Understanding decision making in

organizations to focus its practices where it

matters
L. Michel

L. Michel is Managing
Director, based at i3
Performance Solutions,
Appitalstrasse 5, Au,
Switzerland.

Summary
Purpose The ability to make good decisions is the defining attribute of a high performance
organization. The challenge is to ensure that good decision-making practices permeate the entire
organization. As organizations grow, employees make decisions in an increasingly complex,
ambiguous, and uncertain environment. Formal practices enable employees to make decisions that
are meaningful to the firms stakeholders and guide their behaviours to align with the strategic intent of
the firm as well as its values and norms.
Design/methodology/approach Through case studies and consultancy work the author has
developed an approach to focus on management decision making and improved effectiveness.
Findings This paper describes a diagnostic tool which helps companies understand how well their
management systems support decision making and where CEOs should invest to focus leadership time
and attention. The decision-making scorecard and tools help CEOs design effectiveness management
systems and focus its use to drive their specific business agenda.
Originality/value With formal decision-making practice in place, CEOs rely on delegation and control
practices to ensure that employees make decisions in line with the organizations vision and values.
Using the described approach, CEOs and employees focus their attention on the relevant control levers
and use their time for interaction and learning rather than control. Furthermore they successfully apply
more relevant decision-making practices than before, and have abandoned extensive and expensive
performance management projects in favour of more differentiated and focused initiatives that support
their immediate goals with a direct impact. The tools have been used to ensure that the next strategic
move delivers the expected value. In summary, good decision-making practices translate the CEOs
power and responsibility into higher performance, growth and lower risk.
Keywords Decision making, Management techniques
Paper type Technical paper

Why it matters
The company that wins today is the one that makes the best decisions and is able to act on
them quickly. These decisions have to be aligned with the strategic intent of the company,
with the developments in the markets, and support the companys ability to perform. CEOs
are faced with a dual challenge. On the one hand, they need to drive decision making as far
as possible out to the periphery of their organization. For this, they need to be able to rely on
people who have good judgment. Good judgment means that people know which signals
from the market matter, which options are available, can pick the right ones and act on them
quickly, all this with substantial autonomy. On the other hand, CEOs need to ensure rigor of
thought, accountability and discipline. These trends are accelerating and are posing new
challenges to leadership. Because good leadership now means developing good judgment
in people, helping them make sense of signals and know what it means for the strategy of the
firm, to their business environment and to the firms ability to compete. In large companies,
this kind of leadership cannot only happen face to face. It must be supported by formal
management systems (The foundation goes back to literature on modern bureaucracy in

DOI 10.1108/13683040710740916

VOL. 11 NO. 1 2007, pp. 33-45, Q Emerald Group Publishing Limited, ISSN 1368-3047

MEASURING BUSINESS EXCELLENCE

PAGE 33

Weber, 1947) that facilitate these new requirements and challenges and that create a distinct
culture (Donaldson and Lorsch, 1983). As the big systems of firms, these managerial
practices traditionally integrate the processes, systems and principles for learning, strategy
development, performance measurement and management, risk management, and
governance.
Decision-making systems need design (Martin, 2005), and re-jigging formal management
systems is a sensitive, difficult, slow (Roberts, 2004) and potentially risky undertaking. So,
CEOs really want to know where specifically their systems are already supporting at scale
the development of good judgment, creativity, discipline and rigor of thought, and where
specific changes and investments need to be made. To help CEOs focus their investments
and to speed-up change, we have developed a diagnostic tool which helps leaders
understand the decision-making culture and routines in their organization. The tool includes
an online-diagnostic, a scorecard and tool box with the ability to drill-down to more than 100
items for measurement. With this, CEOs can focus their investments into formal management
systems in line with their priorities on effectiveness, growth, innovation, expectations,
complexity, speed, flexibility, uncertainty and efficiency.
Over 20 top leaders of one of the worlds largest natural resources firm were challenged on
the organizations managerial effectiveness. Their organization grew over the years through
substantial M&A activities. And, the CEO felt that the degree of decentralization had its
benefits. But, that the organization would not use its synergies as much as it could. The
diagnostic revealed that the organization was very strong in getting things done, but that it
would not use its collective capacity to think about the future. Moreover, the control
mechanisms of its holding structure prevented employees from capturing opportunities and
taking risks. Through intense discussion on the scorecard, the team learned that if it aligned
its support structure, e.g. the corporate CFO, HR, communications, planners and risk
managers, to integrate their management and control systems and to make them interactive,
that they would gain substantial platforms for thinking, collaboration and sharing. The
solution was a new approach to strategy development rather than the redesign of structure.
The results were more collaboration and a shared mind-set without losing the rigor of
implementation.
In larger organizations, formal decisions-making practices are owned by various
professionals: The Head of HR maintains the individual performance management, the
CFO leads planning and measurement, the CRO conducts the risk reviews,
Communications informs on vision and values, and the Planner maintains the strategy
office. Naturally, all these leaders develop their systems with best intentions and
state-of-the-art technologies. But, too often, the practices are not linked as they are
maintained in silos. The diagnostics integrate all parties involved in formal decision making
and align the development of these practices. With this, CEOs reduce the implementation
risks by involving employees to create this shared understanding.

