Case studies

Trevor Gregory was frustrated. A senior executive of ABB UK, the British division of the big Zurich-based power technology and automation company, Gregory regularly put together bids for power projects, such as the Channel Islands electricity grid. But he kept bumping up against organizational obstacles.

• Each of ABB's many independent units had its own profit targets and set its own transfer prices, for instance, including a margin acceptable to that unit. By the time a bid got through the chain of ABB units, the end price was often too high to be competitive.
• Many of the units controlled factories and did all they could to sell the products those factories made, even if that meant discouraging customers from patronizing other ABB units.
• The company was making more and more acquisitions, and often failed to integrate them into its complex matrix system. Some managers began to gripe that they had three, four, even five bosses and had to get approval for major decisions from each one.

With so many decisions requiring intensive negotiations, internal politics grew bitter. Why on earth, Gregory wondered, wasn't ABB set up to make good decisions on a routine basis for the benefit of the whole business?

But then things began to change. A new CEO, Jürgen Dormann, began building an organization that could make key decisions such as project bids well and speedily, and then execute them effectively. Dormann and his team consolidated ABB's businesses into two divisions and just 28 business areas, down from 65. They centralized profit-and-loss accountability. They simplified transfer pricing and required full margin transparency. ABB's market and country organizations would henceforth focus not on what they could sell from their factories, but on what they could sell to customers in their areas, regardless of where in ABB the product might be made.

To sustain the organization's decision effectiveness, Dormann created a tight, cohesive leadership team aligned around a set of clear, well-understood goals. His team spelled out which decisions would be made by headquarters (relatively few) and which by the divisions and business units. Executives promoted people who were committed to the new approach and who could actually make the necessary decisions. Every employee got a weekly e-mail from the CEO talking about the transformation—what the priorities were, what the challenges were, how the company was doing.

The company no longer shrank from difficult decisions, whether they were about divesting noncore or unprofitable businesses or about investing in key growth priorities such as R&D and China. The days of parochialism and politics were over. As people saw their leaders making and executing decisions with cohesion and trust, motivation and morale increased throughout the organization.

By 2007, ABB was fully back on track. It was profitable. Its share price and market value had grown more than fivefold in the previous four years. Trevor Gregory, now the U.K. and Ireland CEO for ABB, summed it up for us. "The changes we went through back then gave this business an opportunity to fly," he says. "And it has flown."

When Alan Mulally arrived at Ford Motor Company in 2006, the automaker's problems were no secret. Like everybody else, the new CEO could see that Ford had too many unrelated brands, too little commonality across its car models, too many financially troubled suppliers and dealers, and too much reliance on big SUVs and trucks. But Mulally also saw that no one at Ford was addressing those issues. People were stuck in a rut. They weren't making and executing the important decisions.

"I think the Ford story," Mulally says, "is about making the decisions that needed to be made and then getting them to stick."

Beginning his first week, Mulally instituted a weekly meeting of the executive team. Called the Business Plan Review meeting, or BPR, it was a half-day session held at Ford's Dearborn headquarters. The first few were rough. Ford's senior leaders couldn't agree on the company's problems, let alone its priorities. But Mulally kept at it. He pushed people to identify the most important decisions in their areas. He hammered on the idea that Ford had to confront its challenges now.

Soon the meetings began to work. In just four short weeks, the team dissected the company's operations—everything from Ford's approach to new technology and the stability of the company's supply base to the strength of its brands and the performance of its dealers. In late 2006, Mulally summarized Ford's critical decisions for the company's board, spelling out on just one page the essentials for fixing Ford's business, including improvements to the quality and fuel efficiency of the company's cars, a reduction in the number of suppliers, rationalization of the dealer network, international expansion, and a strengthening of the balance sheet. His crisp identification of the most important items helped everyone at Ford concentrate on what had to be done.

