The Power of Clarity in Company Decision Making

Well-established processes and systems represent a vital competitive advantage in today’s economy. An organization with efficient, effective and clear processes in place can respond quickly in the face of changing market conditions. Because they aren’t wasting time and resources dealing with internal inefficiencies, such a company can be far more agile and dynamic in gaining or maintaining its strategic advantage.

Company decision-making clarity is an especially relevant area when it comes to gaining a competitive advantage. When supported by clear, predetermined decision rights, company decision-making can be executed with greatly reduced interference of ego and politics around “who makes the call”. This allows leadership in particular and the organization as a whole to focus on strategic decision-making and stay well ahead of the curve of competitive convergence.

Let’s examine this vitally important corporate process, and how to create a winning decision rights matrix for your organization.

The Importance of a Good Company Decision Rights Matrix

A decision rights matrix is the framework by which a company predetermines how it will manage decisions throughout its organizational structure. The time and energy an organization will save in the long run by defining and then utilizing its decision-making process far outweighs the initial effort it takes to develop a sound decision rights matrix.

It is important to note that clear decision rights require substantive processes to ensure quality decision-making. As all leaders know, decisions made in a vacuum are often incomplete decisions.  Therefore it is important to include processes that bring the right decision support to bear (i.e., information and metrics).

Red Flags of a Poor Decision Rights Matrix

Knowing what it looks like when a company has an ill-defined or shallow corporate decision-making matrix can help leaders identify and correct this issue in their organizations. Signs of a poorly designed (or altogether lacking) decision matrix include:

Excessive accountability. The organization requires a significant number of people to be consulted and/or informed of each decision. Involving an excessive number of leaders along the decision line and/or at every level indicates a fundamental lack of trust, either in leadership or in the process itself.  Too many accountable parties can also dilute actual accountability itself.

Shooting from the hip. When leaders in an organization routinely seek approval in a haphazard way and/or make decisions beyond their authority, it can indicate that the process could use improvement or is not being followed.

Confusion. When people are not sure who is responsible for what element in a decision or cannot clearly explain who is involved in the decision-making process, then a clear decision rights process is lacking.

What Makes an Efficient Decision Matrix?

A good decision rights matrix clearly indicates which roles in the organization are responsible for which key decisions or issues. In addition to defining who is responsible for making the actual decision, the decision rights matrix will also map out processes for consultation and approval, as well as identifying which individuals need merely to be informed. There are many methods for determining a decision rights matrix. One example is the RACI method. This model assigns the following roles:

  • The responsible party (R) is the party who is responsible to perform the activity or do the work.
  • The approval party (A) is the party who approves the work/decision if the conditions are met wherein the responsible party’s work/decision needs an extra layer of approval. The approval party always has a Yes/No Veto vote. In some cases, the responsible party may also hold the duties as the approval party as well. The approval party (A) is normally implemented into a key decision when there is a need for a review before delivery should be deemed complete. Or, their approval may be required if there are decision thresholds that may be exceeded, requiring governance and oversight from a second party (for instance, purchasing decisions over $50K). There should never be more than one approval party (A) assigned to a particular decision line on the matrix.
  • The consulting party (C) is the party that the responsible party (R) should consult to gain the understanding necessary to make an informed decision. This is a two-way communication between the responsible party (R) and the consulting party (C). Although the consulting party ultimately does not have a vote in the final decision, their input is considered valuable and should be contemplated very carefully when weighing the final decision. In many cases, the consulting party is the subject matter expert in the organization such as legal, HR, etc. An example of this might be the decision for an organization to donate to a charitable organization; the CFO may be the responsible party (R) who should consult (C) with legal counsel to ensure proper vetting of the charity organization itself. Due diligence should be made when scoping consulting parties to limit the number of parties consulted to the least amount as possible without assuming an inordinate amount of risk to the organization. Over-assigning consulting parties in a decision matrix leads to excessive bureaucracy and reduced nimbleness of decision making. This can be counter-productive to the very purpose of why you have a decision matrix.
  • The informed party (I) is the party who simply needs to be informed of decisions as they are made. The criteria for this should be based on relevance and necessity. For instance, someone in sales may need to be informed (I) of any changes in a recent marketing promotion.

Predetermining how key decisions will be managed creates tremendous efficiency in the organization. It embeds trust and empowerment with the leaders to quickly and confidently make decisions that move the organization forward.

Highly functioning organizations keep the number of people prescribed in any given decision to the minimal necessary. Decisions are made according to the established matrix, without chaos and disruption of the entire organization. This is possible because of the inherent trust that the person who has the responsibility will manage the decision and respect the complexities of the process, working within the well-defined processes that are already in place.

Test Your Decision Rights Matrix

Even when a company has a well-defined decision matrix in place with supporting processes, that still does not guarantee decision-making success. A good process should always be tested and validated from time to time.

A good way to test a decision matrix viability is to ask what would happen if a specific individual calls in sick. Who fills the void? How are those person’s decisions made? A good decision matrix clearly maps everything out, including contingency processes. Another testing method is to role play key decision execution within your decision rights matrix and see how your company performs.

In conclusion, responsibility, approval, consultation, and informing are integral parts of a good decision rights matrix. This method—backed with sound processes; the right metrics and information for decision support; and an environment of trust—is sure to set your organization up to be more agile, resilient, and competitive.