Decision making drives performance

Does decision making matter for performance? The literature suggests that leadership style,
operating constraints, endogenous factors and serendipity are the factors that determine
much of organizational performance (see reviews of Bass, 1990; Cannella and Monroe,
1997). Opportunities and risks, as the endogenous factors, explain much of the variability in
performance. And, the choices on strategy, structure, and capabilities, as operating
constraints (Barnard, 1938; Child, 1972; Hambrick and Mason, 1984), together with the
decision making approach (Simons, 1991) of the leader describe much of the value and
performance in organizations. Leaders address the complexity, uncertainties and
ambiguities of doing business by structuring accountability Simons, 2005), delegating
decision-making and the use of control systems (Simons, 1995) in their organizations.
Formal decision-making practices are a competitive advantage. They can not walk away,
and they can not be copied easily (Seemann and Huppi, 2001). In that sense, leadership
matters for performance.

PAGE 34 MEASURING BUSINESS EXCELLENCE VOL. 11 NO. 1 2007

When organizations grow and add new geographic locations, functions, layers of
management and/or products and services, the complexity of the decision making rises.
With this, CEOs need to reconcile various trade-offs that these new choices create. They
balance these tensions by reducing complexity and delegating some of their responsibilities
to employees at the periphery. To do this successfully, CEOs need to put effective practices
in place that support employees to accept their responsibilities.
Employees that accept greater responsibilities, require context to help them address the
opportunities and uncertainties. Modern technologies and the knowledge economy have
fundamentally shifted the way CEOs apply their formal decision-making practices (Table I).
In the past, most decisions were taken by the leaders at the top and employees were
expected to report results bottom-up. However, for most decisions at the top, information is
incomplete and biased. Today, employees at the periphery make thousands of decisions
every day. These employees want to understand, contribute and deliver results. They know
about the opportunities and uncertainties being close to customers. With this, they can
capture growth opportunities and know about the barriers that keep the organization from
reaching its potential. With modern decision making, employees inform management so
they can update and refine the strategy.
The challenge for CEOs is to create this context for good decision making (Minzberg, 1987a,
16-17), and that it permeates the entire organization. In the past, top-down decision making
often resulted in competing demands, conflicting goals, uncertainty about purpose, stress
or temptations. As the sole source for making sense, employees had to rely on their
managers ability to translate the CEOs vision into the desired behaviors. With employees
taking charge in an increasingly networked environment, CEOs need to ensure that their
strategy, the vision and values are shared among all employees and consistently throughout
the organization. They do this by creating the shared context (Table II) such that employees
have a shared understanding, mind-set, agenda, beliefs, and norms. Shared context helps
employees make decisions in a culture with less ambiguity. Effective leaders create the
shared context with their formal management systems (Michel and Seemann, 2005). Such
formal systems ensure the necessary discipline for decision making in organizations. They
help CEOs establish the formal rules, decompose complexity, set goals and decentralize the
responsibility for decision-making. In such, decision making is the linchpin between the
CEOs power, the delegation of authority and the performance of an organization. It drives
performance when it is organized to create shared context.
Over the past years, the World Economic Forum organization refined its formal
decision-making practices to cope with growth and a refined strategy. With the use of the
manual diagnostic method during a workshop, the leaders concluded that their ambitions
and their strategic capacity would not sufficiently translate into action. Too many good ideas

