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evidence-based management


Evidence-Based Management: What Else Is There?

Jeffrey Pfeffer and Robert Sutton, in a recent article in the New York Times (Check out the “uncut” version.}, argue for “evidence-based-management”. They write…

…the growing pile of studies on the human and financial costs of employee disengagement, management distrust, poor group dynamics, faulty incentive schemes and other preventable damage suggests a need for an evidence-based management movement.

I admire these two Stanford University thought-leaders, but my immediate reaction to their thesis is, “Duh!” What have companies been doing for the past hundred years of modern management…managing by the-seat-of-their-pants? I suppose the answer is, “Yes.” However, I don’t think it’s a conscious choice or because they didn’t listen during their MBA classes. If you ask corporate leaders if they use research to make their decisions, I’m sure most, if not all, would say, “Of course I do.” They already believe that they practice evidence-based management.

However, they, like most human beings, have a “confirmation bias”. They tend to look for data that confirms what they already believe to be true and disregard the rest. A good example of this was surfaced at the International Monetary Fund. The Independent Evaluation Office of the IMF studied events and actions leading up to their failure to anticipate the 2008 world financial crisis and concluded that the IMF was operating on a strong confirmation bias during this period. The authors of the study write:

The IMF’s ability to correctly identify the mounting risks was hindered by a high degree of groupthink, intellectual capture, a general mindset that a major financial crisis in large advanced economies was unlikely, and inadequate analytical approaches. Weak internal governance, lack  of  incentives  to  work  across units and raise contrarian views, and a review process that did not “connect the dots” or ensure follow-up also played an important role, while political constraints may have also had some impact.

Another problem with the way managers use evidence is when they attribute a causal relationship to factors that occur close in time. I have written previously about what Chabris and Simons call the “illusion of cause”. I wrote:

Within companies the “illusion of cause” occurs, for example, when executives attribute Correlation business success or failure to their leadership, or to a new marketing program, or to a reorganized sales department, or to innovative products, or to a change in the economy. These events might be highly correlated but they are not necessarily the cause of business success or failure.

The problem is not that managers choose to ingnore the evidence; it’s that they, like most human beings, suffer from “confirmation bias” and the “illusion of cause.” The challenge is to help managers become aware of their bias and how to overcome these ways of thinking. If you can get past your biases and you want to understand and apply evidence more effectively, Wally Bock offers some good suggestions in his blog.