A decision is the choice you make after considering the consequences that the resulting action will have. The average manager makes around 35,000 of them — every day. This means more than 2000 every hour awake. And this includes decisions ranging from simple decisions on which route to take to work, how to drink a coffee, to promoting employees or making multimillion dollar investments.
“a choice that you make about something after thinking about several possibilities” - Cambridge Dictionary
Decisions cover a broad range of types within the context of business and beyond. In the context of business, typically you differentiate between three types of decisions depending on the level of complexity they involve and the business value impact they have.
Operational decisions are day-to-day decisions. They have a low level of complexity, and every single decision on its own has a kind of low business value impact. Situations are stable and predictable, and function according to what people expect. Those decisions require expertise in specific processes and isolated tasks of the organization, and are typically done by business users during their daily job. Examples include payroll processing, invoice management, customer service, marketing campaigns or order management.
Tactical decisions act upon the boundaries set by the corporate strategy are related to the medium-term success of the company. They have increasing level of complexity and impact on business value. Tactical decisions involve multiple interdependencies, departments, and stakeholder and requires a holistic approach to understand how decisions can affect the entire organization. Those decisions are typically done by upper management such as head of departments, business units or functions. Examples include the execution of strategic initiatives such as digital transformation projects, strategic partnerships, launching new products or, supply chain management.
Strategic decisions are concerned with the whole ecosystem in which the firm operates. They define where a company should play in the future and how to win there. Strategic decisions are extremely complex and have a huge business value impact. Often defining make or break points for many organizations. The context of strategic decision-making includes extreme uncertainty, unknown causes and effects, with unclear or dynamic interdependencies. Small changes may have seemingly disproportionate impacts. Those decisions are the responsibility of executives that need to drive the overall success of the business and require active experimentation and learning. Examples include entering new strategic fields, changing strategic positioning, transforming entire business models, acquisitions, or divestment.
Traditionally, the three types of decisions have been vertically aligned. Strategy defines tactical decisions, which then drive operational decisions. The outcomes of those actions validate the quality of tactical decisions, and the performance of tactical decisions validate strategy. Each type of decision had its own dedicated process, stakeholders, and dynamics.
The increasing complexity, uncertainty and fast changing nature of today's business world, however, let those decisions converge. Every decision requires a complete understanding of the context on all three levels. Insights and processes need to be connected across departments and hierarchies. And the fast changing nature of the business context requires continuous monitoring and decision-making at scale.
The common thing, behind all of those decisions, is the general anatomy of the decision-making process, the cognitive process to come up with the choice of the best action. On an abstract level, any and really any decision-making process follows the same step. In the business context, it involves mostly three different stakeholders. Business leaders that make decisions, managers who need to orchestrate workflows and business analysts that generate insights.
First, you need to identify the decision to be made. The type of decision and your goals. This can be the investment in a new technology to increase the revenue of your company by 12%, or the launch of a new product to increase customer value. The identification of the decision is done be business leaders.
The next step is to gather information. What are alternatives? What are the relevant influencing factors? This can be for example facts such as how technologies are emerging, how your R&D department performs, how your company translates R&D investments into revenue and so forth. Gathering information is the job of business analysts.
The third step is connecting insights. In this step, you need to bring the information you gathered into context and connect them to come up with a conclusion. So given the context that I am in, what does the information that I gathered mean, and how are they related? Take, for example, decisions about your business model. Companies need to understand the complete picture including customer value, financial implications and technological requirements. Connecting the insights is typically done by managers.
The fourth step is making the decision. The step where you choose between alternatives based on the information you gathered and the insights you connect. Transforming the business model? Invest or not invest? Make or buy? Those decisions are made by business leaders.
Finally, you need to monitor the results that your actions that follow the decision have. This gives you an understanding of the impact of your decisions and allows you to learn from them. For example, it could be that the investment in an R&D project performs better than expected, and you might even want to scale the investment. Managers need to link that effect to concrete actions and monitor now how decisions impact business value to adjust if required.