Why do cars have brakes?

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There is often tension in organisations about when and how decisions should be made.

Small organisations tend to initially concentrate power and decision making in the hands of a small number of founders.

This makes sense – they understand the business, know how much is in the bank and can tell when and what decisions are sensible.

As organisations get larger, managing larger groups of stakeholders becomes harder.

If one person needs to make all the decisions then a bottleneck will be formed as the increasing number of decisions is held up by that person’s ability to make them.

At this point, organisations think about splitting up responsibilities – giving leaders autonomy and delegated authority over decision making.

This allows more decentralised decision making and increases responsibility for those in charge. This can be a good thing.

At the same time, managers may now take decisions that optimise their own position at the expense of the greater good.

For example, in many organisations budget holders will refuse to approve projects that have excellent returns because the costs will go on their budget and the benefit to someone else.

An owner will see the returns to the company and make the decision to go ahead, while a manager sees the impact on his or her budget and decides not to proceed.

The situation becomes even more complex when the benefits of the decision are dependent on market movements.

In many situations – especially when it comes to commodities purchases – the return from a particular course of action may vary from day to day with the market price.

A natural reaction from the leadership team is to put controls in place – set targets and incentives or punishments to get the results they want – including removing people when they don’t meet targets.

This approach was satirised by Voltaire, when one of his characters said of the British style of naval administration in the mid-eighteenth century “in this country, it is good to kill an admiral from time to time, in order to encourage the others”.

The Soviet Union’s strategy for over 60 years combined unreasonable targets with a hanging-the-admirals approach to encouraging compliance.

It’s clear that such approaches are often not successful – and that is because the people involved spend more time in figuring out how not to get in trouble than doing what is right – a practice known as gaming.

Gaming can be defined as hitting the target – but missing the point.

The point about organisational decision making is that to make good decisions, you need managers who think like owners.

An owner (a good one anyway) will do what it takes to move the company along as fast as possible without wrecking it – slowing down when necessary and speeding up when it’s the right thing to do.

That’s why cars have brakes – to help them go faster.

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