Peter Drucker on Making Decisions

An effective executive does not need to be a leader in the sense that the term is now most commonly used. Harry Truman did not have one ounce of charisma, for example, yet he was among the most effective chief executives in U.S. history. Similarly, some of the best business and nonprofit CEOs I've worked with over a sixty-five-year consulting career were not stereotypical leaders. They were all over the map in terms of their personalities, attitudes, values, strengths, and weaknesses. They ranged from extroverted to nearly reclusive, from easygoing to controlling, from generous to parsimonious. What made them all effective is that they followed the same eight practices:

They asked, "What needs to be done?" They asked, "What is right for the enterprise?" They developed action plans. They took responsibility for decisions. They took responsibility for communicating. They were focused on opportunities rather than problems. They ran productive meetings. They thought and said "we" rather than "I."

The first two practices gave them the knowledge they needed. The next four helped them convert this knowledge into effective action. The last two ensured that the whole organization felt responsible and accountable. [] Act When they translate plans into action, executives need to pay particular attention to decision making, communication, opportunities (as opposed to problems), and meetings. [] Take responsibility for decisions. A decision has not been made until people know:

the name of the person accountable for carrying it out; the deadline; the names of the people who will be affected by the decision and therefore have to know about, understand, and approve itor at least not be strongly opposed to itand the names of the people who have to be informed of the decision, even if they are not directly affected by it.

An extraordinary number of organizational decisions run into trouble because these bases aren't covered. One of my clients, thirty years ago, lost its leadership position in the fast-growing Japanese market because the company, after deciding to enter into a joint venture with a new Japanese partner, never made clear who was to inform the purchasing agents that the partner defined its specifications in meters and kilograms rather than feet and poundsand nobody ever did relay that information.

It's just as important to review decisions periodicallyat a time that's been agreed on in advanceas it is to make them carefully in the first place. That way, a poor decision can be corrected before it does real damage. These reviews can cover anything from the results to the assumptions underlying the decision. Such a review is especially important for the most crucial and most difficult of all decisions, the ones about hiring or promoting people. Studies of decisions about people show that only onethird of such choices turn out to be truly successful. One-third are likely to be drawsneither successes nor outright failures. And one-third are failures, pure and simple. Effective executives know this and check up (six to nine months later) on the results of their people decisions. If they find that a decision has not had the desired results, they don't conclude that the person has not performed. They conclude, instead, that they themselves made a mistake. In a well-managed enterprise, it is understood that people who fail in a new job, especially after a promotion, may not be the ones to blame. Executives also owe it to the organization and to their It's just as important to review fellow workers not to tolerate nonperforming decisions periodically as it is to individuals in important jobs. It may not be the make them carefully in the first place. employees' fault that they are underperforming, but even so, they have to be removed. People who have failed in a new job should be given the choice to go back to a job at their former level and salary. This option is rarely exercised; such people, as a rule, leave voluntarily, at least when their employers are U.S. firms. But the very existence of the option can have a powerful effect, encouraging people to leave safe, comfortable jobs and take risky new assignments. The organization's performance depends on employees' willingness to take such chances. A systematic decision review can be a powerful tool for self-development, too. Checking the results of a decision against its expectations shows executives what their strengths are, where they need to improve, and where they lack knowledge or information. It shows them their biases. Very often it shows them that their decisions didn't produce results because they didn't put the right people on the job. Allocating the best people to the right positions is a crucial, tough job that many executives slight, in part because the best people are already too busy. Systematic decision review also shows executives their own weaknesses, particularly the areas in which they are simply incompetent. In these areas, smart executives don't make decisions or take actions. They delegate. Everyone has such areas; there's no such thing as a universal executive genius. Most discussions of decision making assume that only senior executives make decisions or that only senior executives' decisions matter. This is a dangerous mistake. Decisions are made at every level of the organization, beginning with individual professional contributors and frontline supervisors. These apparently low-level decisions are extremely important in a knowledge-based organization. Knowledge workers are supposed to know more about their areas of specializationfor example, tax accountingthan anybody else, so their decisions are likely to have an impact throughout the company. Making good decisions is a crucial skill at every level. It needs to be taught explicitly to everyone in organizations that are based on knowledge.

Drucker: The Effective Decision

Posted on August 22, 2011 by admin

The effective decision - synopsis of an article by Peter F. Drucker.

While browsing through the B School library the other day, I happened across an article on decision making by Peter

Drucker, originally written in 1967.

Naturally as this is our

business I was curious to see what one of the true masters of management had to say on the topic. Here is the synopsis together with our commentary. Drucker commences by stating that an effective decision making process must go through some basic steps. These steps will not make the decision it will always be a judgement call but if the steps are ignored, the decision is not likely to be effective nor right. The 6 steps he recommends are:

1. 2. 3. 4. 5.

The classification of the problem The definition of the problem The specifications which the solution to the problem must satisfy (the boundary conditions). The decision as to what is right, rather than what is acceptable, in order to meet the boundary conditions The building into the decision of the action to carry it out.

