In Harvard Management Update, Harvard Business School professor emeritus Michael C. Jensen explains that there are four steps to ensure that the right people make the right decisions.
How a company distributed decision-making authority can have great repercussions on its business. In fact, “allocating decision rights in ways that maximize organizational performance is an extraordinarily difficult and controversial management task,” says Jensen.
To overcome the hurdles of finding the spot in the organization where decision costs are minimal and trust the personal motivation of those imbued with decision authority aligns with the goals of the organization, he suggests these four steps:
1. Routinely review and update how decision authority is distributed – because change is a constant
2. Avoid too much centralizations – and too much democracy
3. Assign decisions unequivocally – to avoid misunderstandings
4. Don’t confuse a particular outcome with the process itself – good decisions sometimes produce bad outcomes
How are decisions made in your organization? Is authority distributed in such a way that you can maintain a competitive edge in the marketplace?