Drucker: The Effective Decision

The effective decision
– synopsis of an article by Peter F. Drucker.

This is definitely worth re-publishing …. a classic  read.

NOTE: best practice process and tools available here

Best Practice Decision Making

While browsing through the B School library the other day, I happened across an article on decision making by Peter Drucker, originally written in 1967. Naturally as this is our business I was curious to see what one of the true masters of management had to say on the topic. Here is the synopsis together with our commentary.

Drucker commences by stating that an effective decision making process must go through some basic steps. These steps will not “make” the decision – it will always be a judgement call – but if the steps are ignored, the decision is not likely to be effective nor right. The 6 steps he recommends are:

  1. The classification of the problem
  2. The definition of the problem
  3. The specifications which the solution to the problem must satisfy (the “boundary conditions”).
  4. The decision as to what is “right”, rather than what is acceptable, in order to meet the boundary conditions
  5. The building into the decision of the action to carry it out.
  6. The feedback which tests the validity of the decision against the actual course of events.

We will show how these steps fit into the overall Genesis Decision Making framework a little later, but first a brief description of the steps and why they are important.

 

Step 1: Problem classification
Drucker postulates that a decision falls into 2 broad categories: generic (where the situation has happened before and a set of rules or principals may be applied) or unique (must be treated individually and pragmatically). There is a further categorisation of (a) generic although unique to the organisation and (b) generic, although only the first event of a new trend or genus. Both the latter appear to be unique but are not truly so. He states that if the problem is incorrectly classified at this stage, then the decision will inevitably go wrong.

 

Drucker Decision Step 2Step 2: Problem definition.
Here the decision maker must work out what the situation is all about and what are the key issues. The danger, he claims, is that of an incomplete definition but one that is plausible. The only safeguard being to check the definition again and again against all the observable facts and throw out the definition the moment it fails to encompass them. That is, doing what we now call, seeking dis-confirmatory evidence as well as confirmatory evidence. Although much has recently been written about this under the title of behavioral economics, he reminds us  that these are simply the rules of scientific observation first formulated by Aristotle and then reaffirmed by Galileo.

 

Drucker decision step 3Step 3: The specifications (“boundary conditions”)
It must be clearly defined what the decision must accomplish, that is what are the minimum goals it has to attain. In science, these are known as boundary conditions. Drucker says that a common problem in decision making is not necessarily the wrong decision, but a circumstance when the boundary conditions change while the decision is being implemented – such as may have happened to organisations who started a decision process pre-recession and are now trying to implement it in the midst of the economic crisis.
He also states that another reason to have boundary conditions clearly defined is in when one is making the most dangerous of all decisions – which is when the conditions are essentially incompatible. That is when the decision might, if nothing goes wrong, work. This is what he calls little more than “gambling”.

 

Drucker decision step 4Step 4: The decision: what is right
It is critical to decide what is right. That is not to say that a compromise may not eventually have to be made when implementing (inevitably it will), but rather start with the best decision that meets all the boundary conditions and  then, if necessary, compromise from that position. Drucker brilliantly demonstrates this by explaining there are two types of compromise. One is expressed in the proverb: “Half a loaf is better than no bread”. The other in the story of the Judgement of Solomon where it is realised that “half a baby is worse than no baby at all”! In a nutshell, he is saying that we should not be thinking about “what will be acceptable” to others (at least initially), rather “what is the right answer?”.

 

Drucker decision step 5Step 5: Converting the decision into action.
Drucker says that a decision is not a decision until it has been acted upon. He goes further to state that the action should be built into the decision from the outset. He suggests 4 distinct questions:
  • Who has to know of the decision?
  • What action has to be taken?
  • Who is to take it?
  • What has to be done so that these people can take the action?
He notes that the first and last questions are most frequently overlooked and then reminds the reader that the action must be appropriate to the capacities of the people who have to carry it out.

 

Drucker decision step 6Step 6: Feedback
Drucker reinforces that men are fallible and decisions can go wrong and may not achieve their desired results. Therefore a feedback mechanism must be put in place to monitor and report back on the success or otherwise of the outcome. He says that effective decision makers realise that often they should not rely on reports but, like military commanders, must go into the field themselves to see how the decision is being carried out. Peter Drucker, with accurate foresight (remember this was written in 1967) warns that with the advent of computers this is even more important as computer-generated reports only can report back on abstractions. A final comment in this section is “Failure to go out and look is the typical reason for persisting in a course of action long after it has ceased to be appropriate or even rational.”

 

In more recent years, Genesis Management Consulting has constructed their own proprietary strategic decision making framework that incorporates all of Drucker’s steps within a slightly larger and more detailed framework. Although Drucker does not mention all of the steps in the Genesis framework specifically, we have little doubt that he would recognise them all as being valid and a valuable complement to his own original work. The Genesis framework is shown below:
Genesis Decision Framework(Note: this decision framework together with detail on each of the steps is available to purchase at
The Decision Shop for a nominal cost)

 

Drucker and GenesisThe way in which Drucker’s steps overlap with the Genesis Decision Framework can best be shown in the diagram to the right where the initial three steps fall into the decision structuring; the fourth step under evaluation and the fifth and sixth steps under decision and implementation.

 

Drucker’s original article is available for purchase from the Harvard Business Review library and is worth reading as it contains a little more detail and some examples of the  steps and the pitfalls. Warning, it is written in a somewhat old-fashioned way and does not make for easy-reading – but it is probably worth the effort.

 

You will also find other articles of interest within this blog and the insightful and popular series: “The 7 habits of Highly effective Decision Makers” is available for free download at our web-site. Finally, I would like to recommend the 48 page document that lays out The Genesis Framework and details of all the steps. It is part of the strategic decision making module offered at IE Business School and a number of other Business Schools around the world and available at The Decision Shop.

 

To leave you with a quote from Lewis Carroll and referenced in Druckers original article:

 

“The cause of lightning,” Alice said very decidedly, for she felt quite sure about this,
“is the thunder – no, no!” she hastily corrected herself,
“I meant the other way.”
“It’s too late to correct it,” said the Red Queen:
“When you’ve once said a thing, that fixes it, and you must take the consequences.”
Through the Looking Glass

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