Reference no: EM133176912

Hard Facts and Half-Truths

Stanford University professors Jeffrey Pfeffer and Bob Sutton, authors of Hard Facts, Dangerous Half-Truths, and Total Nonsense, have put out a call for a renewed reliance on rationality in managerial decision-making-an approach that they call evidence-based management (EBM). "Management decisions," they argue, "[should] be based on the best evidence, managers [should] systematically learn from experience, and organizational practices [should] reflect sound principles of thought and analysis." They define evidence-based management as "a commitment to finding and using the best theory and data available at the time to make decisions," but their "Five Principles of Evidence-Based Management" make it clear that EBM means more than just sifting through data and crunching numbers. Here's what they recommend:

1. Face the hard facts and build a culture in which people are encouraged to tell the truth, even if it's unpleasant.

2. Be committed to "fact-based" decision-making-which means being committed to using the best evidence to guide actions.

3. Treat your organization as an unfinished prototype-encourage experimentation and learning by doing.

4. Look for the risks and drawbacks in what people recommend (even the best medicine has side effects).

5. Avoid basing decisions on untested but strongly held beliefs, what you have done in the past, or on uncritical "benchmarking" of winners.

Pfeffer and Sutton are particularly persuasive when they use EBM to question the outcomes of decisions based on "untested but strongly held beliefs" or on "uncritical ‘benchmarking'." Take, for instance, the popular policy of paying high performers significantly more than low performers. Pfeffer and Sutton's research shows that pay-for-performance policies get good results when employees work solo or independently. But it's another matter altogether when it comes to the kind of collaborative teams that make so many organizational decisions today. Under these circumstances, the greater the gap between highest- and lowest-paid executives, the weaker the firm's financial performance. Why? According to Pfeffer and Sutton, wide disparities in pay often weaken both trust among team members and the social connectivity that contributes to strong, team-based decision-making.

"Management decisions [should] be based on the best evidence, managers [should] systematically learn from experience, and organizational practices [should] reflect sound principles of thought and analysis."

Or consider another increasingly prevalent policy for evaluating and rewarding talent. Pioneered at General Electric by the legendary Jack Welch, the practice of "forced ranking" divides employees into three groups based on performance-the top 20 percent, middle 70 percent, and bottom 10 percent-and terminates those at the bottom. Pfeffer and Sutton found that, according to many HR managers, forced ranking impaired morale and collaboration and ultimately reduced productivity. They also concluded that automatically firing the bottom 10 percent resulted too often in the unnecessary disruption of otherwise effective teamwork. That's how they found out that 73 percent of the errors committed by commercial airline pilots occur on the first day that reconfigured crews work together.

Case Questions

1. Do you think evidence-based management seems like common sense? If so, why wasn't it advocated earlier?

2. Are there circumstances in which evidence-based management might not be the best approach?

3. Could automated evidence-based management ever replace human decision makers? Why or why not?

4. Would you want to work under Jack Welch's system at General Electric? Why or why not?