October 2009
Update

An Epidemic of Decision Disorder
Thomas H. Davenport

Businesses and organizations are suffering from a serious epidemic of decision disorder. While there have been bad decisions throughout history, in recent years the frequency of bad decisions seems to be increasing, and the consequences seem ever more severe. Sometimes they are disastrous. Banks made credit and risk decisions on the assumption that housing prices would always rise, and (needless to say) they didn’t. Mergers and acquisitions that seemed intuitively appealing didn’t yield value for shareholders (while some that did seem to make sense for shareholders, such as Microsoft/Yahoo, didn’t get done). Governments made war on other countries based on the perception that they were threatening, even when they weren’t. Yet some of the same governments decided not to intervene in inhumane situations such as Bosnia and Darfur. We know how many of these decisions have turned out; I hope those made in your organization are better. The quality of decision-making is critical to the performance of our companies, to our well-being as a society, and certainly to our economy. What topic is more deserving of being addressed in a systematic, disciplined fashion?

What’s Wrong with Decision-Making Today?

However, decisions are rarely examined systematically. Decision-making in organizations has received such little attention that many organizations haven’t even thought about what a good decision is. A bit of thought leads one to a definition: a good decision is one that employs a good decision-making process, and is therefore likely to yield a favorable outcome. If good information informs a decision, if a good method is employed in making it, if the right people are involved, and so forth, it is likely (but not guaranteed) that a good outcome will be achieved. Unfortunately, most organizations haven’t assessed their decisions according to these criteria—or any other. Just as there is clearly no shortage of bad decisions, there are plenty of reasons why decisions turn out badly. Many decision-makers employ only their intuitions, involve too many or too few in the process, or take too long to make their decisions. A key issue is that decisions are too frequently left up to individual decision-makers. There is no help from the organization, no accountability for decision outcomes, and no learning from mistakes. Although organizations have attempted to improve strategies, business processes, organizational structures, products, and many other business activities, few have attempted to bring about better decisions. It’s time to remedy this situation.

What Can Be Done to Improve Decisions?

In a new Harvard Business Review article, I describe four steps to better decision-making.

They include:

• Identification of the key decisions your organization makes;
• Inventory the attributes of those decisions;
• Intervention to make the decisions better;
• Institutionalization of the capability to make better decisions.

One important reason why firms should address decisions is that there are now many more options in decision-making methods and approaches than ever before (see chart reproduced from article).

Organizations that use only one or two approaches are leaving a lot of opportunities for better decisions on the table.

I hope you find the HBR article interesting and useful, and I’d love to start (or, in some cases, continue) a dialogue with you about your thinking on decisions and how to improve them.

If you or your organization has made some great decisions, I’d love to hear about them!

(c) 2004 Tom Davenport. All Rights Reserved.