III. Decision Rights

❝ In the market economy, every owner is continuously obliged to justify, through service, his right to retain control of the resources he claims. Otherwise, consumers peacefully transfer the ownership and control into more capable, more productive, more serviceable hands

Paul L. Poirot

In a market economy it is consumers who ultimately direct the owner' use of property. They reward him if he serves them well and abandon him if he doesn't. Thus, if an owner satisfies consumers, his property rights increase. If he doesn't they diminish, Property right are constantly being earned by those who best use them to satisfy consumers.

Decision Rights, inspired by Property Rights

At MAT, we use decision rights to attempt to replicate the beneficial roles of property rights in society. Decision right can be thought of as property rights in the organization. We create decision rights by ensuring that employees have clearly defined riles, responsibilities, expectations and authorities.

Clear decision rights allow employees to allocate, consume or conserve the company's resources as they attempt to create value. They also enable employees to know what they are responsible for and to be held accountable, just like owners. Decision rights expand for those who consistently make sound, value-adding decisions and contact for those who do not.

Framework

• Decision rights should reflect an employee' demonstrated comparative advantages.

• Employees who take account of their comparative advantages and consistently make good decisions will have expanding decision rights.

• It is best for the person with the best knowledge and comparative advantage to make the decision, therefore, this person has more decision rights.

• Because no two people are alike in values, knowledge, skills or circumstance, it follows that even employees who have similar roles in an organization should have different kinds and degrees of decision rights.

Individual authorities will vary widely. So will individual performance, which is driven by differing values, experience, capability and opportunity, Authorities tend to be lower with new, unproven employees, whether they are newly hired or veterans of an acquired company. Years of experience, credentials or titles have not proven to be reliable predictors of good decision-making ability. Only demonstrated success in decision making reveals an individual's decision-making ability and then only for that type of decision.

Only demonstrated success in decision making reveals an individual's decision-making ability and then only for that type of decision.

Roles, Responsibilities and Expectations (RR&E)

We use RR&Es to define general areas of responsibility and accountability. Specific expectations accompany the responsibilities within a given role. A person is accountable if he or she will bear the consequences (good or bad) of a decision. Both the person making the decision and the person delegating are held accountable. This ensures that a culture of ownership, accountability and appropriate delegation is developed to avoid inaction, abdication or finger-pointing.

Framework

• RR&E require an ongoing dialogue involving the employee, supervisor and other interested parties.

• Each employee is responsible to ensure his or her RR&Es are current, accurate and effective.

• Both employees and supervisors are accountable for ensuring that RR&Es focus employees on maximizing their contribution to advancing the vision of their business or group.

Expectations are written statements specifying the results required of an employee if the business is to achieve its objectives. Expectations should always be clear, specific, and whenever possible, measurable. They are most meaningful when they are measurable, even if the measures are subjective. Although, based on OKRs, measures should always be objective. Expectations must be open-ended since they encourage thinking, engagement and innovation; closed-ended discourages all of them.

Principled Entrepreneurship

As employees discover opportunities for innovations or improvements, they are expected to seek out other who have the authority to act on those ideas. We expect employees to use knowledge sharing, the challenge process, logic evidence and the judicious use of our Decision Making Framework to earn approval for their ideas.

Framework

• Employee proposals, if approved and successfully executed, earn increased decision rights.

• Each employee must demonstrate the sense of urgency, discipline, accountability, judgement, initiative, economic and critical thinking skills, and risk-taking mentality necessary to generate the greatest contribution to the company.

There is no excuse for failing to take a critical action, even in areas of shared responsibility. The problem of not having clear ownership can lead to the tragedy of the commons.

The Tragedy Of The Commons

Garret Hardin coined the phrase "tragedy of the commons" to describe herdsmen grazing animals on a commons (shared grazing lands). He described herdsmen asking themselves, "what is the benefit to me of adding one more animal to my herd?" Seeking his own gain as a rational herdsman, he will add as many as he can. He receives all of the proceeds when the additional animals are sold, but bears almost none of the cost of grazing these animals and depleting the commons. Hardin writes, "Each man is locked into a system that compels him to increase his herd without limit-in a world that is limited. Freedom in a commons brings ruin to all."

People tend to take better care of things they own. This is because the owners of a resource not only reap the benefits of its use, but bear the costs as well. When ownership is unclear, such that no one sufficiently benefits by preserving a resource (as when no one or everyone owns it), the resource tends to be overused, used inefficiently or even extinguished.

Oceans tend to be overfished due to lack of ownership. This example of the tragedy of the commons arises because fishermen only benefit when the fish are in their boat. There is little incentive for fishermen to leave fish in the ocean for someone else to catch. The size of their catch determines the benefit of their actions, while the cost-depleting stocks of fish-is shared by all fishermen.

Clear, dependable property rights that allow individuals to enjoy the benefits of ownership while bearing the full costs of their actions are the solution to the tragedy of the commons. This is just as true in a company as it is in society.

Conclusion

In a market economy, the combination of well-defined and protected property rights, the right culture, useful knowledge and incentives from prices and profits and loss spontaneously lead to a network of relationships that maximizes value and creates prosperity and progress. In a company, the combination of a well-designed decision rights process, good values, knowledge sharing, measures and incentives brings about a spontaneous order that maximizes value creation and growth.