Evaluating decisions with results

Managing for results - pay for performance schemes and the like - are increasingly practised by modern organisations for business reasons. But this principle can be fundamentally flawed if that is the only criterion for evaluating managers. But the counter argument would be, decision has no tangible value but only positive outcome.

People, including managers and business leaders, typically equate the quality of a decision with the quality of the result. When people observe a good result, they conclude that they had made a good decision. Likewise, when a bad result is observed, people conclude that a bad decision was made. This is not true.

Decision and results

Decisions and results are two different things. There is a time lapse between a decision and the realisation of its result. Decisions are made at a specific moment in time. People implement the decisions later, and the result is observed in the future.

The future is uncertain: there are no known facts about the future, and nobody has a crystal ball. Managers and organisations cannot control events that may happen in the future.

Events that they could not foresee may happen. Such events can cause good decisions to have a bad result - and vice versa. Therefore, the quality of the result is not an indicator of decision quality and the result is irrelevant as a measure of decision quality.

Bad results stifle creativity

A blame culture triggered by bad results stifles experimentation, innovation or trial and error. If leaders do not tolerate failure and error in business innovations, they will kill the prospect of anyone taking any initiative.

Since business activity is the primary engine for personal income growth, value creation and societal economic development, an organisational culture built on blame and punishment has implications beyond the boundaries of our business.

Taken to national proportions, a blame culture inhibits societal growth, development and evolution. Managing for results only, leads to a crisis, at the least. It can lead to bankruptcy, at the worst.

Being accountable only for results may not be the right standard for performance. Of course, people must be held accountable for what they do in a business context; but they need to be held accountable for the right things too.

They need to be held accountable for things under their control, that is, operating with a quality process. They should not be held accountable for uncontrollable events.

Conversely, if business leaders only want good results, it is easy to understand that, ultimately, any process to achieve good results will become acceptable - even an illegal process.

This is another way in which managing for results can become the origin of crisis and bankruptcy. A manager who achieves an excellent result, but in the process of achieving it, has de-motivated his team is clearly not a good leader.

Reward long term performance

Companies typically do two things to achieve better results. First, they implement a good process. Managers can learn to become better business executives. They can learn the decision-making process, learn how to be better at execution and build their business through the knowledge, experience and informed intuition that is inherent in decision making and execution.

Through this, managers will become better, more thoughtful business leaders - more aware and better informed about what they are doing.

Being compensated only for results doesn't measure one's true contributions to the organisation. It is possible that bad managers using wrong processes will sometimes enjoy good results. But their luck will run out eventually.

Evaluate decision-making process

Therefore, in the long run, it is necessary for organisations to evaluate the quality of a manager's decision-making process over the span of his or her career. Over time, managers will make many decisions.

Organisations should, therefore, make rewards based on the long-term performance of managers. It may seem controversial, but we firmly believe that even managers with bad results should be rewarded - if they have used a good decision-making process. Keeping in mind though that good decisions are for good results, so the onus is on you to ensure that good decisions deliver good results leaving luck aside.