The team debated the decisions and then began to make and execute them. Over a period of months, the company—

• reorganized its operations, moving from a regional business unit structure to a global matrix
• divested the Aston Martin, Jaguar, Land Rover, and (later) Volvo brands
• accelerated the development of new models such as the revamped Ford Fiesta, thereby strengthening its position in small, fuel-efficient cars
• took steps to reduce the number of vehicle platforms from more than 40 to fewer than 10 worldwide
• increased the proportion of common parts from less than 10 percent to more than 50 percent, and
• cut the number of options configurations, reducing manufacturing complexity and improving the odds of getting the right vehicles on the dealers' lots.

Mulally and his team also refinanced the company (raising more than $23 billion to finance the turnaround), reached a breakthrough agreement with the United Auto Workers union, and began consolidating both suppliers and dealers.

Of course, Ford Motor Company still faces many challenges. But the company has already returned to solvency without the help of the American taxpayer. It is gaining market share, and employee morale is higher than it has been in decades. If Ford can keep up the pace of making and executing its critical decisions, the automaker seems likely to return to sustained profitability.

Restructuring boosts performance when it helps people in the organization make better, faster decisions on critical matters, and then execute those decisions more effectively. British Gas, a division of the multinational energy and utility company Centrica, is a compelling example.

A few years ago, British Gas was facing serious performance issues. A new leadership team realized that the business was too large to be managed as one amorphous whole, and so planned a restructuring.

Looking at the business's sources of value, the team identified the organization's most important decisions. One customer segment used large amounts of gas or electricity and paid regularly through guaranteed direct debits. Key decisions for that segment related to customer retention-handling home moves, for instance. A second segment used less energy and paid through a system of prepayment cards. Here the key decisions related to controlling costs, such as those associated with meter reading. A third segment wasn't always consistent in keeping up payments. For this group, the critical decisions related to managing receivables.

Recognizing the different sources of value in each group, leaders decided that the company should be structured by customer segment. They could then locate accountability for decisions that directly affected customers, such as service levels, positioning, and product bundling, in the business units, while headquarters focused on non-customer-facing matters such as IT. The alignment of structure and decisions helped British Gas improve its performance significantly. The company reduced customer attrition, its bad debt fell, and the business began growing for the first time in years.

Decisions work best when everyone knows who's responsible for what. One helpful tool is called RAPID, a loose acronym for Recommend, Agree, offer Input, Decide, and Perform. Companies can make vast improvements in any given decision simply by clarifying who will play each of these five roles.

Consider the case of Intel's Embedded and Communications Group (ECG), which develops and markets semiconductor devices for a wide range of applications. Not long ago, the group was struggling with decisions about what should go on its "roadmap" of products slated for development. The general manager and marketing director responsible for each of ECG's three product areas wanted a say. So did ECG's strategic planning manager. Because of the confusion, says general manager Doug Davis, "We were making decisions without including the right people, so they didn't stick. Someone who hadn't been involved early on would bring a new piece of data, and we'd go back and revisit the decision."

Davis and his team used RAPID to define decision roles. For the roadmap, they gave the "D" to the strategic-planning manager, as he could make trade-offs across ECG's product areas. Implementation wasn't perfectly smooth. Some product managers, for example, weren't happy with "just" an input role and would second-guess the planning manager's decisions. But Davis and his team reinforced the new roles, and soon the decisions were going smoothly—and much more quickly. "We're not thrashing around on these things as much," says Davis. "We're not going back to revisit decisions that were already made."

Every company has a set of critical business processes. But even the best business processes can break down if the decision processes that go along with them aren't clear and aligned.

At the Internet company Yahoo!, for example, every new product, such as a new version of the home page or e-mail, moves through well-defined processes: Yahoo! people develop the product, market it to advertisers and users, launch it, and eventually make sure it operates effectively. But the company was routinely turning out products that were both late and lackluster.

The problem was a lack of alignment. Like many companies, Yahoo! had designed its business processes without clearly laying out or coordinating the key decisions that needed to be made across functions and regions. So product development might consider a new product finished even though the regions hadn't yet weighed in on the degree of flexibility needed to meet local user needs, and even though the company's sales organization might not have lined up enough premium advertisers to make it successful.

