Tuesday, December 17, 2013

Should Companies Reward Good Outcomes or Good Decisions?

Businesses focus on outcomes because they're the easiest ways to measure success. Rewarding an outcome, however, means making a subjective evaluation that a good outcome always results from a good decision. We've all seen managers who've achieved good outcomes in spite of bad decision making. That's why examining decision quality in addition to outcomes is crucial when rewarding managers and employees.

If you chose to open a seafood restaurant on the Jersey shore in 2011, then your decision seemed solid based on just tacit knowledge. After all, the collective intelligence would have embraced fine dining in an affluent community poised for long-term growth. Unfortunately, when Hurricane Sandy destroyed many million-dollar homes in 2012, that great decision then had a bad outcome. The hurricane, not the restaurant owner, was to blame for the result.

Crowdsourcing decision making instead of making decisions unilaterally reinforces decision quality long before you know the outcomes. For smarter, faster decision making, try these four steps:
  1. Change your company's approach. In a constantly changing environment, your visualization tools can't perfectly forecast what will happen in 10 years.Focus on the choice instead of on the unpredictable outcome.
  2. Identify and record the assumptions. All choices, whether rooted in tacit knowledge, subjective evaluation or data, are based on a set of assumptions. Sometimes it's the assumption and not the decision that fails.
  3. Establish decision quality criteria. When you're crowdsourcing decision making, teach your team what constitutes good decisions.
  4. Reward a good choice before you know the outcome. Unexpected factors may derail even the best decisions, so reward smart choices on the spot instead of basing performance ratings on the outcomes.
Outcomes are good indicators of decision quality over the long term. Unfortunately, instead of taking the smarter, wait-and-see approach, many companies take the faster approach and punish good decision-makers for bad outcomes. Managers can protect themselves and solidify their choices by tapping the collective intelligence of their colleagues. 

Visualization tools like RankTab can help managers tap the wisdom of the crowd to test decision quality. When everyone has a vote, everyone has a sense of ownership. Although the manager makes the final call, it's easier to defend a decision that many people supported.

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