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(originally published by Booz & Company)


Getting a Return on Judgment

Today the economy depends on the ability of companies to evolve past their own reliance on bureaucracy. Companies that move from formalization to personalization tend to do so slowly but deliberately, building the capabilities for decision making as they make relationships stronger, reduce their reliance on procedures, and increase the value they place on accountable individual judgment. Before long, with increasing personalization, people in these companies learn to recognize “false positives”: the risks that are not worth taking because they lead to wasted investments. And they also see the “false negatives”: the risks of inaction when, if they don’t step in, a competitor might or an opportunity could be lost.

Author Profiles:

  • Julian Birkinshaw is a professor of strategic and international management at the London Business School, a cofounder of the school’s Management Innovation Lab, and the deputy dean for programs. His book Reinventing Management: Smarter Choices for Getting Work Done (Jossey-Bass) will be released in May 2010.
  • Huw Jenkins is an executive with BTG Pactual, a Brazilian investment bank. He was formerly executive in residence at the London Business School and CEO of UBS Investment Bank.
  • An earlier article by the authors on this theme was published by the United Kingdom’s Advanced Institute of Management Research.
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  1. Karen Broadhurst et al., “Performing ‘Initial Assessment’: Identifying the Latent Conditions for Error at the Front-Door of Local Authority Children’s Services,” British Journal of Social Work, January 2009 (online version): More about the “critical incident” groups. 
  2. George S. Day and Paul J.H. Schoemaker, Peripheral Vision: Detecting the Weak Signals That Will Make or Break Your Company (Harvard Business Press, 2006): For developing insight. 
  3. David Demortain, “Credit Rating Agencies and the Faulty Marketing Authorization of Toxic Products,” Risk & Regulation, January 2009: Tracing formalization back to one external source.
  4. Alan Gemes and Peter T. Golder, “What Is Your Risk Appetite?s+b, November 30, 2009: An antidote for bureaucracy, through setting a collective goal for exposure.
  5. Gillian Tett, “Anthropology That Explains Varying Banking Behaviours” (registration required), Financial Times, January 18, 2008: Cultural qualities of the major banks that made it through the downturn.
  6. Max Weber, Economy and Society (University of California Press, 1978, translation of the original, Wirtschaft und Gesellschaft, 1956): Source of Max Weber’s definition of bureaucracy.
  7. Karl E. Weick and Kathleen M. Sutcliffe, Managing the Unexpected: Assuring High Performance in an Age of Complexity (Jossey-Bass, 2001): Learning from high-reliability operations.
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