Working to remove the blockages, team members under new CEO Carol Bartz carefully defined where the new-product development process stopped and the marketing process began. That helped ensure that decisions were coordinated and balls weren't dropped. They did the same for marketing and sales and other interfaces. Clearly thinking through the link between business processes and decisions enabled Yahoo! to accelerate the pace of new-product introductions and improve its products' appeal to users and advertisers.

No organization can have good, fast decision making and execution without the necessary information in the right place at the right time. One key is to create information systems specifically designed for key decisions.

Lafarge's Aggregates & Concrete Division, under executive vice president Tom Farrell, realized that some of its most important decisions involved managing its fleet of heavy mobile equipment, which was scattered across 620 sites in 25 countries. Farrell knew that many decisions relating to the equipment were best made locally. But he also knew that a group with Lafarge's reach should be able to take advantage of its collective knowledge to make and execute better decisions and to better leverage its bargaining power with suppliers through worldwide negotiations.

With that in mind, Farrell invested in a system that captured information about equipment at each site—the location of individual machines, usage levels, maintenance logs, and so on—and married that data with a standard analytic process reflecting group best practices. This system allowed local managers to make better-informed decisions about the size of their fleets, maintenance schedules, and equipment sharing between sites. It allowed the divisional center to be more effective in negotiating global purchasing contracts with manufacturers. Thanks to the new system, Lafarge registered double-digit improvements in key metrics such as the total cost of ownership over the lifecycle of the equipment. The company has gone on to develop systems and analytic capability in other critical areas, such as land management.

People often fail to make good decisions if their performance goals and incentives point them in the wrong direction. An example is UD Trucks, formerly Nissan Diesel.

When the company was bought by Volvo in 2007, the new owners mapped out an ambitious strategy for growth. One key to the strategy was expanding after-sales service, which was a profitable business. But UD Trucks's sales force at the time was rewarded mainly on the number of trucks sold in a given period, with only a small incentive for after-sales services.

To ensure that incentives helped sales reps make the right decisions about their time and their interactions with customers, the company added new targets for truck inspections—a leading indicator of service revenue—and service profits. This focus helped UD Trucks weather the 2008-2009 downturn better than competitors: the company compensated for falling sales volumes with greater service revenue, keeping the operation profitable.

The Australian telecom company Telstra, similarly, had to change the incentives for its call-center agents to help them make good decisions. Before, agents had an incentive to minimize the time spent on the phone with customers. But service technicians in the field often got inadequate information from the agents and so were unable to resolve customers' problems on the first visit. The company changed its incentives so that the agents would spend more time on a call, helping customers resolve issues themselves or else gathering all the information required for a first-visit fix.

Many large organizations fail to create a clear context for the decisions employees must make and execute. They don't define their priorities specifically enough to allow people to make trade-offs. That was pretty much the situation when Martin Broughton took over British American Tobacco (BAT). The company was a collection of business units that competed against each other. People often didn't know if their decisions should favor a particular unit or BAT as a whole.

Broughton put an end to the competition and mapped out a single goal for the entire company: returning to #1 in the industry. That goal itself was an inspiring new context. Broughton also established a very few priorities to help people make daily trade-offs as they strived to live up to this challenge. For instance, a new focus on growth in premium global brands allowed people to worry less about local value brands. The new emphasis on achieving savings through global scale in procurement encouraged them to seek out suppliers capable of delivering those savings. Broughton's rallying cry—"One BAT"—reinforced the collaborative message.

"I think people understand what they need to do much better," says Paul Adams, who was then a regional director in one of the operating units and is now BAT's CEO. "If you have a Kenyan brand manager who has to make a trade-off, you'd expect now that he would choose a course of action knowing that that is what the company wants him to choose."

When MetLife, a $50 billion global insurance giant headquartered in New York City, launched its decision effectiveness effort, a big part of the change was adopting a participative style of decision making throughout the organization. Henceforth one person or group would be responsible for each major decision, and the decision makers would consult with others who had relevant knowledge or experience. "The participative style fits well with our desired culture, emphasizing both accountability and collaboration," said CEO Rob Henrikson in a video created for internal use.

