The evidence for evidence-based management

Evidence-based management is the idea that you should implement programs or choose amongst strategies based on what the existing literature or data suggests is the best thing to do. If there isn’t any evidence, then invest in data collection, or run small-scale experiments, to figure out what works and what doesn’t. It’s a useful method for making decisions and implementing programs in a company. There’s evidence that companies that persistently rely on data and experiments do better than those who make guesses.

Put this way, evidence-based management sounds like something every company says it does. Yet the truth is that few companies pursue this approach, and many managers use alternatives to evidence-based management, like relying on intuition about the best way to go forward, making guesses about the future, or assuming that the current setup is optimal.

The problem is larger than it should be because many business gurus, consultants and business schools peddle misinformation and outright falsehoods. There’s a consistent business in selling hot new trends to companies, even though the best strategies may be really old. No one likes being told they have to execute better; they’d rather grasp at some new thing that’s going to give them an advantage. The evidence about which strategies work often runs contrary to what the conventional wisdom says. For example, one law firm held a big meeting to reveal its new “secret” strategy, developed by a consulting firm; Sutton guessed the whole strategy without looking, which mainly involved getting rid of unprofitable partners and developing more profitable business. It was old advice that every law firm knew, and the trouble was in the execution.

Debunking myths is the subject of Bob Sutton and Jeffrey Pfeffer’s book Hard Facts. The authors use evidence, and numerous case studies, to explain that financial incentive plans often don’t work, developing a comprehensive long-term strategy isn’t that important, most mergers only work under certain specific circumstances, and company culture can be more important than hiring the best workers. In each of these cases, studies have shown that the conventional wisdom is often wrong, and companies, schools or hospitals that implement evidence-based programs do better than those who don’t. Yet given the choice between the CW and the data, most managers and firms choose conventional wisdom. This leads to worse outcomes and helps explain why profit levels and efficiency levels can be so different in firms competing in the same industries.

I used to believe that, all else being equal, firms and industries were pretty efficient and there wasn’t much to be gained from entering a crowded industry, or in stooping to pick up a $20 bill. I don’t believe that anymore. The absence of evidence based management at most firms is strong evidence that there are tons of bills on the ground, and that people aren’t looking for them.    

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One thought on “The evidence for evidence-based management

  1. Andy McKenzie

    This is interesting and a good post.

    >For example, one law firm held a big meeting to reveal its new “secret” strategy, developed by a consulting firm; Sutton guessed the whole strategy without looking, which mainly involved getting rid of unprofitable partners and developing more profitable business. It was old advice that every law firm knew, and the trouble was in the execution.

    I don’t think it’s that surprising that Sutton was able to guess what the consulting firm was peddling. Consulting is not so much about advice but rather overcoming institutional inertia. http://www.overcomingbias.com/2012/01/why-so-much-consulting.html

    In this light, then, the problem you are discussing in this post is not about the willingness to listen to ideas but rather hiring people who / promoting a culture wherein people are willing to subjugate their ego (e.g., “my” ideas) for the good of the company.

    Reply

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