Bob Sutton Responds

3 October 2006 at 12:11 am 2 comments

A response, of sorts, to my post on Evidence-Based Management by EBM co-founder Bob Sutton:

Perhaps the term is doesn’t do much for you, but evidence-based decisions and implementations are the exception rather than the rule. It may sounds obvious, but few managers are masters of the obvious. It may sound like common sense, but common sense is in fact uncommon. I travel back and forth between the academic and management worlds, and evidence-based practice is rare — faith-based management is a lot more common and so are management decisions based on dangerous and powerful cognitive biases. Indeed, if you look at some of the work that Kahneman won the Nobel Prize for, you will see that humans in fact have trouble spotting and responding to accurate patterns. Look at the bad merger decisions that are made over and over again. Look at the belief in creating big gaps between the best and worst paid employees despite a huge pile of data showing that the opposite is true. Sorry if it seems trite, but like evidence-based medicine, it sounds trite until it is your money — or your life — that is on the line. People also laugh when I tell them that only about 15 to 20% of medical decisions are based on evidence — until they think of what it means for them and those they love.

I submit that, if the term bewilders and you believe that “What other kind of management is there?” it is a sign that you have no idea how most managers do their work, nor do you understand how most human beings make decisions. Start by reading Max Bazerman’s book on managerial decision-making.

This deserves a full-length rejoinder, but for now a few brief remarks will have to suffice. Partly Sutton and Pfeffer’s problem is one of nomenclature; they seem to associate “making decisions based on evidence” as synonymous with “being free from cognitive biases.” But, as I indicated in a comment on the original post, “evidence” does not interpret itself; the use of heuristics is fully consistent with making good decisions based on evidence.  Have they never heard of subjectivism? In short, if EBM simply means “rational” decision making, then Sutton and Pfeffer appear to have a grossly underdeveloped concept of “rational.”

Can it really be the case that managers — and the investors who monitor and govern them — are generally foolishly and “irrational,” consistently leaving vast sums of money on the table, just waiting for a consultant to come along and tell them about “evidence”?

Entry filed under: - Klein -, Management Theory. Tags: .

Theorists Need History, But Historians Need Theory Too Lessig on the Two Economies

2 Comments Add your own

  • 1. pj  |  3 October 2006 at 12:58 pm

    As a practicing manager and former academician, I think Sutton has some points but he is far too generous to academics and uncharitable toward practitioners. The fact is that in management, theory trails practice by a long way, and much theory that has been taught to managers was defective. The mistakes he points to as ones Evidence-Based Management can correct are ones that, I believe, entered the business world from academia. Perhaps the main role of EBM is to clear some of the errors from management theory.

    Your point that we need heuristics (or theory) to make sound decisions is a key insight. For substantial improvements in management practice, we need more sound theory, not just less bad theory. It’s not clear that EBM is capable of leading us to more sound theory. Maybe it can, but induction from many observations without guidance from a speculative theory has a poor track record.

    Re your last question, if “evidence” is costly to gather, it could in principle make economic sense to centralize evidence-gathering among some Evidence-Based Management experts, and then disseminate it. But it seems more likely that EBM will find its place in the business schools, as a mechanism for passing on acquired lore to neophytes.

  • 2. Bo  |  4 October 2006 at 2:49 am

    Interesting debate. I also do think that there is some truth to their argument, however, it is somewhat simplified. Do manangers make foolish and irrational decisions? Absolutely and all the time, however, mostly because hindsight is 20/20. Given bounded rationality, lack of information and a huge time constraint on most managers, as well as a healthy dose of opportunism (or at least self-interest), it is no wonder that managers make “bad” decisions in a dynamic and evolving wold.

    I teach an international management course where I use cases (some rather old) to illustrate how difficult it is to make decisions. My students often use the Internet to find out “what really happened” in the cases we study. They often find out that managers made the “less-than-optimal” decisions or rightout poor decisions. Then I tell them to study the material given in the case and put it in the context of how the world looked in 1986 or whenever the case is from and see what decisions they would have made given these constraints. Often the answer is: “I would have probably done the same” or “what other choices did I have given the time and money and situation?”.

    This does NOT mean that managers do not use evidence, data and sound analysis as guidance. Hence, I think that the discussion by Sutton above lacks some depth..

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s

Trackback this post  |  Subscribe to the comments via RSS Feed


Authors

Nicolai J. Foss | home | posts
Peter G. Klein | home | posts
Richard Langlois | home | posts
Lasse B. Lien | home | posts

Guests

Former Guests | posts

Networking

Recent Posts

Categories

Feeds

Our Recent Books

Nicolai J. Foss and Peter G. Klein, Organizing Entrepreneurial Judgment: A New Approach to the Firm (Cambridge University Press, 2012).
Peter G. Klein and Micheal E. Sykuta, eds., The Elgar Companion to Transaction Cost Economics (Edward Elgar, 2010).
Peter G. Klein, The Capitalist and the Entrepreneur: Essays on Organizations and Markets (Mises Institute, 2010).
Richard N. Langlois, The Dynamics of Industrial Capitalism: Schumpeter, Chandler, and the New Economy (Routledge, 2007).
Nicolai J. Foss, Strategy, Economic Organization, and the Knowledge Economy: The Coordination of Firms and Resources (Oxford University Press, 2005).
Raghu Garud, Arun Kumaraswamy, and Richard N. Langlois, eds., Managing in the Modular Age: Architectures, Networks and Organizations (Blackwell, 2003).
Nicolai J. Foss and Peter G. Klein, eds., Entrepreneurship and the Firm: Austrian Perspectives on Economic Organization (Elgar, 2002).
Nicolai J. Foss and Volker Mahnke, eds., Competence, Governance, and Entrepreneurship: Advances in Economic Strategy Research (Oxford, 2000).
Nicolai J. Foss and Paul L. Robertson, eds., Resources, Technology, and Strategy: Explorations in the Resource-based Perspective (Routledge, 2000).

Follow

Get every new post delivered to your Inbox.

Join 241 other followers