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03.21.07

Charles Koch on Decision Making

sabotage
Charles Koch finally published the ideas he applied and named Market-Based Management (MBM) in his book The Science of Success. While there is no such thing as the science of success (it is a comforting idea), this book presents a lot of ideas that are worth taking a look at for possible application elsewhere. I did appreciate his viewpoint on decision making:
Proximity to a problem or process does not determine who is in the best position to make a decision. In a world characterized by knowledge-driven rapid change, top-down decision-making is commonly criticized as being highly inefficient. It is true that centralized command-and-control business management suffers from many of the same problems seen in centrally planned economies. Those with local knowledge are often in a better position to solve the problem at hand. The ideas and creative energy of all employees should be leveraged, but universally decentralized decision-making has its own problems. Some decisions, if made at the local level, can be unprofitable because a broader perspective is required.

The mindless application of either approach—universally centralized or completely decentralized decision rights—is not the answer. For example, decisions about how to gain optimum throughput from a refinery at any given time probably are best made by people on site. On the other hand, people further removed, but with broader knowledge, may be better positioned to make a decision on what the most profitable product mix will be in five years. Decisions should be made by those with the best knowledge, taking comparative advantage into account.

Posted by Michael McKinney at 01:43 AM
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Yes, to be a manager requires a skill set in a requisite field (craft), however, managers are still removed away from the actual day to day practices/realities or (craftsmanship) occurring directly; and often it is more a matter of their being able to accurately define, monitor, and direct what is occurrring, thus the need for their reports. Often reporting has little to do with the actual practices of the business and more to do with describing what is occurring, what should occur, and when or where it can occur. This serves to benchmark, quantify, and inform the so called "powers to be" or their representatives called (managers) who are clueless without the information. But to use the analogy of building the motorcycle, the powers/management really do not know how to build the motorcyle. Hell, the specialization required today means really know one individual person knows how to build the motorcycle, rather, collectively, it is assembled utilizing the specialized knowledges of many people. Airbus is reporting it will deliver a certain number of new A380's to the media and their custormers, but the reality may be quite different because the specialized knowledge workers integrated over multiple jurisdictions are still working out the reality. Ultimately, this is all being collectively assembled in multiple reports and then someone is going to have to decide when to tell the Emperor that he is not wearing any clothes. That someone is called leadership. That leadership is required at all levels from the individual craftman, to the managers, directors, and ultimately to the CEO (whoever it might be on that day the news arrives).

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