Leaders Use These Controls To Manage Decisions

Traditionally, decisions are made at the "top" of an organization and communicated to those "lower down". Feedback on the effectiveness of the resulting actions is sent back to the "top". We can see this pattern in all aspects of life, from our relationship with others, through our education, and on into our working life. However, in business such a hierarchical structure is not always an advantage. What options are there for a modern business?

Management science tells us that there are three distinct stages in the development of decision-making processes within organizations. Each of these stages has been fueled by advancements in communication and coordination technologies. It may have all started with the telegraph (invented in 1832) or even with fire beacons and smoke signals in more ancient times.

The first stage of decision-making sees decision-makers, who are only aware of and responsible to their immediate environment, make decisions independently of other decision makers in the organization. (That’s a mouthful, but it makes the point.)

As the cost and efficiency of communication falls, information is gathered centrally and decision-makers become aware of, and responsible for, a wider environment. These more informed decision makers attempt to make decisions in order to maximize the benefits to their organization as a whole. Finally, as communication efficiency continues to improve local decision-makers consult with other related decision-makers. That maximizes the benefits to both their own organization and to their wider business environment.

These three decision-making stages of development are characterized as follows:

1. Independent Decentralized Control:

In this model, individual units have independent decision-making powers. They act in order to serve their local needs. However, since there is little or no coordination between decision makers, it is possible that decisions made by units locally will conflict with other units' decisions. This may even extend to the global objective of the organization as a whole.

2. Centralized Control:

In this model a central body makes all decisions. Changes affecting the whole organization can easily be made since the impact of the changes across the organization can be predicted. However, this approach is rigid. It forces each organizational unit to conform to a prescribed set of rules governing how they act upon instructions from the central body. Additionally, it impacts how they report on the results of their actions. Furthermore, as the number of distributed units increase, the information flow to the central point of control increases. Thus, this method lacks scalability.

3. Connected Decentralized Control:

Decentralized control encourages independent decision-makers to take responsibility for their local environment. However facilities are provided to allow them to consult with other related decision-makers. Because of this connectivity local decisions can be made with a view on their global effects. However, in this model all decision-makers are exposed to all potential information sources. This means powerful information management systems are required.

Decentralized control brings many managerial benefits. Therefore, companies usually strive to move from independent decentralized control, through centralized control and on into connected decentralized control. However, as organizations progress towards connected decentralized control they must find a balance between top-down control and bottom-up empowerment.

Too much top-down control will result in a lack of scalability as described in centralized control model. Too much bottom-up empowerment will result in a chaotic decision making process with unpredictable results.

To achieve the "perfect" balance between centralized and decentralized control it is necessary to identify conflict points between individual units. These units must then co-ordinate their decision-making processes and knowledge bases. Such coordination requires the sharing of vast amounts of information. This brings with it the potential for "information overload". In that type situation it becomes impossible to identify the relevant data from the irrelevant data.

Further to the problems of information overload are the difficulties of communicating information between decision-makers of differing backgrounds. For example, how does an accountant communicate the impact of a marketing overspend, while the marketing people communicate the impact on sales if the budget is not approved. In turn it could affect the underlying sales potential for the firm.

In an independent decentralize model there is no control over such decisions. In a centralized model we rely on one individual to understand all three points of view. In a connected decentralized model we rely on a technique to communicate all information in a meaningful and manageable way. This need for efficient communications presents considerable technological challenges. Individuals from different backgrounds have different domains of understanding, different decision making processes and different data collection, storage and processing techniques.

Which system is best? There is no one size fits all. It’s up to your organization to determine which system fits you the best.
_______________________________

For more free articles of this type delivered weekly to your email box subcribe here
and immediately receive a bonus white paper report. Available at:
http://www.GainingTheEdge.com