As I wrote about recently, one of the main responsibilities of a CEO is to make good decisions. This is easier said than done of course. I will spend the next few weeks discussing the elements of good decision-making. One key consideration is which decisions should the CEO be responsible for in the organization?
Command and Control Outmoded
Decisions are the fuel on which every organization runs. The quality and speed with which decisions are made determine the productivity of the organization. Decisions are made at every level of the organization, even if the decision made is simply to pass the question up the chain. If you read current management best practices, there is a clear trend away from the command and control models of the past – where the CEO was asked to make most of the decisions – to new models that empower employees to make decisions at the lowest level possible.
I am a big supporter of making decisions at the lowest level possible. The people closest to the situation will generally have the greatest knowledge of the particular issue. However, merely changing the level at which the decision is made will not by itself lead to better decisions. In most companies, I would argue that just moving the decision-making to the lowest level, least experienced employees would lead to worse decisions than a command and control structure.
This is why many companies still operate in the command and control model. Their experience in trying to move decision-making down the organization failed miserably. The reason for this failure was that the employees did not have the proper structure and context within which to make the decision, so they defaulted to a model of whatever was best for them at a local level.
Facilitating Good Decision-Making at the Lowest Level Possible
The challenge for the CEO is to find a way to balance the greater knowledge of the particular situation that a lower level employee may have with the bigger picture strategy that the CEO is trying to implement. Is it easier to transfer the strategy down to the lower-level employee or to transfer all the domain-specific information of each employee to the CEO?
Once a company reaches any significant size, it is almost always easier to transfer the strategy down rather than send the detailed knowledge up. Therefore, the goal is to create an organization where each employee makes the same decision the CEO would make if the CEO had the employee’s knowledge of the particular situation.
This is why it is so important for the CEO to own the vision. Making sure that every employee understands the mission, vision and values of the organization facilitates good decision-making at the lowest possible level. For it to be effective, there must be a continuous process of learning as new employees are brought into the company. Managers must constantly work with their employees to make sure the overall strategy is driven down to every corner of the organization. It will often be obvious if this is not occurring by the poor quality of the decisions coming out of a particular group.
Decisions Only the CEO Should Make
Does this mean that if you drive the strategy down throughout your organization that the CEO will have no decisions to make? Not hardly. There are many decisions that should only be made by the CEO. For instance, the CEO should make the decision when there are implications across multiple functional areas. The vice president of sales should not be able to make a decision that commits the vice president of manufacturing to do something he or she hasn’t agreed to do. I always encouraged my direct reports to quickly escalate any issues they had with other departments, as the CEO is the only one who can allocate resources across the company.
Additionally, the CEO should be involved in key personnel decisions. It is critical that the CEO have a good working knowledge of the people in the top three levels of the organization. Obviously, any decision that commits the company to actions such as mergers and acquisitions as well as strategic partnerships must be taken to the CEO.
It is also critical for the CEO to take responsibility for all decisions regarding corporate policy. I have seen too many CEOs who leave this responsibility to their HR and legal teams, creating a morale issue among their workforce.
Having enough decisions to make is not a problem many CEOs have to deal with in this day and age. Training your people to make the decisions they should while quickly escalating the rest to you is the challenge that CEOs face on a daily basis.