Calibrating decisions with results - the leaders' dilemma

Decisions are made at a specific moment in time; thereafter, people implement these decisions, and the result is seen in the future. The future is uncertain and nobody has a crystal ball.

Managing for results - pay-for-performance schemes and the like - are increasingly practised by modern organizations for business reasons but this principle can fundamentally be flawed if that is the only criterion for evaluating managers. But the counter argument would be that decisions have no tangible value but a 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 made a good decision.

Likewise, when a bad result is observed, people conclude that a bad decision was made. This is not true. Decisions and results are two different things. Time elapses between a decision and the realization of its result.

Decisions are made at a specific moment in time; thereafter, people implement these decisions, and the result is seen in the future. The future is uncertain: and nobody has a crystal ball. Managers and organizations cannot control events that may take place in the future. Events that managers could not foresee could also take place. 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

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 organizational culture built on blame and punishment has implications beyond the boundaries of any business. Taken to national proportions, a blaming culture inhibits societal growth, development and evolution. Managing for results leads to 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 also need to be held accountable for the right things.

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, de-motivates his team, is clearly not a good leader.

Rewards

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 process of decision-making, learn how to be better at execution and build their business via 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 organization. It is possible that bad managers using wrong processes will sometimes produce good results. But their luck will run out eventually. Therefore, in the long run, it is necessary for organizations 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 and take action. Organizations should, therefore, reward the long-term performance and achievements 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 that good decisions produce good results, the onus is on you to ensure that good decisions deliver good results, leaving luck aside.