innovative solutions to the pressing problems of business The mission of the University of Michigan Busi- ness School Management Series is to provide accessible, practical, and cutting-edge solutions to the most critical challenges facing business- people today. The UMBS Management Series provides concepts and tools for people who seek to make a significant difference in their or- ganizations. Drawing on the research and ex- perience of faculty at the University of Michigan Business School, the books are written to stretch thinking while providing practical, focused, and innovative solutions to the pressing problems of business. Also available in the UMBS series: Becoming a Better Value Creator, by Anjan V. Thakor Achieving Success Through Social Capital, by Wayne Baker Improving Customer Satisfaction, Loyalty, and Profit, by Michael D. Johnson and Anders Gustafsson The Compensation Solution, by John E. Tropman Strategic Interviewing, by Richaurd Camp, Mary Vielhaber, and Jack L. Simonetti Creating the Multicultural Organization, by Taylor Cox Getting Results, by Clinton O. Longenecker and Jack L. Simonetti A Company of Leaders, by Gretchen M. Spreitzer and Robert E. Quinn Managing the Unexpected, by Karl Weick and Kathleen Sutcliffe Using the Law for Competitive Advantage, by George J. Siedel Creativity at Work, by Jeff DeGraff and Katherine A. Lawrence Making I/T Work, by Dennis G. Severance and Jacque Passino For additional information on any of these titles or future titles in the series, visit www.umbsbooks.com. Executive Summary ome companies repeatedly dazzle us with outstanding de- cisions. We marvel: “Another stroke of genius! How do they Sdo that, time after time?” By contrast, other companies have a knack for deciding badly. Again we marvel: “Wow, they shot themselves in the foot again! What were they thinking—this time?” What best explains the difference between companies that decide well and those that do not? Do people in the former companies understand their businesses better? Do they use bet- ter formulas? Are they just plain smarter? Or is it all simply a matter of luck? None of the above. The real key is “decision management,” a little-recognized but crucial element of every manager’s port- folio of core responsibilities. Decision management consists of the myriad actions that a company’s managers take—wittingly and, more often, unwittingly—that affect how the people sur- rounding them go about their decision work. To the extent that the resulting decisions are sound ones, the company flourishes. But to the degree that they are not, the company struggles and may even run a serious risk of collapse. Actually, decision management has even greater signifi- cance, far more than most of us realize. For reasons decision sci- entists now understand, the average executive seldom attributes a company’s troubles or triumphs to its decision making and, in turn, its decision management. But if, for instance, a company is stumbling badly in the marketplace, it is entirely legitimate (and motivating) to ask: “Why didn’t they make decisions that would have precluded these calamities?” The answer is that the com- pany’s leaders are managing its decisions poorly, in large measure because they rarely even think about how the company decides. This book is a manual for creating and sustaining stellar de- cision management practices, ones that foster decisions that can keep your company among the leaders in its industry. The book starts with a discussion of what the art of decision management entails (Chapter One). The core of the conceptual analysis that guides the book’s prescriptions is this key insight: Virtually every practical decision problem demands the resolution of ten fundamental or cardinal decision issues. These issues range from judging whether a decision is actually called for at all to ensur- ing that a preferred course of action will be implemented. When a company makes a superb decision, this means that the com- pany’s deciders have done a superb job of resolving every one of the cardinal decision issues as it materialized in the decision problem at hand. Conversely, a failed decision signals that the deciders fell short—perhaps catastrophically short—in how they addressed at least one of those issues. Quite simply, a good de- cision manager is a manager who does whatever works in order to make sure that deciders resolve every cardinal issue effec- tively for every decision problem facing the company. After an introduction of essential concepts and tools (Chap- ter Two), the chapters that constitute the heart of the book (Chapters Three through Eight) address the ten cardinal decision issues. Each issue is illustrated vividly and concretely in terms of real-life situ- ations that every manager can appreciate. These situations are then analyzed in terms of fundamental principles and specific decision management techniques that managers can use to craft creative ways