Junkyards of Unmade Decisions
When Big Organizations Fail
Let’s jump into a fascinating intersection between management theory, decision-making, and organizational efficiency.
The Theory of the Growth of the Firm (1959) by Edith Penrose (1914—1996) is a classic in business studies. Penrose argues that a firm’s development and growth are limited by managerial capacity. Managerial capacity is not about the number of managers. It’s the ability to make decisions and provide guidance. Here’s an example:
Ever since he flew back from Russia and calculated the costs of building his own rockets, Musk had deployed what he called the "idiot index." That was the ratio of the total cost of a component to the cost of its raw materials. Something with a high idiot index—say, a component that cost $1,000 when the aluminum that composed it cost only $100—was likely to have a design that was too complex or a manufacturing process that was too inefficient. As Musk put it, “If the ratio is high, you're an idiot.” —Elon Musk (biography) by Walter Isaacson
That might not seem spectacular at first, but engineering managers get grey hair over this stuff. Should a part be manufactured in-house or outsourced? Which solutions are going to be reused as such, and which ones redesigned? Which parts out of millions should be scrutinized?
Reducing the choice to a simple heuristic—like the Idiot Index—is great managerial efficiency. But, what happens if you don’t have great managers?
One might think that bad managers make bad decisions. Yet, the problem might be that they don’t make enough decisions. In consequence Decision Debt starts to accumulate. Analogous to Maintenance Debt (or Technical Debt), it refers to the accumulation of delayed or avoided responsibilities.
And, like financial debt too, it can get out of hand and lead to a crisis. Decision debt—in other words, the debt arising from of unmade decisions—actualizes in many different ways like the cost of wasting time, the cost of a missed opportunity, or the cost of frustration.
It’s interesting that 100 mediocre managers cannot replace one excellent manager. Actually, three bad ones might be able to do it, but 100 mediocre ones? —Not a chance. That’s because 100 mediocre managers will engage in a ‘Game’ of avoiding responsibility so complex that, eventually, very little gets done.
In the worst case they mistake the Game as competence. Such are big organizations when they fail—junkyards of unmade decisions.
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