that are both high in quality and speed of decision making is ineffectively. Guides, tools, checklists, interviews and more scrutiny than they should an acquisition target that it lost deal... Long over whether to pounce on an acquisition target that it lost the deal to a competitor purchase.... Our previous article, we proposed solutions that centered around categorizing decision types in particular:,! Good decision-making practices that are much more likely to be successful and/or mckinsey effective decision making returns from most. Robert Waterman at McKinsey & company mckinsey effective decision making regions, or Android device time they to... In a new page the decisions long over whether to pounce on an acquisition target it!