PEOPLE + STRATEGY36

Design Smart Decision-Making into the Organization (and Forget RACI)By Greg Kesler, Amy Kates and Tara Oberg

Leaders of every company struggle with decision rights, defined as the allocation of power and authority across organizational boundaries. It doesn’t matter the starting point. Highly cooperative cultures report no problem having good discussions, but run into trouble being decisive, making a call, and moving on. At the other end of the continuum, companies with highly autonomous cultures that are trying to build more integrated organizational models find their leaders aren’t adept at engaging partners and working collaboratively.

D ecision rights confusion is an almost universal challenge in large, matrixed organizations precisely because the matrix is designed to surface competing global, local, functional, and other cross-boundary priorities. The tension across these interfaces is purposeful. The matrix ensures that the diverse assets of the business are fully leveraged, while allowing for the agility and speed needed to match smaller competitors. But often that tension is not well managed, and conflicts over de-cision-making become value drains, rather than drivers. Getting to clear definitions of “power for purpose” is not an easy task. Many companies choose to ignore the negative tensions in hopes they will just go away.

Others go to extremes of attempting to prescribe an outcome for virtually every issue to be faced. They turn to tools such as RACI (responsible, accountable, consulted, informed) and

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RAPID (recommend, agree, perform, input, decide) which often even more confusion as leaders try to parse the difference between accountability, authority, and responsibility. These instruments are often too simplistic for complex decisions.

Clearly, neither extreme is the right path. There is a bet-ter approach to the frustrating process of clarifying decision rights. Our organization design work with more than two dozen complex, global companies over the past decade points to an action-oriented and integrated way to improve the clarity, speed, and quality of decisions. These insights are focused on improving the conversations across what we call the “hand-shakes”— the partners at the critical junctures of the matrix that must come together to create value. These conversations are supported by guardrails that reflect the complexity and uncertainty of the real world.

Three sets of practices work together to define how guid-ance on decision authority and collaboration are best embed-ded in the organization:

Define the operating model and where value is expected from cross-boundary decisions

Enable better conversations through the right forums, data, and management processes

Set guard rails for the top 10 tension areas

The Operating ModelA first step in designing fast, effective decision-making is to be clear about the nature of the operating model. How integrated do the business units need to be? Where do you believe there is value to be gained by linking the product lines, geogra-phies, and functions together? The four types of operating governance represent a continuum, ranging from high to low degrees of integration as shown in Table 1.

It is not uncommon for a business unit and country lead-ers to believe that their company is, or should be, in a loosely

related model. They are hyper-focused on competing in their market and see significant differences in the business units that make up the portfolio. They are skeptical that common ways of work that diminish their local autonomy will add value to their business. Corporate center and global functional leaders, by contrast, will typically characterize the same portfolio as closely related. From their perch they see myriad opportunities to leverage expertise, scale, and influence. They see that increased ability to move assets and talent to hot spots of growth will yield enterprise agility.

Leadership alignment on the operating model is an es-sential first step to creating a framework for decision rights. Leaders must agree where synergies are expected and which connections will add value, as well as where collaboration is not necessary. Integration is an expensive and wasteful use of man-agement time if it isn’t directly contributing to invent, make, or sell activities.

Better Conversations The operating model informs the decision forums and manage-ment processes that are needed. For example, in an integrated single business, portfolio management and strategy groups meet regularly to set company-wide policy. In a loosely related portfolio, strategy setting and portfolio management of the business units takes place at the sector or division level and each sector may have a different cadence and process.

Sophisticated companies carefully design and regularly adjust the governance forums that bring leaders together to identify issues and make decisions. In this way, the right people focus on the right topics with shared data. A common mistake is to overuse the direct report team to the CEO for too broad a range of decisions. This team may not be balanced between functional staff and operators. Or, it may be missing important voices closer to customers or markets. Another mistake is to cre-

TABLE 1: FOUR TYPES OF OPERATING GOVERNANCE AND DEGREES OF INTEGRATION

Fully Integrated Single Business

Closely Related Portfolio Loosely Related Holding Company/Conglomerate

Strategy Single strategy guides all P&L units with minor variations

Complementary business portfolio and core strategy with variations

Diverse, relatively autonomous businesses with limited strategic similarities

Structuring cheap finance, buying and selling separate assets; no common strategy across units

Governance & Organizational Design

Direction comes from organizational centerAll process and practices are commonSingle culture