6.

The feedback which tests the validity of the decision against the actual course of events.

We will show how these steps fit into the overall Genesis Decision Making framework a little later, but first a brief description of the steps and why they are important.

Step 1: Problem classification Drucker postulates that a decision falls into 2 broad categories: generic (where the situation has happened before and a set of rules or principals may be applied) or unique (must be treated individually and pragmatically). There is a further categorisation of (a) generic although unique to the organisation and (b) generic, although only the first event of a new trend or genus. Both the latter appear to be unique but are not truly so. He states that if the problem is incorrectly classified at this stage, then the decision will inevitably go wrong.

Step 2: Problem definition. Here the decision maker must work out what the situation is all about and what are the key issues. The danger, he claims, is that of an incomplete definition but one that is plausible. The only safeguard being to check the definition again and again against all the observable facts and throw out the definition the moment it fails to encompass them. That is, doing what we now call, seeking dis-confirmatory evidence as well as confirmatory evidence. Although much has recently been written about this under the title of behavioral economics, he reminds us that these are simply the rules of scientific observation first formulated by Aristotle and then reaffirmed by Galileo.

Step 3: The specifications (boundary conditions) It must be clearly defined what the decision must accomplish, that is what are the minimum goals it has to attain. In science, these are known as boundary conditions. Drucker says that a common problem in decision making is not necessarily the wrong decision, but a circumstance when the boundary conditions change while the decision is being implemented such as may have happened to organisations who started a decision process pre-recession and are now trying to implement it in the midst of the economic crisis. He also states that another reason to have boundary conditions clearly defined is in when one is making the most dangerous of all decisions which is when the conditions are essentially incompatible. That is when the decision might, if nothing goes wrong, work. This is what he calls little more than gambling.

Step 4: The decision: what is right It is critical to decide what is right. That is not to say that a compromise may not eventually have to be made when implementing (inevitably it will), but rather start with the best decision that meets all the boundary conditions and then, if necessary, compromise from that position. Drucker brilliantly demonstrates this by explaining there are two types of compromise. One is expressed in the proverb: Half a loaf is better than no bread. The other in the story of the Judgement of Solomon where it is realised that half a baby is worse than no baby at all! In a nutshell, he is

saying that we should not be thinking about what will be acceptable to others (at least initially), rather what is the right answer?.

Step 5: Converting the decision into action. Drucker says that a decision is not a decision until it has been acted upon. He goes further to state that the action should be built into the decision from the outset. He suggests 4 distinct questions:

Who has to know of the decision? What action has to be taken? Who is to take it? What has to be done so that these people can take the action?

He notes that the first and last questions are most frequently overlooked and then reminds the reader that the action must be appropriate to the capacities of the people who have to carry it out.

Step 6: Feedback Drucker reinforces that men are fallible and decisions can go wrong and may not achieve their desired results. Therefore a feedback mechanism must be put in place to monitor and report back on the success or otherwise of the outcome. He says that effective decision makers realise that often they should not rely on reports but, like military commanders, must go into the field themselves to see how the decision is being carried out. Peter Drucker, with accurate foresight (remember this was written in 1967) warns that with the advent of computers this is even more important as computer-generated reports only can report back on abstractions. A final comment in this section is Failure to go out and look is the typical reason for persisting in a course of action long after it has ceased to be appropriate or even rational. In more recent years, Genesis Management Consulting has constructed their own proprietary strategic decision making framework that incorporates all of Druckers steps within a slightly larger and more detailed framework. Although Drucker does not mention all of the steps in the Genesis framework specifically, we have little doubt that he would recognise them all as being valid and a valuable complement to his own original work. The Genesis framework is shown below:

(Note: this decision framework together with detail on each of the steps is available to purchase at The Decision Shop for a nominal cost)

The way in which Druckers steps overlap with the Genesis Decision Framework can best be shown in the diagram to the right where the initial three steps fall into the decision structuring; the fourth step under evaluation and the fifth and sixth steps under decision and implementation. Druckers original article is available for purchase from the Harvard Business Review library and is worth reading as it contains a little more detail and some examples of the steps and the pitfalls. Warning, it is written in a somewhat old-fashioned way and does not make for easy-reading but it is probably worth the effort. You will also find other articles of interest within this blog and the insightful and popular series: The 7 habits of Highly effective Decision Makers is available for free download at our web-site. Finally, I would like to recommend the 48 page document that lays out The Genesis Framework and details of all the steps. It is part of the strategic decision making module offered at IE Business School and a number of other Business Schools around the world and available at The Decision Shop. To leave you with a quote from Lewis Carroll and referenced in Druckers original article: The cause of lightning, Alice said very decidedly, for she felt quite sure about this, is the thunder no, no! she hastily corrected herself, I meant the other way. Its too late to correct it, said the Red Queen: When youve once said a thing, that fixes it, and you must take the consequences. Through the Looking Glass