Decision Making at Scale: How Coordination and Communication Costs React to the Number of Decision Makers

A mid-sized firm with around 1,000 employees is rethinking how it chooses which new products to invest in. At present, its process is simple: one individual—typically the CEO—makes the final investment call. Business units submit proposals, these are filtered by the finance and strategy functions, and the CEO selects projects. This arrangement keeps coordination and communication costs low, but it concentrates decision power in a single individual. The firm is now exploring alternatives that distribute decision rights across more people. Academic research suggests that as the number of decision makers grows, coordination and communication costs do not increase linearly; they rise sharply and alter how the process must be governed.

The firm is weighing four scenarios: one, five, one hundred, or one thousand decision makers. Below, we compare these cases in terms of coordination and communication costs, and discuss the implications for governance design.

Case 1: One Decision Maker (Current Process)

Current process

• Business units prepare investment proposals using a standardized template.
• Staff analysts consolidate financials and strategic assessments.
• The CEO reviews the proposals, consults trusted advisors if necessary, and makes the decision.
• Results are communicated top-down to the organization.

Coordination and communication costs

• Very low. The only coordination is between staff and the decision maker; communication is one-to-many.
• The main risk lies not in costs, but in overloading a single cognitive frame. Simon’s theory of bounded rationality reminds us that one person can process only limited information before resorting to heuristics.

Governance implications

• Governance is minimal: the process relies on individual authority, not collective rules.
• Transparency and justification depend on the willingness of the decision maker to share reasoning.

Case 2: Five Decision Makers

Hypothetical process

• The CEO and four senior executives form an investment committee.
• Proposals are circulated in advance; the group meets monthly to deliberate.
• Decisions are made by consensus, or by majority vote when consensus fails.
• A joint communication is issued to signal collective responsibility.

Coordination and communication costs

• Moderate. Scheduling meetings, preparing agendas, and ensuring all members are briefed require effort.
• Communication becomes richer: members must exchange views, debate, and reconcile differences.
• The cost increase is manageable because the number of bilateral links among five people is small (ten possible pairwise communications).

Governance implications

• A formal charter is needed to define meeting frequency, voting rules, and decision thresholds.
• Governance must balance the benefits of multiple perspectives with the risk of groupthink (Janis, 1972).

Case 3: One Hundred Decision Makers

Hypothetical process

• The 100 senior managers are given decision rights.
• Proposals are first assessed by subcommittees (e.g., technology, markets, operations).
• Each subcommittee submits shortlists to a central steering group.
• All 100 vote electronically on the shortlists, and results are compiled.

Coordination and communication costs

• High. The number of potential bilateral links rises to 4,950, which makes unstructured deliberation impossible.
• Communication shifts from dialogue to broadcast formats: reports, presentations, digital voting tools.
• “Process losses” (Steiner, 1972) emerge as time is spent on coordination rather than substantive analysis.
• Free-rider problems arise, as not all members can realistically engage at depth.

Governance implications

• The process requires detailed rules for committee structure, voting procedures, and documentation.
• Governance shifts from managing interpersonal dynamics to designing and enforcing formal processes.

Case 4: One Thousand Decision Makers

Hypothetical process

• All employees are granted decision rights.
• Proposals are submitted via a digital platform accessible to all.
• Employees are grouped into councils by function or geography, which nominate delegates.
• Delegates deliberate and prepare shortlists; final votes are cast by the entire workforce using structured electronic methods (e.g., ranked-choice voting).
• Results are published with participation statistics and summaries of reasoning.

Coordination and communication costs

• Extremely high, and only manageable through heavy reliance on digital infrastructure and representation.
• Communication costs shift from human interaction to system design: building, maintaining, and monitoring platforms that ensure transparency and trust.
• Deliberation at this scale becomes impractical; aggregation rules replace dialogue.

Governance implications

• Governance must resemble political institutions, with representation, voting procedures, and legitimacy safeguards.
• The focus is on designing systems that ensure fairness and prevent disengagement.
• Strategic decision-making of this type is almost never delegated to the entire workforce in firms, but participatory models are sometimes used for agenda-setting or consultation.

Comparative Insights

1. Nonlinear scaling of costs: Coordination and communication costs rise sharply with group size. Five members can still deliberate face-to-face; one hundred require committees and voting; one thousand necessitate digital platforms and representation.
2. Shift in governance: As groups grow, governance evolves from personal authority (1) to small-group procedures (5), then to bureaucratic processes (100), and finally to representative democracy-like systems (1000).
3. Trade-offs: Small groups maximize efficiency but limit legitimacy. Large groups enhance inclusiveness but impose heavy communication burdens and slow down decision speed.

For the hypothetical firm, the choice of group size is ultimately a trade-off between speed and representation. Academic research suggests that efficiency in strategic investment decisions typically requires small groups, while large-scale participation is better suited to shaping priorities or values rather than selecting investments directly.

References

• Arrow, K. J. (1963). Social Choice and Individual Values. Yale University Press.
• Cyert, R. M., & March, J. G. (1963). A Behavioral Theory of the Firm. Prentice-Hall.
• Janis, I. L. (1972). Victims of Groupthink. Houghton Mifflin.
• Ostrom, E. (1990). Governing the Commons. Cambridge University Press.
• Simon, H. A. (1972). “Theories of bounded rationality.” In C. McGuire & R. Radner (eds.), Decision and Organization. North-Holland.
• Steiner, I. D. (1972). Group Process and Productivity. Academic Press.