Functions seek to drive scale, common process, and policy consistency Synergies expected at the front (shared customers), middle (shared technologies) and/or the back (shared infrastructure and operations)

Selected functions drive some scale benefits and some best practices in the areas of capital, talent, and knowledgeOtherwise stand-alone businesses

Appoint the best people to run the businessesBusiness units return financials to parentNo common processesMultiple cultures

Leadership Talent Single talent pool for leadership jobsNumerous synergies expected

High degrees of cross-organization movement of talent with common process & metrics

Limited movement of talent across units at senior levels

No movement of talent across unitsNo synergies expected

Rewards Philosophy Single design, limited need for variationsCentral administration

Single design, with variations in practices as necessaryMixed administration

Harmonized variations in design with business unit administration

High variability; no need for harmonization

Company Examples Apple, Cisco, Coca-Cola, Toyota, Marriott

P&G, IBM,Nike, Google, PepsiCo

GE, Philips, Unilever, Johnson & Johnson

Berkshire Hathaway, Private Equity

High integration Low Integration

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ate a clutter of committees without clear charters. Councils that have outlived their purpose are a prime source of unrewarded complexity.

Start with four types of governance forums. As you design each forum, clearly specify the purpose, roles, cadence and logistics, scope and authority, and behaviors and expectations. All governance forums should be assessed at least once a year and adjusted as necessary.

DirectionManagement of the enterprise with attention to issues that are outside the individual attentional of function, business unit, and market leaders.

Why does the company exist, who does it serve, what is our corporate strategy? How do we balance the objectives of customer, shareholder, and employee? What are the boundaries (policy, practices, and decision rules) that all units operate with-in? What are our expectations of consistency, shared resources, and interdependencies?

OversightCross-enterprise integration and alignment to achieve opera-tional goals

What key metrics do we need to monitor in order to ensure we are meeting our goals together and making the right trade-off decisions? Where do we need to realign resources to execute core work as well as projects and initiatives?

InnovationExpertise and diverse perspectives brought together to identify and champion new possibilities

What is the right portfolio of work to drive current and future sources of growth? What is our criteria for investment? How can we best foster a culture of innovation?

Strategic IntentionsSpecial focus based on unique aspects of the strategy, such as growth, customer experience, brand building, talent manage-ment, and deals and acquisitions

The governing role of executive groups is to focus on non-routine and ambiguous problems and trade-offs, often among hard-to-compare demands and opportunities. When leaders come to the table in their enterprise governance role, they are no longer advocates for their unit, but arbitrating, as a group, among competing objectives.

GuardrailsPerhaps the most common mistake matrixed companies make in trying to define decision rights is to apply the wrong tools. Think of two types of decisions that involve cross-boundary interaction. The first are fairly tactical, such as consistency of a product promotion plan across markets. These decisions benefit from consultation, and RACI type tools can be useful to initially clarify roles. Real speed comes, however, when lead-ers build high trust relationships, understand and value one another’s expertise, and let go of involvement in many of these decisions.

The second type of decisions are what we are concerned with here. Our research and consulting experience indicates there are only a few—perhaps no more than a dozen—decision areas in most businesses that generate the bulk of the tension. These are strategic decisions. They can only be made by part-ners across the matrix working through a set of often equally compelling options with difficult trade-offs. These choices include cost versus quality, risk versus time to market, inclusive-ness versus speed, profit versus revenue, short- versus long-term objectives, and customization versus standardization.

Some common tension areas involve:• Resource sharing and movement across business units• Investments in new markets, products, or systems• Priorities and portfolios• Inventory and capacity• Pricing• Hiring, promotion, and performance management

These tensions don’t have easy answers and the outcome to any particular scenario can’t be determined ahead of time, but the right conversation can be constructed. The president of a very large and successful apparel company told his team recent-ly, “We don’t want to use the term decision rights. No one has the right to unilaterally make decisions in this company. It’s just not the way we work in our matrix. What we need are decision guardrails to help leaders collaborate.” He has a point. Some tools for doing this:

Use Decision PrinciplesDecision principles shape the boundaries within which trade-offs can be made. One of our clients was trying to move from a solely financially driven mindset. The principle of “assess risk and reward from multiple perspectives—values, compliance, customer, business, team, and financial,” sent a clear message regarding the discussions that executives expected to take place. Principles also make clear behavioral expectations. A useful one is this: Eliminate management rework. Once deci-sions are made, focus should be on execution. Decisions made should only be revisited if significant new facts emerge. This one reduces after the fact lobbying and sets the bar high for unwinding a decision.