Table I Formal decision-making practices

Past

Today

Practices

Controls

Processes

Interactions

Top down decision

making and bottom up
reporting
Information and
knowledge are with the
employees. They want to
contribute and perform

Lack of understanding of
vision, strategic intent, and
goals
Employees make
decisions. They recognize
opportunities and risks
and behave in line with the
intent, the values and the
goals
Setting direction, learning,
decision making,
implementation

Lack of focus, competing

and conflicting demands

Measurement, feedback
and information

Principles

Uncertainty about
purpose, lack of meaning,
stress, temptations
Conversation enables
Shared values, mind-sets
leaders to provide direction and norms create to
and convey their values and framework for what is in
preferences. They enable
and what is out
coordination and alignment
True leadership
conversations, listening,
influencing, providing
direction

Beliefs and boundaries

VOL. 11 NO. 1 2007 MEASURING BUSINESS EXCELLENCE PAGE 35

Table II Creating shared context

Control
levers

Trusted
diagnostics

Strategic responses

Measurable actions

Adaptable beliefs

Relevant boundaries

Features

Measurement,
information and
feedback

Strategy, strategic plans,

diagnostic processes for
learning

Vision, values and

individual
objectives

Mission, norms,
leadership standards,
risk limits

Benefits

Enable informed
decisions

Focus attention on what

is important

Performance plans,
business reviews,
interactive delegation
practices
Determine what needs to
get done

Establish how
things get done

Shared
context

Create a shared
understanding

Create a shared mind-set Create a shared agenda

Establish what is inside

and what is outside of
limits
Create shared norms

Create shared
beliefs and
behaviors

got lost in the daily operation of the organization. Too much was concentrated on a few key
executives. After reflection on the decision-making scorecard, they decided to integrate
more rigorous measurement and business reviews into their management agenda. As a
result, more leaders got involved in sharing ambitions, goals and expectations. And, more
employees were able to contribute to a shared agenda.

Measuring decision making

As decision making is the main driver of performance in organizations, CEOs need to put the
same rigor to the design of decision making as they apply to the hard factors such as the
financials and the operations. The first step in putting decision making discipline and rigor in
place is to measure its effectiveness. Measurement provides CEOs with a base line, and it
helps them to address the critical control levers. The second step is to focus attention on
those practices that add the most value in line with their goals.
What does a successful entrepreneur do when his business has grown to the point where he
realizes that he cannot take all major decisions anymore? He is the limiting factor to further
growth. He knows it and everybody around him too. And now what? As advisors to this
successful Middle East bank, we have used the diagnostic and the scorecard to focus his
attention to those things that deliver best value and to set priorities. As one might expect, the
formal decision-making capabilities of the organization, as delineated in the scorecard, were
mostly on red. Where does one start with building these capabilities? By combining the
scorecard with R. Simons (1995, p. 128) approach to control systems in specific life cycle
stages, the CEO decided to start the systems work focused on diagnostic controls, strategy
documentation and behavioral boundaries. He focused all the scarce development
resources to get just that done.
Decision-making can not be measured directly (Hammond et al. 1999). The best alternative
is to address it through three perspectives: The result of good quality decisions as content
(Yates et al., 2002) or organizational performance, the use of formal decision-making
practices and how they create leadership team alignment (Kopeikina, 2005), e.g. the
culture, and the quality of the underlying practices as the standards of formal decision
making.
The scorecard
The first step is to understand how well decision making creates value in organizations. The
decision-making scorecard (Figure 1) provides leaders with a simple tool that helps leaders
assess the decision making in their organization. Fourteen distinct metrics address how well
the processes, practices and principles help leaders create the rigor and discipline in
decision making, and they measure how well the systems are used to deliver the expected
performance.

