Decision-making: Malaysia's next competitive advantage

IN a business entity, a great customer opportunity had presented itself. The decision had to pass through several layers before anyone could act.

By the time the approval was obtained, the opportunity had disappeared.

The customer had moved on. The competitor had moved faster. And the organisation was left wondering what went wrong.

The above illustrates what happens in an organisation whose structures are designed for the past and do not meet the realities of today's workplace.

In a fast-changing environment, an organisation's advantage is not just having quality products, technology or talented people.

It is also about how quickly it can recognise an opportunity and act on it. A company's ability to stay afloat may depend on its ability to spot opportunities and respond swiftly.

In the example the valuable business opportunity was lost because of the workings of a conventional organisation where there is a hierarchy, with authority concentrated at the top.

This means that information has to travel through the lines of authority within the organisation upwards and then downwards before a decision can be made.

In an environment that is constantly changing, opportunities have to be seized quickly, but traditional structures can frustrate the process.

The problem arises when senior management is required to decide on matters that could be decided much closer to where the relevant information exists.

This raises a simple question: who should make the decision – the person with the authority, or the person with the knowledge?

In today's environment, technology changes rapidly and opportunities can appear unexpectedly.

The company would not be able to seize an opportunity expeditiously if it requires multiple approvals. Such delays can have negative impact on its bottom line.

The loss of such valuable opportunities can have a negative impact on its bottom line. As the goalposts shift rapidly, organisations must have the ability to adapt themselves to new realities to stay competitive.

It is imperative that quick decision-making does not mean reckless decision-making but informed decisions made by appropriate people.

Towards greater agility, organisations must create structures that allow decisions to be made close to where knowledge resides.

Organisations must decentralise decision-making by moving authority from top management to people who are the closest to the information needed to make decisions.

It is frontline staff that understand customers. Salespeople understand changing demand, operations staff understand processes and engineers understand technical problems.

A salesperson may know that a customer is considering moving to a competitor. An operations employee may know exactly where a process is failing.

An engineer may know why a technical problem keeps recurring. Yet they may have to wait for someone several levels above them to give permission to act.

This is where decentralisation can make a difference. Decisions can be made closer to the people who understand the situation, allowing the organisation to respond without waiting for every matter to travel up the hierarchy.

Nucor, the US steelmaker, provides a useful example of this approach.

Under its historically lean corporate structure, decision-making authority was pushed down to divisions and plant managers, who were given considerable autonomy over areas such as procurement, sales, hiring and production.

The corporate office retained essential functions without becoming involved in every operational decision.

Delegation is no abdication of responsibility. Managers are only delegating their authority and not their responsibility. Employees would be accountable to them, but the superiors would eventually have to take the responsibility.

The manager would allow their subordinates to make decisions with defined decision rights, clear boundaries and the information they need and hold them accountable for their decision making.

The organisation cannot be too harsh when reasonable mistakes are made, as employees need sufficient opportunity to learn from them.

Decentralisation cannot take place simply by issuing a management directive.

To be successful, clear lines of responsibility must be established, employees must have access to relevant information, and employees must have appropriate skills.

If there is no clear boundary for making decisions, they will simply escalate decisions upwards. Employees must be given psychological safety to make decisions, and they must be given the authority to act.

Without these conditions, decentralisation can become little more than a slogan.

Employees may be told they have authority yet continue seeking approval because they are uncertain about the boundaries or fear being blamed if something goes wrong.

Haier provides another example of decentralisation. Its RenDanHeYi management model gives greater autonomy to frontline employees and organises parts of the business into smaller, customer-facing units, allowing them to respond more directly to changing customer needs.

Malaysian companies have become increasingly internationalised, with many extending their footprints overseas, and they cannot go on depending entirely on centralised decision structures.

They need to evaluate which decisions should remain at the top and which need to be pushed closer to employees, customers and operations. Large organisations still need governance, risk controls and strategic oversight.

Delegation therefore should be selective and purposeful. The issue is not whether senior management should make decisions.

It is deciding which decisions genuinely require senior management's attention - and which do not.

The competitive advantage of tomorrow may belong to an organisation that can act quickly when circumstances change.

Agility requires speed and speed requires timely decisions, which in turn requires appropriate decision rights. Decision rights require trust, capability and accountability.

The competitive advantage of tomorrow may not belong to the company that makes most of the decisions at the top, but rather to the one that knows which decisions must be made there - and which should not.

In a world where markets move quickly, an organisation cannot afford to make every decision from the top. Sometimes, the person closest to the problem is also the person best placed to solve it.

* The writer holds an MBA from the University of Strathclyde, United Kingdom, awarded under the British Chevening Scholarship programme. With extensive experience in the financial markets and management education, he also served at a prominent think tank. The views expressed are his own and do not necessarily reflect those of Business Times.