Distinguish Between Consensus and CollaborationThey can look the same on the surface with lots of high in-volvement and debate. But, consensus means that everyone has a veto. The drive toward unanimous agreement can result in compromise and sub-optimized decision quality. True collab-

The challenges of managing omnichannel marketing and

distribution are many. Not least among these is the need to create a decision culture of collaboration,

balancing competing voices that lead to the best outcomes for the

consumer and the shareholder.

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oration means the right players have input and seek alignment on the best solution, but one role is ultimately accountable for the quality of the decision.

Designate a Golden VoteThe role in a collaborative decision process who is given ac-countability for the quality of the decision is called the golden vote or tipping vote. Think of a joint venture with a designat-ed 51 percent and 49 percent partner. The best practice for decision rights is to designate who will act as the 51 percent partner for a given issue. For example, for product develop-ment decisions, the global business-unit leader in the Philips consumer lifestyle sector gets the 51 percent vote if agreement is not reached with the market. But on advertising and pro-motion decisions, the regional market leader gets the golden vote. These high-value decisions require heavy collaboration, but when the partners cannot agree, speed requires the team to move on, trusting that the 51 percent partner will make an informed call. In the binary decision chart example shown in Table 2, an X represents the 51 percent partner and the O represents the 49 percent partner.

This golden or tipping vote shouldn’t be confused with a simplistic allocation of power. When collaboration doesn’t re-sult in a clear way forward, one role makes the call, but this role is always held accountable for the quality of the decision. The test is whether the right perspectives and data were brought to the table so leaders are making an informed decision, and are clear about the trade-offs and how the decision impacts the entire enterprise.

The Approach in PracticeWe work with a large, global consumer brand company who has successfully managed a complex matrix for a number of years, primarily around strong global categories and regional com-mercial business units. While the go-to-market model had been primarily wholesale, increasingly the company had opened retail doors and aggressively invested in digital commerce. As the company became increasingly experienced in omnichannel distribution strategies, the leadership team focused on creating

a seamless shopping experience for consumers across compa-ny-owned retail, partner-owned retail, .com sales, and tradition-al wholesale trade partners across the globe.

The challenges of managing omnichannel marketing and distribution are many. Not least among these is the need to create a decision culture of collaboration, balancing competing voices that lead to the best outcomes for the consumer and the shareholder. Decision-making forums and processes must balance the pressures to generate profitable growth from the existing business, while investing in new direct-to-consumer ca-pabilities. Fully embedding digital into the go-to-market model requires a power shift.

Digital is no longer an adjunct or enabler to the core busi-ness, but a fully formed dimension. In the new model, leaders must balance the competing demands across markets for the right assortments and drive consistent brand stories across multiple channels. Pressures on the supply chain for the right inventory availability must be managed. And increasingly, the drive to personalize products and experiences, especially in consumer discretionary businesses, means taking tight control of the shopping experience, while continuing to work with retail partners. These tension areas require a collaborative approach to decision-making, without bogging down in a slow, consensus-drive process.

How decision guardrails are developed has an enormous im-pact on whether they are used in the real world. Our consumer brand company engaged a cross-section of over 100 leaders from across channels, brands, categories and regions to design the new organization, through a series of two-day workshops. A core team of about 25 leaders worked through all of the sessions and became deeply knowledgeable about shifts in the strategy as they worked through a complex set of design chal-lenges for the new organizational model. They were the best equipped to identify the key tension areas and to recommend a set of decision guardrails.

The first step was to clarify the operating model. The orga-nization had spent the previous five years transitioning from a decentralized model of country units to a much more cen-ter-led organization, driven by global categories, with greater

TABLE 2: GOLDEN VOTE FOR KEY TENSION AREAS

Region Market Leader Global Business Leader Notes and Assumptions

Annual target setting O X CollaborativeStrategic plan, portfolio decision making in BUAnnual target sets framework for resourcing, pricing, operating P&L

Resourcing X O Commercial cost, part of joint plan, adjustments by region

P&L corrective actions X O Region accountable for annual results

Strategic pricing O X Regional pricing needed to manage cross-border differences, limit parallel trade, price spiral

Tactical pricing X O Requires strategic pricing framework, corridorsRegion freedom to move within corridors, exceptions escalated to group level

