Is now the right time to plan a brand redesign? Will a price increase hurt customer loyalty? How can the company expand into new markets?
These are some typical questions founders and management teams have to face. A wrong decision could cost the company financial loss or reputational harm.
While decision making is necessary in business, being more strategic in how you make your choices can improve business outcomes, increase efficiency, and reduce guesswork.
What is decision making in management?
Decision making in management is the series of steps managers take to determine the best solution to overcome a problem or situation. The term “decision” refers to the choice between alternatives, and the term “process” refers to the steps used to make decisions.
An individual or a group from various levels within an organization can make company decisions. For example:
- A board of directors typically makes decisions on major investments, acquisitions, and other high-level moves.
- Frontline managers make decisions related to customer issues, staffing, and budgetary concerns.
- Team leaders make decisions related to their projects, such as what tasks to complete first.
It requires gathering information from data or observations, analyzing choices, weighing risks and rewards, and coming to an informed conclusion.
Decision making is usually a continuous process, although some decisions may be made once and then implemented immediately. In other cases, decisions may need to be revisited periodically to ensure they're still appropriate.
It’s ideal to have a process that all managers use to ensure consistency in how decisions are made.
Importance of decision making in management
The role of a manager is to make decisions that guide their teams and departments toward success.
Choices made by senior leaders can affect the entire organization (e.g., how it operates and budgeting decisions); poor decisions can cause decreased efficiency, underperformance, reputational damage, and revenue loss.
Yet, only 20% of participants in a 2018 McKinsey global survey on the topic said their organizations “excel” in decision making.
Good decision making is key to a company’s success and directly correlates with financial performance. The same McKinsey survey shows organizations with great decision making saw financial returns of at least 20%. (For example, say a company decides to invest in a high-stakes decision after analyzing data and stakeholder insights. After three years, they see a 20% return on investment.)
There are numerous other benefits to good decision making:
- Increases efficiency: By focusing on the best options, teams can use their time and resources wisely.
- Facilitates collaboration: Good decision-makers encourage employees to voice their opinions and ideas. This fosters new perspectives, which can lead to more informed decisions.
- Prevents hasty choices: When an organization takes the time to analyze and reflect, it can make decisions with a clearer scope of the situation.
- Increases employee engagement: When employees feel their ideas are heard and taken into consideration, they're more likely to stay motivated.
- Strengthens the company's reputation: Making the right decisions builds trust, demonstrates the business’s competence and reliability, and establishes a positive image.
- Sets a strong foundation for growth: Making decisions based on facts and insight can help a company better prepare for changes and adapt more quickly to competitive pressures.
Management decision-making styles
There are different decision-making styles businesses use. Here’s a look at a few common ones.
Conceptual decision-making style
Conceptual decision-makers are big-picture thinkers and risk takers who like to plan far into the future. They evaluate various scenarios to find the best long-term solution.
- They weigh all options before deciding.
- They think outside the box and provide creative solutions.
- They use long-term planning to position the organization for success.
- They may take longer to make decisions, as they explore all options.
- They may not be as comfortable with making decisions in the now.
Example: Conceptual decision-makers may be in charge of choosing a new marketing strategy for the organization or deciding whether to pursue an acquisition.
Analytical decision-making style
Analytical decision-makers like to decide based on facts, numbers, and evidence, rather than intuition or emotion. They look for a logical, evidence-based approach to best assess the situation.
- They can make quick decisions when the situation calls for it.
- They can draw from a variety of sources to make decisions.
- They’re comfortable taking risks when evidence shows it is the best move.
- They may be overly critical of the facts, missing the bigger picture.
- They may overlook potential benefits of a decision if data doesn’t support it.
Example: Analytical decision-makers may determine the best way to reduce department costs or evaluate a new go-to-market plan.
Directive decision-making style
The directive decision-making style gives the manager the ultimate authority to make a choice. They tend to be swift with their decisions, since they rely on their experience and intuition.
- They can make fast decisions that get things done, even in crisis.