of ensuring that deciders in their companies handle such sit- uations with consummate skill. All change efforts, from personal self-improvement pro- grams to initiatives intended to transform a corporate culture, have a history of dying quiet but sure deaths from neglect. The book therefore closes (Chapter Nine) with a discussion of why this happens and what specific things you can do to greatly re- duce the odds that your (and your company’s) efforts to sustain stellar decision management practices will suffer the same fate. Decision Management How to Assure Better Decisions in Your Company J. Frank Yates Copyright © 2003 by John Wiley & Sons, Inc. All rights reserved. Published by Jossey-Bass A Wiley Imprint 989 Market Street, San Francisco, CA 94103-1741 www.josseybass.com No part of this publication may be reproduced, stored in a retrieval system, or trans- mitted in any form or by any means, electronic, mechanical, photocopying, recording, scanning, or otherwise, except as permitted under Sections 107 or 108 of the 1976 United States Copyright Act, without either the prior written permission of the Pub- lisher or authorization through payment of the appropriate per-copy fee to the Copy- right Clearance Center, 222 Rosewood Drive, Danvers, MA 01923, (978) 750-8400, fax (978) 750-4470, or on the web at www.copyright.com. Requests to the Publisher for permission should be addressed to the Permissions Department, John Wiley & Sons, Inc., 111 River Street, Hoboken, NJ 07030, (201) 748-6011, fax (201) 748-6008, e-mail: [email protected]. Jossey-Bass books and products are available through most bookstores. To contact Jossey-Bass directly, call our Customer Care Department within the U.S. at (800) 956- 7739, outside the U.S. at (317) 572-3993, or fax (317) 572-4002. Jossey-Bass also publishes its books in a variety of electronic formats. Some content that appears in print may not be available in electronic books. Library of Congress Cataloging-in-Publication Data Yates, J. Frank (Jacques Frank), date. Decision management: how to assure better decisions in your company/ J. Frank Yates.—1st ed. p. cm.—(University of Michigan Business School management series) Includes bibliographical references and index. ISBN 0-7879-5626-0 (alk. paper) 1. Decision making. I. Title. II. Series. HD30.23 .Y386 2003 658.4'03—dc21 2002013974 Printed in the United States of America FIRST EDITION HB Printing 10987654321 Contents Series Foreword xiii Preface xv 1 The Art of Decision Management 1 2 “What Is a Decision?” and Other Fundamentals 23 3 Deciding to Decide: The Need Issue 47 4 Determining the Means for Deciding: The Mode and Investment Issues 61 5 Prospecting for Solutions: The Options Issue 93 6 Anticipating Outcomes: The Possibilities and Judgment Issues 111 7 Accounting for Taste: The Value and Tradeoffs Issues 141 8 Ensuring Smooth Sailing: The Acceptability and Implementation Issues 175 9 Starting and Sustaining Decision Management Improvement Efforts 195 Notes 207 The Author 213 Index 215 xi For Hali, Zack, Court, and the memory of my parents and my brother Andrew Series Foreword elcome to the University of Michigan Business School Management Series. The books in this series address Wthe most urgent problems facing business today. The series is part of a larger initiative at the University of Michigan Business School (UMBS) that ties together a range of efforts to create and share knowledge through conferences, survey re- search, interactive and distance training, print publications, and news media. It is just this type of broad-based initiative that sparked my love affair with UMBS in 1984. From the day I arrived I was en- amored with the quality of the research, the quality of the MBA program, and the quality of the Executive Education Center. Here was a business school committed to new lines of research, new ways of teaching, and the practical application of ideas. It was a place where innovative thinking could result in tangible outcomes. The UMBS Management Series is one very important out- come, and it has an interesting history. It turns out that every year five thousand participants in our executive program fill out a marketing survey in which they write statements indicating xiii xiv Series Foreword the most important problems they face. One day Lucy Chin, one of our administrators, handed me a document containing all these statements. A content analysis of the data resulted in a list of forty-five pressing problems. The topics ranged from growing a company to managing personal stress. The list covered a wide territory, and I started to see its potential. People in organizations tend to be driven by a very traditional set of problems, but the solutions evolve. I went to my friends at Jossey-Bass to discuss a publishing project. The discussion eventually grew into the University of Michigan Business School Management Series— Innovative Solutions to the Pressing Problems of Business.