COLUMBUS, Ohio -- Managers fail about half the time when they make business decisions involving their organization, a new study suggests.
About one-third of real-life business decisions studied by an Ohio State University researcher were initial failures -- the decisions were never implemented by the organizations involved.
The failure rate climbed to 50 percent when the researcher considered decisions that were only partially used or that were adopted but later overturned.
"These figures suggest that enormous sums of money are being spent on decisions that are put to full use only half the time," said Paul Nutt, author of the study and professor of management science at Ohio State's Max M. Fisher College of Business.
"Managers need to look for better ways to carry out decision making."
These results come from a unique database of 163 business decisions compiled over 16 years by Nutt, who is author of the book Making Tough Decisions (Jossey-Bass, 1989). The database includes decisions by managers at private firms, government agencies, and non-profit organizations. In each case, Nutt asked a top-ranking official of the organization to suggest a decision involving the organization and to name two executives who were familiar with the decision and responsible for carrying it out.
The decisions could involve anything -- from purchasing equipment to renovating space to deciding which products or services to sell.
Nutt conducted in-depth interviews with the two officials selected, asking each to spell out the sequence of steps that were taken to carry out the decision-making effort.
After the interviews, Nutt provided a written summary of the decision-making process to each of the officials involved so they could check it for accuracy.
A decision was classified as an initial failure if it was never adopted by the company. For example, a decision to merge with another company was a failure if the merger was never completed. Nutt found that 36 percent of decisions fell into this category.
A partial failure occurred when only some part of the decision was adopted. An ultimate failure occurred when a decision was adopted but later withdrawn by the organization. When he excluded partial or ultimate failures, Nutt found that only 50 percent of decisions were successful.
Nutt has since expanded his database to 376 decisions, each involving a separate organization. Although he has not finished analyzing the new data, preliminary results suggest the general picture is the same -- 40 percent of the decisions in the expanded database resulted in initial failures.
Nutt cautioned that the decisions he has studied are not a true random sample. He began the search by asking corporate officials he knew to participate. These officials would then recommend other people. Also, the decisions studied were chosen by the organization officials themselves and were not randomly selected.
But Nutt believes a true random sample may show the decision failure rate to be even higher. "I think that corporate leaders would be more likely to tell me about successful decisions at their organizations than they would unsuccessful decisions," he said. "So the real figures may even be worse."
Why do so many business decision fail? Nutt said that managers often use the least effective decision-making tactics. One of the things Nutt analyzed was how managers implemented their decisions. He found that the most successful implementation tactic involved asking for the participation of those who would be affected by the decision. That tactic had the lowest failure rate (30 percent). But it was the least used tactic, being used in only 23 percent of the decisions Nutt studied.
In contrast, one of the most used implementation tactics -- in which managers simply issue directives about how they want a decision implemented -- was the least successful. It was used in 30 percent of the decisions studied, but had a failure rate of 64 percent.
Nutt said he believes most managers know effective decision-making tactics, but don't feel they have the time or resources to put them to use.
"Most of the good decision-making tactics are commonly known, but uncommonly practiced," he said. "Managers seem committed to fast answers and fail to recognize that quick fixes make failure likely."
This study will be included as a chapter of the book Making Successful Strategic Decisions, which is scheduled to be published next year by Sage.