Posted by: A.R. Cherian | October 22, 2009

Evidence-Based Management

I just read a  January 2006 piece in the Harvard Business Review entitled “Evidence-Based Management” by Stanford professors Jeffrey Pfeffer and Robert I. Sutton.

It was a provocative and persuasive piece showing the benefits of using evidence and reason behind implementing new management practices. As usual Sutton and Pfeffer wrote with lucidity and a good sense of humor. The main point of the article was that managers, like doctors who practice evidence-based medicine, should be guided by logic and evidence and seek new knowledge constantly from inside and outside their companies.

A couple of the practices they highlighted were stock options and forced-ranking systems to enhance organizational performance. They argue that many large, public companies have implemented stock options since it worked well in privately held startups without any evidence that it would enhance organizational performance in their type of company. Same thing goes for the forced-ranking systems. Since General Electric had such great success with it, many managers in other companies followed the GE system without any evidence or reasoning why it would work in their company.

Here is a list of the top things that Sutton and Pfeffer argue that managers, like doctors, often use in place of solid evidence:

  • Obsolete knowledge
  • Personal experience
  • Specialist skills
  • Hype
  • Dogma
  • Mindless mimicry of top performers

They make a good point about gathering your own data from small experiments in your company because “companies have different strategies, cultues, workforces, and competitive environments – so that what one needs to do to be succesful is different from what others need to do.”

Here is another great insight I took away from the reading:

It’s crucial to appreciate that evidence-based management, like evidence-based medicine, entails a distinct mind-set that clashes with the way many managers and companies operate. It features a willingness to put aside belief and conventional wisdom – the dangers half-truths that many embrace – and replace them with an unrelenting commitment to gather the necessary facts to make more informed and intelligent decisions.

They highlight some key ways leaders can create a company of evidence-based managers.

  • Demand Evidence

They highlight DaVita (kidney dialysis centers) that has created a culture of using numbers behind their key metrics in all their reports, meetings, and documents.

  • Examine Logic

Think critically about and examine carefully the results and “evidence” provided by consultants. They are usually not peer-reviewed or are one-sided.

  • Treat the organization as an unfinished prototype

Gather data from experiments run in your own company instead of using results from other companies. Several examples of this in practice in such companies as Yahoo, Harrah’s, and eBay were given. Learn by experimenting and gathering data from small sites and making comparisons with “control” locations.

  • Embrace the attitude of wisdom

You need the proper attitude towards gaining business knowledge. There should be a healthy respect for the vast realms of knowledge still unconquered. “Evidence based management is conducted best not by know-it-alls but by managers who profoundly appreciated how much the do not know.” It must be a lifelong learning process to gain new insights and wisdom into what will work best for your company.

In conclusion, there was a lot of great information in this piece in the HBR by Pfeffer and Sutton. Evidence-based management, as they coin it, is acting more on the basis of logic rather than guesswork, fear, belief, or hope. They believe that doing this, instead of acting on dangerous half-truths and total nonsense that constitute so much conventional wisdom about management, is the best way to help organizations perform better.

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