Leaders began to use the style in major decisions. For instance, the company consolidated its U.S. businesses into a single organizational unit and designed a new structure for that unit. After listening to input from members of his team, unit president Bill Mullaney determined that one particular function needed to move from one part of the organization to another in order to create better synergy and alignment.

But rather than simply announcing the change, he sent an e-mail to every manager in the business explaining how the decision had been made. He had used some of the new decision practices he was trying to reinforce across the business, he said, such as getting all the right people in the room. He had made the decision himself once he felt he had the right input, without striving for the consensus that would once have dragged the decision out. The message was crystal clear: the participative style is the new way of doing things, and here's how it works.

One key to decision effectiveness: ensuring that your organization's mission-critical positions are filled by people with the ability to make and execute good decisions.

To reach that point, an organization must first define which positions are critical. When the shipping company Maersk was ramping up its business in China, for instance, the firm used four broad criteria to identify mission-critical roles: financial impact, degree of complexity, influence on key customer relationships, and effect on the development of future talent. The company also looked at where it planned to expand and the skills required to execute that strategy. For example, several critical roles related to internal logistics—transporting goods from growing economic centers in central and western China to seaports in the south and east.

With key positions identified, you then need to know which individuals have the skills to fill them. That may require revamping your performance management practices. At one South Africa-based mining company, for example, fully 80 percent of people were regularly rated above average, even though the company had been underperforming for years. So managers made the criteria more explicit, made it clear that grade inflation wouldn't be tolerated, and underlined the consequences of strong and weak performance reviews. High performers received not only big increases in pay but also better career development, training opportunities, and retention packages. Those with lower ratings received coaching and eventual outplacement if necessary.

By putting these two pieces together, a company can ensure that more of its essential decision roles are filled by top performers.

Top-performing organizations help their executives and employees learn to handle decisions well, and then to sustain the appropriate behaviors over time. An example is Hospira, a $3.6 billion specialty pharmaceutical and medical device company headquartered near Chicago.

Hospira conducted extensive training as part of its decision effectiveness effort, typically beginning with a discussion of results from the decision and organizational scorecards. Participants then focused on real decisions drawn from their jobs. They spent most of their time actually applying the frameworks and tools rather than just hearing about them, and then discussing the required changes in behavior. To encourage sustained behavior change, the organization made a point of sharing its internal best practices. And it named ten "Decision Champions" charged with working with business leaders to identify and improve key decisions along the way.

Hospira launched an annual employee engagement survey to monitor its accomplishments. The survey tracked progress on decision quality, speed, yield, and effort, and helped identify further areas for improvement. The company also developed a check-in for its biweekly senior leadership meeting. The check-in tracks three measures: what processes have changed, and how; which tasks have been eliminated as a result; and what new work has been added. This focus helps ensure that good decision behaviors remain in the forefront of people's minds day in and day out, and that decision effectiveness is firmly rooted in Hospira's overall cost and effectiveness efforts.

The role of culture in supporting decision effectiveness is easiest to see when the culture helps generate truly outstanding results, as in the example of Shinhan Bank.

The central themes of Shinhan Bank's culture are a clear focus on the customer, accountability for decisions, and reward for performance. To further these goals, Shinhan delegates significant decision responsibilities to lower-level employees, who often have the best view of the customer. It expects budding middle managers to spend substantial parts of their careers working in branches and thus interacting directly with customers.

Shinhan also encourages different kinds of behaviors from its employees than those encountered at many other Korean banks. For example, raising objections to seniors' opinions is not only tolerated, but also expected at Shinhan. That helps ensure better decisions.

Training is one key to the bank's approach. Baek Soon Lee, bank president and CEO, says, "Intensive training courses help new hires come out of their shells and grow their passion. Such a customer-centric culture is an invaluable asset unique to Shinhan, which other banks can't match."

The result of all this is a passion for the business, and for customers, that pervades the organization and translates into great decisions at every level. In 1982, Shinhan was ranked #23 in size among Korean banks. In a little more than 20 years, it has grown to be #2 in the industry, and it consistently earns top marks for customer satisfaction.