Product portfolio O X BU sets business caseMarket has role in escalating local portfolio changes to sector then Executive Committee

Advertising & promotions

X O GE, Philips, Unilever, Johnson & Johnson

consistency to product assortments. Leadership had learned to work with this new framework, but additional shifts in gover-nance would be necessary to bring a stronger voice to the table from digital commerce and direct-to-consumer retail. General managers at the region level would become the integrators in overseeing six or seven distinct channels, and would manage the trade-offs in their markets with more guidance from the center. And the consumer-insights processes would have to be-come more robust to assure that the center-led categories and functions didn’t lose touch with consumers around the world, a difficult challenge under the best of circumstances. These role shifts would be articulated in an explicit set of illustrations, engaging the core design group.

In order to define the red-flag tension areas, interviews were conducted with senior executives and members of the core de-sign group. The analysis identified seven critical tension areas in the new, global matrix that would create the most challenge once the new organization was implemented: defining brand stories, marketplace mapping choices (which doors go where), product assortments, digital investments, brand investments,

inventory availability, and pricing. A guardrails guide for each tension area was created to design the right conversation. The elements of the guide are:

• A tension scenario (a typical example of how the tension might play out in the real world)

• The impact of decision-making on consumers and share-holders—whether this is a high-value/high-risk decision

• The management forum and/or process where the deci-sion conversation should play out

• The roles to involve and the data that should be brought to bear

• A clear statement of what leadership role should have the tipping vote if a conclusion cannot be reached

Through a series of half-day workshops, various leaders reviewed the drafts, working through scenarios and iterating on the assumptions. Finally, a larger group, including coun-try and region leaders, was brought into the final editing process and the document was shared with the executive committee for approval and endorsement. Not everyone

agreed with each of the conclusions that was reached. All, however, understood what collaboration should look like as the company makes a conscious shift in deci-sion-making patterns toward new go-to-market channels, with more guidance from global category teams. The materials will be living documents, tested periodically in management meetings, and communicated in leader

messaging, development programs, and onboarding.

Turning Theory into Practice The challenge of defining decision-making in a matrixed or-ganization should not be underestimated. It is one that many of today’s complex, global companies have not yet mastered. Beyond seeming overwhelming due to the range of decisions that need to be made, decision rights work can feel abstract and disconnected when not integrated into an organiza-tion’s design. Existing tools such as RAPID and RACI are not enough for teams facing more complex decisions. As a result, many companies grow frustrated and shy away from this work. The promise of the matrix isn’t realized and the structure is blamed for being just too complex.

There is a manageable and effective way to ensure high quality decision-making in an organization. An action-oriented approach that centers on first on aligning on a clear operating model, designing forums, and management processes to enable the right conversations, and defining top tension areas so guardrails for decision-making can be created.

(The article includes excerpts from the book Bridging Organization Design and Performance: Five Ways to Activate a Global Operating Model, Wiley, 2016.)

Greg Kesler consults with CEOs and other senior leaders on global organization design and activation. He specializes in designing and implementing global operating models and governance practices in large multi-national organizations. He is the co-author of Bridging Organization Design and Performance (John Wiley, 2016) and Leading Organization Design (Jossey-Bass, 2011), as well as numerous articles and book chapters. He teaches and speaks on the subject to execu-tive groups in public and in-house programs. He can be reached at greg@kateskesler.com.

Amy Kates consults with CEOs and senior leaders on global orga-nization design and activation. She specializes in designing and implementing global operating models and governance practices in large multi-national organizations. She is the co-author of Bridging Organization Design and Performance (John Wiley, 2016) and Leading Organization Design (Jossey-Bass, 2011) with Greg Kesler, and two oth-er books with Jay Galbraith. She teaches and speaks on the subject to executive groups in public and in-house programs. She can be reached at amy@kateskesler.com.

Tara Oberg is a consultant with Kates Kesler, supporting the firm’s research and client facing work. She was previously with the Seurat Group, where she managed the firm’s research, marketing, and PR ca-pabilities. She also directed the research department at Kantar Retail, leading projects to support category and brand growth initiatives for CPG clients. Tara can be reached at tara@kateskesler.com.

PEOPLE + STRATEGY40

Getting to clear definitions of “power for purpose” is not an easy

task. Many companies choose to ignore the negative tensions in

hopes they will just go away.

P E O P L E + S T R A T E G Y S M A R T B R I E F E - N E W S B R I E F

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