Alfred P. Sloan Jr. (1875–1966) is one of those managers who can be said, with certainty, to have transformed the world of management. From 1923 to 1946 Sloan was CEO of General Motors, and from 1937 to 1956 he chaired the company’s board. Under his 33-year stewardship, GM managed to expand massively, and it steadily built up its market share. In Sloan’s day his analytical powers, his grasp of the problems of running a business, his farsightedness, and his exceptional judgment were all viewed as key contributors to the success and growth of GM and were considered largely responsible for the headway the automotive giant made under his leadership. That appraisal still stands today. From Sloan we can learn how to make effective decisions.
Fundamental decisions by the top management at General Motors were invariably preceded by extensive discussions. One time, however, a particular motion had been so well prepared that everybody in the room supported it. Sloan was also expected to back it, but instead he said: “Gentlemen, I take it we are all in complete agreement on the decision here.” Everybody sitting around the table nodded their assent. “Then I propose we postpone further discussion of this matter until our next meeting to give ourselves time to develop disagreement and perhaps gain some understanding of what the decision is all about.”1
You do not make the right decisions by reaching a consensus as swiftly as possible. Rather, you arrive at correct, effective decisions by deliberately creating differences of opinion and using dissent to the company’s advantage. This is precisely what Alfred P. Sloan did—systematically. Organizing dissent and reaching a consensus by talking through the various pros and cons is the ground rule for making correct, effective decisions. Preconditions for this include adopting differing viewpoints, weighing things up differently, and then engaging in an intensive dialogue. This lays the foundations for finding better alternatives as well as for establishing a consensus that is solid enough to withstand any problems arising during the practical implementation phase.
Of course, there is a great deal more to learn about making effective decisions, which is a key task for managers. It is not their sole task, but it is a specific one that only managers perform. In other words, anyone who makes decisions is, by definition, a manager.
Effective managers expect any decisions they make to be good and to achieve the desired result. To this end, they discipline themselves to adhere to a fixed decision-making procedure comprising the following clearly defined steps2:
1. Recognize and define the problem.
2. Set the specifications that the decision must meet.
3. Define what is right.
4. Work out alternatives, use dissent, and exploit the insights gained from differences of opinion.
5. Decide to build actual implementation into the decision.
6. Gather feedback and follow up systematically.
This first step entails carefully thinking through the following question: What is the actual issue here? If this question is just superficially glossed over, mistakes are bound to follow. There is only one way of making sure that a problem has been properly defined: Constantly test the definition of the problem against all available facts. (For more on this topic, see Chapter 4 on M.C. Escher.)
When defining the problem, the main issue to clarify is what type of problem you are facing. Is it a generic event or a unique event? Generic events require decisions of principle. In other words, a rule, principle, or corporate policy guideline needs to be defined that stipulates the procedure to follow when faced with the generic event in question. By contrast, unique events call for tailor-made solutions, because the problem in question will probably never reoccur. Since decisions of principle are more momentous than responses to unique problems, correspondingly greater care and more time should be spent on making them. Yet when unique events occur, pragmatic (and often improvised) solutions can usually be applied. If no such distinction between generic and unique problems is drawn, the approach taken in attempting to resolve the difficulty will be wrong, with all the corresponding negative consequences.
This second step entails asking the following questions:
What objectives does the decision have to attain?
What are the minimum objectives to be achieved?
Which specifications need to be fulfilled?
What is the very least that is required to solve this particular problem?
Accordingly, setting specifications does not entail stating a desired maximum, but rather stipulating the required minimum. This minimum must be attained if the decision is to be effective. Otherwise the decision will not fulfill its purpose.
The basis for any decision must be the question: What would be right? Until that has been clarified, you cannot distinguish between a right and a wrong compromise. Starting off by asking this question may not guarantee that correct decisions will follow, but if you do not begin with it, you can be almost certain that your decision will be wrong.
It goes without saying that the issue of what is right is distinct from the question of who is in the right.
Seeing alternatives is a prerequisite for making any decision. If a single solution is all there is, instead of actually deciding anything, you will merely be confirming a single, given option, not making an active choice. So insist on exploring alternatives in any scenario in which a decision is required, regardless of how plausible, worthy of support, or promising these alternatives may appear. Constantly force yourself and your colleagues to work on decent alternatives because there are always more alternatives than appear at first sight. Remember, too, that one alternative is to leave things as they are, so do not let yourself be coerced into changing something if, after careful consideration, maintaining the status quo seems to be the best decision at the time.
This step also necessitates thoroughly thinking through the risks and consequences of each alternative, which entails a lot of work but is absolutely essential. Try asking yourself these questions:
For how long will this alternative tie us down?
To what extent is it reversible and how easy is it to correct?
What risks are associated with it?
If a potential threat becomes a reality, what kind of situation will we be facing?
Can we afford to run the risk of this happening in the first place, even if you believe it is highly unlikely?
On which assumptions and premises is our thinking based?
What would have to happen to make us accept that this line of thinking had been wrong and that the decision needs fundamental reconsideration?
Write down those assumptions and premises—some people call them boundary conditions—so that you can see when they have been disproved and then review the decision in light of fresh circumstances.
Who does what by when? A decision can truly be said to have been made only when essential measures have been identified, once responsibility for their implementation has been assigned, and after deadlines have been set. Any decision that lacks a concrete action plan is effectively nothing more than a hope. Consequently, a decision will have no impact until its implementation has been set out in a plan of action. Most action plans will comprise just a handful of key measures. These measures, which are all the more essential for being few in number, should be directly and fundamentally relevant to the issue at the core of the decision, as determined by the decision maker.
The details will then be filled in by the designated manager and the associated team. So usually the people who actually make the decisions will not be responsible for implementing them in detail. As a result, if you are a decision maker who is interested in the practical implementation of your decisions and want them to achieve the desired results, you should specify the relevant key measures required to make this happen. Clarity about what the designated manager needs to know and be capable of achieving and about what authority that individual will need to effectively implement a decision is also vital.
Other essential questions about implementation are: Whom do we need to involve in the implementation of our decision? Who needs to be told about it? What needs to be done to guarantee support for the decision’s implementation and to ensure proper understanding of it? And finally, how can we control and guide the implementation of our decision?
The sixth step involves monitoring the decision’s implementation until the desired outcome has been achieved. Decision makers should always make sure that they receive regular, in-depth reports. If at all possible, go and see for yourself what progress is being made in the implementation of your decisions, what impact they have had, and which difficulties have been encountered.
Specific deadlines of action plans should be reimposed until your decision has been effectively implemented. So regularly follow up on measures and make sure there is enough time for implementation to be successful. Effective managers will also regularly inform all those who are affected by, or who contribute to, a decision’s implementation about the current situation and any headway made. Any successful progress you can report will not only motivate everyone involved, but will also generate confidence in management’s professionalism.
If, after what you have read above about Alfred P. Sloan, you would like to know more, you may be interested to hear what Bill Gates wrote about Sloan’s book: “I think Alfred Sloan’s My Years with General Motors is probably the best book to read if you want to read only one book about business. The issues [Sloan] dealt with in organizing and measuring, in keeping [other executives] happy, dealing with risk, understanding model years and the effect of used vehicles, and modeling his competition all in a very rational, positive way is inspiring.”3
Follow the six steps given above when making key decisions.
Use dissent and different viewpoints to help you reach a viable consensus.