Title: The Smart Organisation
Authors: David Matheson and Jim Matheson, Strategic Decisions Group
Date: December 17, 1997
Status: published book, source of review Financial Times, December 17, 1997

     When Procter & Gamble, the US household products group, analysed why certain projects failed and others succeeded, it discovered that the failures were often schemes that had been seen as sure-fire successes before they were launched.
     So certain had the managers been of success that they had not bothered to subject the projects to the same intense scrutiny as marginal-looking ideas. The sure-fire projects ran into unexpected trouble, while the marginal-looking ideas, refined and adapted during repeated evaluations, came up trumps. P&G reacted to this finding by introducing a decision-making system under which every scheme - both plausible and less plausible - was subjected to the same degree of scrutiny.
     For Jim Matheson, the founder of Strategic Decisions Group, a US management consultancy, and his son David Matheson, who heads the firm's European arm, the P&G case is a classic example of "smart decision-making". In The Smart Organisation, published by Harvard Business School Press, they argue that improving strategic decision-making is a fundamental challenge for companies that seek to excel. They say that for much of the past 15 years companies have concentrated on improving their basic functions, including production, marketing and finance, by techniques such as benchmarking. What is needed next is an overhaul of the way that companies reach decisions.
     The Mathesons have identified nine principles that they claim create a good decision-making culture, including considering alternatives, emphasising value-creation and disciplining decision-making processes. They have also devised a "corporate IQ test" for measuring a company's performance.
     The Mathesons are right to highlight the importance of strategic thinking. Dealing with the pressures of day-to-day business, many executives find it difficult to see the wood for the trees. They also find it hard to conceive of radical alternatives - those that might involve taking the company out of a business altogether, or investing in something completely new.
     But improving the decision-making process in companies that need the improvement most is easier said than done. The Mathesons believe good decision-making is so central to companies that change is often impossible without a shift in corporate culture. Such cultures can be difficult to adapt without a serious crisis. The Mathesons' list of thinking organisations - headed by 3M, Hewlett-Packard and Merck - has a familiar ring. They tend to be companies that have long been seen as innovative.
     The Mathesons provide some pointers on how companies might set about joining the list. They place emphasis on good research and development management, including the proper evaluation of risk. Managing risk, say the Mathesons, is a big part of business. Managers are often frightened of uncertainty when they should not be because the presence of uncertainty justifies their existence. Equity investors accept risk, or they would put their money into bonds.
     The Mathesons work into their book some useful examples, the best of which are often the simplest. For instance, they suggest that many companies could start by overhauling their budgetary processes. They claim that departmental managers often submit budget plans 10 per cent in excess of their actual needs. Chief executives know this is going on and therefore cut the totals by 10 per cent. This process may work but it creates distrust among management. Far better to devise a more open and honest decision-making process. A smart organisation would.

The Smart Organisation by David Matheson and Jim Matheson, Harvard Business School Press, $29.95.

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