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The Hidden Hierarchy that Underlies Corporate Decision Making

Whether you are making decisions around strategic corporate priorities, planning a project, or making decisions in a project environment, there is a hierarchy that underlies your decision making and determines the success or failure of your decision process.

This is not the “hierarchy” of an organization chart.  It represents the factors that influence every action and decision in your corporation.

Each of us implicitly understands and usually respects the hierarchy at the decision-maker level, but we often disregard the importance of the hierarchy as it becomes generalized at the business environment level.  Put another way, most decision makers understand the importance of engaging stakeholders but don’t seriously reflect on or recognize the importance of alignment with group dynamics, governance structures, corporate culture, and the overall business environment. 

HierarchyAt the top of this hierarchy is the decision-maker.  This is the individual or group making the decision.  Under the decision-maker are the stakeholders that will be affected by the decision.  Below stakeholders lie the human factors such as cognitive biases and group dynamics that exist in the stakeholders and agents.  Below that, the governance environment defines the relationship of the individuals higher up the hierarchy with the organization.  Corporate culture underlies the belief systems of the organization.  Finally, the business environment describes the surroundings and conditions in which the corporation operates.

The power of this hierarchy is its ability to identify the points of engagement that are required to achieve success when making a decision.  The first principle that applies is that a decision will have a low potential for success if it is not aligned with all levels of the hierarchy.  The second principle says that a higher level of the hierarchy cannot be used to change a lower level.  It highlights that you cannot, for example, expect a change in governance to successfully change corporate culture or the business environment.  A change to governance may have an impact on culture but the impact will be uncontrolled and will often express itself in unforeseen ways.

There are many ways to work within the hierarchy to improve decision making.  One example is to use it to define the decision space required to successfully implement decisions.  Let’s say that you are deciding around the creation of a new business group.  Most immediately the stakeholders will have expectations that will limit the options that can be easily implemented.  The ability of the various groups to make good decisions and support your decision-making process will be limited by the group dynamics that define how they work together and what types of decisions they will likely reach.  Below that, governance structures and corporate culture will define how the decision process will operate and, beyond that, what types of decisions will be acceptable.  In our example, the corporate culture may rule out the creation of a centralized group because the culture of the organization is one of many operating groups acting independently.   Finally, laws, regulations and customer expectations in the business environment will limit decisions that can be made and successfully implemented.

Using this analysis, you may conclude that the effective decision space is too limiting.  It is unlikely that a good decision, that would achieve the desired outcomes, can be made within the limited decision space.  This is where an understanding of the hierarchy can be applied to improve decision making and achieve greater success. 

If the decision-making agent is unaware of the decision space limitations or chooses to ignore them they may, with the support of the stakeholders, or a subset of the stakeholders, attempt to force through a decision that should achieve the outcome but is outside of the aligned decision space.  This is when bad decisions are made and initiatives take their first fatal step. 

The expectation is that the decision that is made will be successful and that levels lower down the hierarchy will change in a way that supports the decision and results in the desired outcome.  In our example of planning for a new business group, the decision may be made to create a centralized group for some very practical reasons.  The expectation being that the rational arguments supporting the decision will overcome the organization’s cultural belief in independent operations.  More likely, the culture, recognizing only diversified solutions as valid, will passively and actively “push back” making it difficult to create and operate the centralized group.  Over time it will likely fail.

A better approach utilizing the hierarchy is to identify the levels of the hierarchy that are unduly limiting the decision space.  That layer then needs to be directly engaged to change so that the broader decision space becomes acceptable.  Looking at our example again, this might require engaging the company executive to drive cultural change to support partial or full centralization.  This process would be independent of the initial decision and would require that the original decision process be put on hold until the culture change has been fully adopted.

The hierarchy is a good tool to evaluate the potential success of an initiative and allows for the quick determination of whether an acceptable decision exists that will lead to the desired outcome and achieve a high level of success. It will sometimes point to the need for an action plan that is much longer than initially envisioned; however, a slower path to success usually is more desirable than a predictable fast track to failure.