Decision Economies
Every now and then, we hear a pundit talk about firms with decentralised decision making. Philosophically, this thought can’t really avoid warming the heart. What could appeal to us more than each and every person having a say about the issues that affect them? I’m a big fan.
But the world doesn’t work like that, for a couple of reasons.
a) Decisions don’t scale so well. You might argue that you can resolve the scaling of decisions by a vote. This is partially true. However, consider the case when there is a highly diverse range of opinions. We know that there could be as many as [n(n-1)]/2 conversations needed before everybody feels they’ve been heard.
b) Even if we could get around the scaling problem, many decisions don’t have the kind of determined finality that we often like. In other words, some decisions, particularly value judgments are made heuristically because it really isn’t possible to consider everything involved in the way we might like to.
So, we often decide to resort to authority. The learned judge. The reliable project manager. The honourable senator. This person takes our desires and weighs them to arrive at a conclusion which hopefully most people will agree with. A decision that makes the most sense in all of the circumstances.
But what’s the basis of this authority? Here’s a first-order thought- if a person makes a decision which the group follows, and considers successful, then that person gains a little bit more authority (meaning, more weight to decide the next group outcome). If the decision is wrong, they lose a little weight. If the group doesn’t follow the decision at all, there’s no effect.
Now, imagine an eBay-like authority system. It could be applied, for example, to determine the strategy of a company. Board members making correct decisions most of the time would progressively have their soundness of decision reinforced, and given more weight for later rounds. Poor decisions would result in less authority.
Flaws.
- Decisions which are particularly unpopular will never have their fitness assessed. However, the holder of such a controversial opinion could attempt to sway larger amounts of decision rights in the traditional manner of consensus building. Interestingly, this is tantamount to borrowing authority capital. Should more weight be given to the originator of an idea in this case? Does the holder of the authority capital have an option to secure their investment in the new idea beyond merely being convinced? Could we trade decision rights for money, for example? What would be the implication?
- Measurement will be a problem. A company decision which washes a billion dollars off its market cap could be treated harshly, when over the long term, such a decision may have a greater pay-off.