- They need little information to decide.
- They have confidence in their own judgment and can adapt when situations change.
- Their decisions may be too rigid.
- They may miss opportunities because they don't consider all possibilities or ideas of others.
Example: Directive decision-makers may decide which vendor to use for a project or how to handle customer complaints by looking into the options and deciding based on their own assessment.
Behavioral decision-making style
Behavioral decision-makers like to make decisions that promote collaboration and help build relationships. They value their team’s opinion and weigh it heavily in their decision-making process.
- They involve their teams in decisions, allowing for a broader perspective.
- They focus on relationships and trust in making decisions.
- They are open to finding innovative solutions.
- They may spend too much time considering every option.
- They may overlook data and the potential consequences of certain decisions.
Example: Behavioral decision-makers may implement a new project management system after gathering input from the team.
Delegating decision-making style
Delegating decision-makers like to delegate authority to others, giving them the power to make choices with minimal oversight. This can free up valuable time for the manager and make the organization agile.
- It saves the manager’s time.
- It encourages team contributions.
- It allows for faster decision making and helps keep teams on track.
- The team may make wrong decisions.
- Risks may be taken without consideration of the full scope and potential consequences.
Example: Delegating decision-makers may assign tasks to the team to complete without requiring their direct input.
How managers make decisions effectively
While every manager has their own way of decision making, it’s ideal to set up guidelines to ensure alignment.
According to McKinsey’s survey, companies that use these three foundational practices (see below) to support good decision making are 38x more likely to see higher growth and financial returns:
- Making decisions at the right level by delegating to lower-level managers or employees, adding quality and speed to decision making (best for businesses with fewer hierarchies).
- Focusing on enterprise-level value by aligning decisions with the business’s strategy and allocating resources to high-value projects.
- Getting relevant stakeholders to commit to executing decisions by involving them in the decision-making process.
Using these as part of your decision-making process can improve outcomes. But what does it look like? Here's an example managers can use to improve decision making:
- Identify the problem and gather information. Break the problem into chunks, and find gaps in data or research so you can fill them in.
- Ask for input from key stakeholders. Invite team members to voice their opinions, and consider information from external sources.
- Come up with solutions. List the pros and cons of each, and consider the immediate and long-term impacts of each decision and how it’ll serve company goals.
- Take action. Once you make a decision, act on it. Keep your team informed and make sure everyone is on board.
- Create a system for review and feedback to help inform future decisions.
- Monitor the results of the decision and scan for potential risks or issues. Make adjustments to your strategy as needed using feedback and data.
Decision making in the workplace, examples
How a founder approaches decision making depends on their industry, personnel, and operations. Some will find it better for an individual or small group to make certain decisions; others may prefer a more democratic style of decision making.
Art Shaikh, founder of family-oriented social platform CircleIt, says decision making is about empowerment and building trust between him and his leadership team.
“We’ve created a collaborative and cross-functional culture, so decisions are rarely made by a sole individual,” Shaikh says. “My team relies on one another and uses their expertise.”
At CircleIt, content creation is a collaborative effort between its marketing and communications departments: The communications director is heavily involved in the product design and development process, and the entire leadership team is involved in quality assurance (QA) and user experience (UX) improvements.
Tatsiana Kerimova, co-founder of mobile and web app developer Orangesoft, created a mental checklist to help with decision making, which includes:
- Generating alternatives: If the decision doesn’t have potential alternatives, it either has a straightforward answer, or you haven’t given it enough thought.
- Estimating the risk level of each alternative: The more “what if” scenarios you reflect on, the lower your odds are of choosing the wrong path.
- Involving other team members in the process: If there’s time to spare, managers should invite other team members to share their perspectives on the decision. Active discussions make the decision-making process easier and more transparent.
These rules don’t only impact Kerimova’s business — they’ve also helped her clients achieve their goals. For example, the rule for generating alternatives and estimating risks helped a startup client better shape their product vision and create a decision road map. As a result, the client revised its business idea to simplify development and save money on the prototype.