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Figure 1 The decision-making scorecard (example)

Reading the scorecard: Scores that are greater than 75 indicate decision-making
capabilities that are well developed and that have the potential to deliver performance,
reduce risks, or stimulate growth. Scores between 55 and 74 indicate decision-making
capabilities that require refinement. These capabilities are about industry average. Scores
below 54 indicate decision-making capabilities that do not deliver value.
The metrics
The first perspective addresses the decision-making performance by looking at the ultimate
outcome of doing business: the value created for stakeholders. We use the intangible value
that organizations create as the approximate measure of how well decision making
performs. These metrics (Ulrich and Smallwood, 2003) best represent the hard results of the
aggregate decisions in organizations. With leaders and employees making better decisions,
they reach higher scores on these intangibles metrics. Decisions making performance
represents the average score of the following four metrics:
1. Keeping promises: The degree to which the organization keeps its promises with
customers, shareholder, employees and other stakeholders the table stakes of
competing in the market. The outcome standard is trust and consistency.
2. A compelling strategy: The quality of the strategy, e.g. how well the organization attracts
customers, shareholders, employees and other stakeholders with a compelling strategy.
The outcome standard is growth.
3. The technical capabilities: The quality of the technical capabilities and the ability to
establish competitive advantage. The outcome standard is competence and quality.
4. The social capabilities: The readiness of the social capabilities that embed these
advantages as sustainable value. The outcome standard is reliability.
The second perspective addresses the decision-making culture in organizations. These
metrics are good indicators of how well leaders and employees use their processes,
practices and systems to make good decision. High scores on these metrics indicate a high
degree of alignment of the people with the processes, systems and practices and how well
they create the shared context. The decision-making culture represents the average score of
the following metrics:
1. Shared understanding: The metric measures the degree to which organizations use
information and feedback to create a shared understanding of the context in which
employees make decisions. The use standard is the ability to learn.

VOL. 11 NO. 1 2007 MEASURING BUSINESS EXCELLENCE PAGE 37

2. Shared mind-set: The degree to which management teams and employees have a shared
mind-set about the future (Ulrich and Smallwood, 2003). The use standard is the ability to
think.
3. Shared agenda: The degree to which management teams and employees share the
same agenda that determines how the strategy is implemented. The use standard is the
ability to act.
4. Shared beliefs: The degree to which management teams and employees share the
beliefs that help them make decisions (Donaldson and Lorsch, 1983) in line with strategy
and values. The use standard is the ability to achieve.
5. Shared norms: The degree to which leaders and employees share the same norms that
govern what employees do and what they do not do. The use standard is the ability to
contribute.
The third perspective represents the design of decision-making standards as the formal
norms that translate the soft factors into hard results. These standards establish the shared
context and determine the desired decision-making culture. The decision-making standards
(Adapted from Simons levers of control, 1995) include the processes, practices and tools
that enable employees to make good decisions. These metrics are calculated as the
average score of the following metrics:
B

Trusted diagnostics: The adequacy and quality of the measurement systems and
capabilities for sensing opportunities and trends, to set the performance standards, to
monitor and communicate performance. The design standard is that diagnostics can be
trusted.

Strategic responses: The adequacy and quality of strategic management systems and
capabilities that focus the attention of employees, e.g. capture, review and decide on
opportunities and risks, align capabilities, allocate capital, review businesses. The design
standard is that strategies provide a response to the challenges.

Measurable actions: The adequacy and quality of performance management systems

and capabilities that determines the commitment of employees to implement the strategy.
The design standard is that implementation can be tracked.

Adaptable beliefs: The adequacy and quality of beliefs systems, capabilities and
standards that delineate the context and guidance for decisions and behaviours, e.g. the
vision, values, and individual performance objectives. The design standard is that beliefs
are flexible enough to be adapted for change.

Relevant boundaries: The adequacy and quality of the boundary systems and policies
that rule decision making and behaviors and frame our system functioning, e.g.
decision-making standards such as governance standards, incentives systems, HR
policies, accounting standards, risk limits and leadership standards. The design
standard is that boundaries are relevant for balancing trade-off decisions.

