A business process is a step-by-step guide to reaching a specific goal that involves multiple stakeholders, potentially across multiple departments. A process is hyper-focused on a structure. There is a profound misunderstanding about the link between structure and performance. It is important to understand what is actually needed for an organization's performance improvement.
Despite the popular belief that performance is not determined by nature, scale, and disposition of resources, enterprises produce a better performance if and only if the structure improves the organization’s ability to make and execute key business decisions better and faster than competitors.
Bain & Company surveyed executives worldwide from 760 companies, most with revenues exceeding $1 billion, to understand how effective those companies were at making and executing their critical decisions. They studied about Quality, Speed, Yield, and Efforts of their business decisions. Let’s have a look at these definitions and the results.
Quality of decisions is about whether the decisions are proved to be the right or wrong decisions. Speed is about whether the decisions were made faster or slower than competitors. Yield is how well decisions were translated into actions. Finally, Efforts are the time, trouble, and expense required for each key business decision. Based on Quality, Speed, Yield, and Efforts of decisions, they defined effectiveness score.
They found that decision effectiveness and financial results correlate at 95% for every country, industry, and company. Also, the most effective companies at decision-making and execution of business decisions generated nearly 6% more in total shareholder returns.
“Ultimately, a company’s value is just the sum of the decisions it makes and executes.”
Their research and experience confirm the tight link between performance and decisions.
Decision Effectiveness is Determining Measure of Organizations' Performance Improvement
As this study shows and what we talked about in our post on the decision-centric organization, I believe that the ability to make and execute business decisions is way more significant than how the organization is structured and how its processes are designed.
What we need to ensure in any organization is that we build the structure around the sources of value, put microstructure around that, and empower leaders of that microstructure to make and execute quality and fast business decisions.
This might look the total opposite of how they think about performance improvements for most companies. Rather than reorganizing the processes and structures to improve performance, they need to start a decision audit. That is gathering all the decisions critical to the success of the organization’s strategy. They should determine which decisions should be made and executed to create the most value. This ensures the alignment of organizations and processes to the business decisions they make rather than hacking organizations' structure and processes with the hope of improvements. The risk of this approach is the misalignment with the organization’s strategy because the business decisions are ignored.
Focusing on business decisions and making them the first-class citizens of an organization will ensure alignment and improvements. So let’s ensure organizations' key business decisions are made and executed better and faster than competitors by becoming a decision-centric organization.
Published May 13th, 2022 at 05:08 pm