Decision making in product development: are you outside‐in or inside‐out?

Purpose – This paper proposes a relationship between decision making and key qualities of business systems. Design/methodology/approach – The authors explore the relationship between decision making and systems by contrasting the decision making in two well‐known systems: MRP and JIT. The two systems present two sets of opposing qualities. By considering the relationship between a decision and its environment, we propose that these sets of qualities are not unique to MRP and JIT. They arise from two general approaches to decision making. Having introduced the two approaches, we analyze three product development systems: Stage‐Gate, Agile and Lean. Findings – In manufacturing, MRP is a push system; JIT is a pull system. MRP seeks perfection; JIT seeks consistency. MRP gives decision makers great discretion; JIT constrains decisions. These opposing qualities, and others, arise from two general approaches to decision making: outside‐in and inside‐out. As the difficulty of decisions increase, relative to a decision maker's ability, the cost of mistakes becomes significant. In these situations, the inside‐out approach should outperform the outside‐in approach. The inside‐out approach constrains decision making to limit the cost of errors. The outside‐in approach embraces complexity, exposing itself to more decision errors. In product development, the Lean and Agile systems exploit the inside‐out approach. They constrain decisions and reduce the cost of errors that arise from two sources. Lean addresses interactions, which add complexity to business systems. Agile addresses unpredictability, which adds uncertainty to business systems. Originality/value – The relationships the authors propose show how decision making affects the development, control and performance of business systems.