The tool box

In summary, the decision-making tool box (Figure 2) includes the big systems and their
respective capabilities that ensure the standards in the organization (Michel and Seemann,
2005). The design and use of these practices determines much of the routines, habits and
the agenda of corporate decision making. A total of 47 distinct capabilities are addressed in
more detail.
Measurement
Depending on the client needs, either the online diagnostics or the manual method is used to
understand decision making in organizations. The online diagnostic addresses over 120
metrics. They are measured through a set of questions that are evaluated on a seven point
scale. Even so the diagnostic allows for unlimited participants, with 5 or more reviewers, the
results for the scorecard and the tool box are statistically significant. The manual method is

PAGE 38 MEASURING BUSINESS EXCELLENCE VOL. 11 NO. 1 2007

Figure 2 The tool box (example)

designed for workshop use. With a limited set of questions and in about 30 minutes, leaders
determine their decision-making scorecard and the performance on their tool box.
The design of the scorecard and the tool box is the result of many years of practical
experience with the diagnostic tool, and it is based on our understanding that the use of
decision-making practices is more relevant to performance than their technical design
(Simons 1991; Abernethy and Brownell, 1999; Bisbe and Otley, 2004). The initial idea grew
out of a systemic approach to measurement combining output metrics (measuring the
results of good decision making), input metrics (measuring the design of decision-making
practices) and throughput metrics (measuring the use of decision-making).
Over the years, we have constantly refined the measurement of the metrics. The metrics
themselves have evolved with the use of the tool. We consistently apply the practice &
reality test with our clients by comparing the actual situation on the client site with the results
of our own measurements (Merchand and Simons, 1986). Our clients confirm that they gain
unprecedented insights into decision making from the results.

Using the scorecard to address the control levers

As the second step and with the understanding of how the various metrics relate to each
other, CEOs can then focus their attention on their business issues by addressing the
following principles (Figure 3).
The scorecard combines nine principles that can be triggered through various control levers
(Table III). They ensure that employees take decisions that balance the various trade-offs.
Ultimately, the design and use of the decision-making practices determines how leaders and
employees focus their attention and use their time.
1 Aligning the organization to higher effectiveness
The CEOs first challenge is to achieve high effectiveness as an organization that delivers on
its promises. High effectiveness is the result of various decisions that resolve the trade-offs
between organizing for global scale and local flexibility. On the one hand, CEOs need to
organize in ways to benefit from scale advantages and experience. On the other hand, the
goal is to remain flexible and adaptable to changing local customer requirements. CEOs
reconcile these conflicting goals by making sure that employees take decisions that align

VOL. 11 NO. 1 2007 MEASURING BUSINESS EXCELLENCE PAGE 39

Figure 3 The nine principles

Table III Using the scorecard to address the control levers

Principles

Levers

Benefits

1 Align the organization for higher

effectiveness
2 Remove interferences for higher growth

Design and use of integrated and formal

management systems
Convergence of systems, practices and
principles
Use of a formal leadership cycle
Design and use of measurement

An organization that delivers on its

promises
Employees that capture opportunities
develop
Employees that adapt and focus
Employees that understand and take
informed decisions learn
Employees that do the right things think

3 Create the shared context for innovation

4 Use information and feedback to clarify
expectations
5 Decompose complexity
6 Clarify accountabilities for greater
speed
7 Enable freedom to act for more
flexibility
8 Establish risk limits and standards to
address the uncertainties
9 Standardize decision making for higher
efficiencies

Design and use of diagnostic and

interactive strategic management
Design and use of diagnostic and
interactive organizational performance
management
Design and use of diagnostic and
interactive individual performance
management
Design and use of governance principles
Design and use of formal controls

Employees that get things done act

Employees that know how things are being

done achieve
Employees that know what is inside and
outside of scope contribute
Employees that do things right

the strategy, the structure, the capabilities and the culture of the organizations. An
approximate measure of the quality of this alignment is to look at the intangible value that an
organization creates. Keeping promises, compelling strategy, technical and social
capabilities describe effectiveness.
Organizations that score high in the four areas of intangible value have well aligned
capabilities in place. CEOs establish these capabilities with an integrated and formal

