Here’s a question for you: What organization do you think is more likely to be a creative organization: One where most decisions are made by a few individuals high at the top of the organizational hierarchy? Or one where decision-making is spread throughout the organizational hierarchy, and decision authority is delegated and shared?

How an organization structures its decision-making processes is a good predictor of the level of innovation you can expect from this firm. Let’s see how organizational decision-making affects organizational innovation.

Diagnosing organizational innovation readiness

These past few years, I have been working on a method to help ordinary organizations become creative ones. This method shows firms how to turn a “me too” copycat corporate culture into one with unlimited creative potential that can fluently produce new “wow” products and services. In this method, we diagnose the current state of an organization by examining 56 factors that relate to five important organizational dimensions: leadership, commitment, collaboration, culture, and structure. The way an organization structures decision-making is one of the eight structural factors that we audit to better understand the innovation capacity of a company.

Structuring organizational decision-making

To determine how an organization structures its decision-making, we locate the firm on a continuum defined by two extremes: at one end, decision-making gravitates toward, and is heavily concentrated at, the top; at the other, decision-making is devolved or consensual.

• With centralized decision-making, the authority is concentrated in a few designated managers at the top of the organizational hierarchy. This often slows down customer-related or operational decisions, as a case first has to move up the hierarchy until it reaches the person with the relevant decision power.
• At the other extreme, decision-making is devolved to the lowest possible operational level within the organization and — particularly for important decisions — often aims for consensus. Delegation can speed up the decision processes for customer-related or operational decisions, allowing for an issue to be quickly resolved when and where it occurs, although reaching consensus may sometimes require more time. A consensus describes a condition in which everyone is willing to go along with the joint decision. While it may not be the first choice for all group members, it has enough support to have a good chance for success and no one has a feeling of “giving in.” Consensual decision-making uses the collective knowledge and experiences of a group. As the Stanford professors Jeffrey Pfeffer and Robert Sutton said, “One of the most consistent findings in the literature on decision-making and performance is that the best groups perform better than the best individuals, because groups are able to take advantage of the collective wisdom and insight of multiple individuals, while individual judgment reflects the narrower insights and skills of just one person.”

How about your organization? Are decisions mostly made on higher levels, or spread out over all hierarchical levels? Where on the continuum between decision authority concentration and delegation is your firm positioned? To what degree is consensual decision-making part of your organizational decision-making practices?

How you structure your organizational decision-making impacts organizational creativity. Research results and case studies suggest that most creative organizations such as BMW, Pixar, Google, and IBM follow devolved and/or consensual decision-making approaches. IBM’s CEO Sam Palmisano also advocates decision-making structures where power is dispersed throughout the firm: “A top-down system can create a smothering bureaucracy that doesn’t allow for the speed, the flexibility, the innovation that clients expect today.”

Aside from boosting innovation, delegated and consensual decision-making also frees up senior management to focus on what they are paid to do — monitoring the big picture and the emerging future — so that they can develop, decide on, and implement strategies within the overall strategic roadmap of the organization. Moreover, delegated decision-making tends to speed up decision-making for operational and tactical decisions, as the decisions can be made right at the frontline instead of having to slowly travel up and down the hierarchy layer by layer. Faster decisions mean faster responses to customer requests and operational issues, and allow a firm to take advantage of short-term opportunities.

Before you can move toward a more delegated and consensual decision-making with your organization, you need to first do your homework and align the factors that belong to the other organizational dimensions of leadership, commitment, collaboration, and culture.

• You must create a shared vision and mission, and shared values, and ensure that these are widely known and understood so that they can inform decision-making (leadership).
• You must invest substantial resources in human development to equip your workforce with the technical, conceptual and human skills needed for good decision-making (commitment).
• You must ensure that relevant information and knowledge is widely shared within the organization and is easily accessible (collaboration).
• You must nurture an organizational culture that contains those factors that enable devolved decision-making, such as trust and tolerance of failure (culture).

How, exactly, can you move your organization toward a more delegated and consensual decision-making approach that makes your firm more innovative? In the next column we will discuss four specific recommendations for actions you can take to shift from decision concentration to decision delegation.

© Dr. Detlef Reis 2013. This article was published in parallel in the Bangkok Post under the same title on 11 April 2013.