PAGE 40 MEASURING BUSINESS EXCELLENCE VOL. 11 NO. 1 2007

management system that supports employees in taking decisions that are in line with the
strategy. The result is an effective organization that gets the right things done.
Distribution effectiveness is the key to insurance firm performance. The ability to identify
profitable clients and the capability to precisely serve these clients is the challenge. For a
small local insurance firm, connecting the employees that know what clients want and those
that develop the products is easier as it is for a larger organization. Organizational
boundaries often prevent the things that logically make sense. Our client has recently
acquired another similar organization. After eliminating all relevant duplications, it faces the
same challenges as it had before. Sales did not reach product development and vice versa.
After review of the decision-making practices, it was clear that not structure would solve
these issues. Rather, a shared decision-making approach is required in alignment with the
strategy and the structure. The scorecard clearly indicated the need for integrated and
formal management systems beyond the traditional financial controls. The organization
started redoing its entire performance management and compensation system to address
the issues. The results were not surprising: Higher performance and people that seek each
other to do the right things.
2 Removing interferences to capture growth opportunities
The second challenge is to activate the growth potential of the organization. Growth is the
result of employees taking risks and capturing opportunities as they arise. At the same time,
the strategy, the values and the boundaries ensure that employees maintain their attention
on the given priorities. An approximate measure of how well the organization achieves these
goals is to look at the standards, the culture and the performance of decision making.
Organizations with high scores in all three areas have decision making in place with
converging systems, practices and principles.
Organizations with high scores on these metrics support their employees in taking decisions
that maintains this fine line between the taking risks and focus. They achieve this by apply
the following principle: The greater the challenges an organization, a team or a leader
accepts, the more important is the minimum interference occurring from within (Gallwey,
2000)! Interferences are all those things that keep the organization from reaching its true
potential. In particular, with less interference occurring from within the organization,
employees search for new market growth opportunities and take decisions that grow the
business. Well synchronized systems reduce these interferences.
3 Creating the shared context for more creativity
The third challenge is to establish favorable conditions for innovation (Brown et al., 2006).
They include a shared understanding, a shared mind-set, a shared agenda, shared beliefs
and norms. These capabilities are the result of a formal leadership cycle. The purpose of a
leadership cycle is to establish this shared context and decision-making culture as a
prerequisite for innovation. With this, employees rely on consistent rules, stable procedures
and relevant boundaries as they unfold their creativity and search for new opportunities.
Organizations with high scores ensure that employees continuously look out for alternative
options and remain focused at the same time.
4 Using information and feedback to understand
The fourth challenge is to balance the various stakeholder expectations. Organizations use
information and feedback mechanisms to balance these competing demands and take
informed decisions. Such formal control systems support CEOs to establish the necessary
shared understanding (Malina and Selto, 2001) that helps employees adequately address
the requirements and contributions of stakeholders. Traditional measurement focuses on a
top down management approach. Modern approaches ensure that information is
available where the work is being done. Feedback loops enable both, the control where
decisions are taken and ensure that top management can update the strategy with new
insights. As such, diagnostics simultaneously serve the learning about future opportunities

VOL. 11 NO. 1 2007 MEASURING BUSINESS EXCELLENCE PAGE 41

and the management of current performance. It reduces the knowledge asymmetries

(Abernethy et al., 2004) that go along with increasing decentralization.
Organizations that score high on trusted diagnostics and shared understanding enable
employees to balance the various expectations of short term performance and future market
opportunities.
5 Decomposing complexity to do the right things
The fifth challenge is to reduce the complexity of decision making (Hammond et al., 1999) in
larger organizations. To achieve this, CEOs use strategic management systems that help
them decompose their business issues into digestible pieces such as strategy, structure,
capabilities, systems and culture. Moreover, well designed and properly used strategic
management systems create the necessary shared mind-set. Conducting honest
conversations about the business strategy (Beer and Eisenstat, 2004) is a practical
application that supports that objective.
With this, CEOs can rely on employees that take decisions within the right context. The
results are less complexity and employees that do the right things.
6 Clarifying accountability for fast implementation
The sixth challenge is to ensure fast implementation. Many great strategies fail because they
are not implemented well or in time. To strengthen the implementation capabilities, CEOs put
organizational performance management practices in place. This creates accountability
(Charan, 2001) and ensures that the organization implements the right things fast. Planning
and business review practices help CEOs participate in their subordinates agenda. By
sharing ambitions and objectives (Waldmann et al., 2001; Koene et al., 2002), CEOs provide
direction to their team. In return, CEOs learn about the implementation and the performance
of their subordinates.
Organizations with high scores on these metrics have implementation practices in place that
create a strong and shared agenda.
7 More flexibility by knowing how to do things
The seventh challenge is about flexibility and responsiveness to change. Beliefs standards
with the vision, values and individual objectives provide employees with the guidance how
things are being done. With individual performance management practices (Beer, 1997),
employees align their behaviors and decisions with the organizations standards. Well
developed standards are broad enough to leave employees with a high degree of freedom
and to respond to their challenges. And, good standards are accurate enough to guide the
decision making and actions. Because employees with shared beliefs can apply the same
standards to new situations, organizations remain flexible enough to respond to a changing
context. Both, shared beliefs and individual performance management are a powerful
change management tool when the stakes are high. CEOs can rely on employees that make
decisions in line with the strategic intent and the values.
Employees that share strong beliefs know how things are being done. The result is an
organization that is flexible enough to address challenging goals.
8 Establishing the boundaries for what is inside and what is outside
The eighth challenge is to systematically address how employees address uncertainties.
When employees capture new opportunities, they take risks. Without risk taking,
organizations do not outperform their competitors. To guide the risk taking of employees,
organizations establish appropriate governance principles for decision making. With the
relevant boundaries, employees know what is inside and what is outside of scope.
Boundary policies help organizations create the shared norms. They are articulated as
mission statements, leadership principles, governance policies or risk limits. Organizations
with a high degree of shared norms can extend their risk boundaries as employees know the

PAGE 42 MEASURING BUSINESS EXCELLENCE VOL. 11 NO. 1 2007

limits of their decisions and behaviors. High scores on these metrics are signs of
organizations that have the practices in place to deal with uncertainties.
One of the leading European insurance groups recently came out of a major successful
restructuring with rising profits. Its challenge was, to restore motivation and ambitions of its
employees. Our diagnostic and the scorecard provided the leadership team with a solid
base line on all aspects of formal decision making. Underwriting decisions are the key to
performance in insurance firms. And, employees make many of these decisions every day.
Hence, the improvements focused on communicating the context and boundaries for all
these decisions to employees. After 12 months, the after action measurement with the
diagnostic resulted in clear improvements on shared beliefs, the norms and social
capabilities. In addition, the financial results of the organization further improved.
9 Standardizing decision making to do things right
Challenge number nine is to establish high efficiencies. With employees making thousands
of decisions every day, CEOs need to put formal controls in place. They frame recurring
decisions to achieve higher efficiencies and enable employees to do things right.
Standardized protocols such as metrics, strategic plans, performance reviews, or individual
objective agreements facilitate communications. With this, employees concentrate on
substance. Process and interaction facilitate sharing, coordination and alignment. With
formal controls in place, overall efficiencies improve.

Applying best practices in decision making

The decision-making scorecard and tools help CEOs design effectiveness management
systems and focus its use to drive their specific business agenda. With formal
decision-making practice in place, CEOs rely on delegation and control practices to
ensure that employees make decisions in line with the organizations vision and values. We
learn from our clients, that the tool focuses their attention on the relevant control levers.
Moreover, CEOs and employees use their time for interaction and learning rather than
control. We see our clients successfully apply more relevant decision-making practices than
ever before. And, we learn that clients have abandoned extensive and expensive
performance management projects in favor or more differentiated and focused initiatives
that support their immediate goals with a direct impact. Other clients have used the tools to
ensure that the next strategic move delivers the expected value. In summary, good
decision-making practices translate the CEOs power and responsibility into higher
performance, growth and lower risk.

References
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Further reading
Abernethy, M.A., Bouwens, J. and van Lent, L. (2005), Does leadership matter in the design and use of
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levels-of-analysis effects, Academy of Management Review, Vol. 24 No. 2, pp. 266-85.

About the author

L. Michel is owner and managing director of i3 Performance Solutions GmbH and COO of
Sphere Advisors AG, both international top management advisory firms. He focuses on
advising CEOs and their teams in decision-making, management systems and organization
design. His experience spans 20 years in various organizations throughout the world. As
former Head of Corporate Strategy & Performance Management and as a CEO for the East
Asia/Pacific businesses of a global financial services institution, he has developed
performance solutions in various cultures and for various business situations. He regularly
speaks at conferences and publishes in the area of decision-making, performance and
leadership. L. Michel holds degrees in Education, Business, Engineering and Management
Science. He can be contacted at: lukas.michel@i3performancesolutions.com

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