HARD FACTS, DANGEROUS HALF TRUTHS, AND TOTAL NONSENSE: PROFITING FROM EVIDENCE-BASED MANAGEMENT Robert Sutton Stanford University
Why We Need Evidence Based-Management • Three reasons that convinced us the time was ripe
PAY DISPERSION: A TROUBLING “DOING-KNOWING” GAP • “Rank and yank” • A,B,C rankings War for Talent “Differentiate and affirm”
CONTRADICTED BY EVERY PEER-REVIEWED STUDY • “Spread” between CEO pay and next three executives • Baseball teams: Smaller differences between top 50% and bottom 50% linked to better attendance, media income, and win-loss records
IMPETUS #2: THE EVIDENCE-BASED MEDICINE MOVEMENT • Striving to “bring the best evidence to the bedside” in ways that physicians can actually use
Dr. Kevin Patterson “People, doctors included, have a tendency to see what they expect to see. It’s the premise of every sleight-of-hand game. If it makes sense that a treatment will work…then a doctor will, with alarming and disheartening reliability, perceive that it does in fact work.”
DR. DAVID SACKETT AND OTHERS IN THE EBM MOVEMENT • Weave conversations using evidence into clinical training • Summarize evidence in forms that physicians can quickly use and grasp, in journals like Evidence-Based Medicine • Often simple things: Hand washing • NCH Healthcare “It’s OK to ask” campaign
IMPETUS #3: ORGANIZATIONS HAVE PROFOUND EFFECTS ON PEOPLE AND SOCIETY • Studies of mortality rates in hospitals • British study of 61 hospitals links use of common HR practices – training and performance evaluation systems – to lower mortality rates.
IMPETUS #3: ORGANIZATIONS HAVE PROFOUND EFFECTS ON PEOPLE AND SOCIETY 2007 study of 532 American found that 44% had at least one abusive boss. 1997 study of 130 U.S. nurses in the Journal of Professional Nursing found 90% were victims of verbal abuse by physicians (6 to 12 incidents in past year). 2006 longitudinal study of 3000 medical students from 16 U.S. medical schools in the BMJ: 42 percent of seniors were harassed; 84 percent belittled
II. WHAT IS EVIDENCE-BASED MANAGEMENT? • A way of thinking • Being committed to “fact-based” and “evidence-based” action • The attitude of wisdom • The courage to act on what you know and the humility to update when better evidence comes along • Treating your organization as an unfinished prototype
CORPORATE MERGERS • When a larger company buys a smaller company with stock • About 70% fail to deliver the anticipated economic value • Analysis of 93 studies covering over 200,000 mergers: Negative effects of shareholders value evident less than one month after announcement
MERGERS ARE ESPECIALLY RISKY WHEN.... • When CEOs suffer from hubris – bigger acquisition premiums • When the two companies are closer to the same size (e.g., Daimler-Chrysler) • Insufficient attention is devoted to integration
HOW CISCO BEAT THE ODDS • Focus on acquiring smaller companies, close by, and where there is cultural fit. • Devote enormous effort to merger integration • Do constant post-mortems and constantly update Cisco’s decision-making and merger integration process
CENTERING THE SEARCH BOX ON YAHOO’S HOME PAGE IE Version Netscape Version DATA SHOWED THAT NETSCAPE USERS HAD HIGHER SEARCH USAGE DATA
III. MANAGEMENT IS A CRAFT, NOT A SCIENCE • You can only learn it by doing it • Like medicine, using better evidence = higher success rate
IV. Hazards of Business Advice • There is too much • Much of it is bad • Much of it clashes
The market for business knowledge • 2000+ business books published per year (35,000 in print, conferences, dozens of business publications films and Web events, “experts,” consultants, and consulting firms, lots of “research”)
In Search of Excellence Charisma: Seven Keys to Developing the Magnetism that Leads to Success Love is the Killer App The Peaceable Kingdom Managing with Passion Out of the Box Built to Last: Successful Habitsof Visionary Companies The Myth of Excellence Leading Quietly: An Unorthodox Guide to Doing the Right Thing Business is Combat Capitalizing on Conflict Managing by Measuring Thinking Inside the Box Corporate Failure by Design: Why Organizations are Builtto Fail WARRING BOOK TITLES
Standards for Judging Business Advice • Treat old ideas as if they are old ideas • What are the incentives? • Avoid the “best practices trap”
A. Treat old ideas as if they are old ideas • HBR’s “breakthrough ideas” • Don’t hire “jerks?” • Do practice evidence-based management?
James March on “breakthroughs” “Most claims of originality are testimony to ignorance and most claims of magic are testimonial to hubris.”
B. What are the incentives? • Large software implementations • Who gains and loses, regardless of the financial outcome for your organization?
C. The trouble with “best practices” • What is good for them might be bad for you • It might help you, if implementing it doesn’t kill your organization first • Great people and companies succeed despite rather than because of some practices
“Correlation is Not Causation” Herb and Southwest • Should you start drinking a quart of Wild Turkey each day?
V. THE BEST EVIDENCE REVEALS MANY DANGEROUS HALF-TRUTHS • Work is Fundamentally Different From the Rest of Life, and Should Be? • The Best Organizations Have the Best People? • Financial Incentives Drive Company Performance? • Strategy is Destiny? • Change is Difficult & Takes a Long Time? • Great Leaders are in Control of their Companies, and Ought to Be
Dangerous Half-Truth Change is Difficult & Takes a Long Time?
Change Can Be Hard to Accept • It makes human-beings squirm • Breaking out of a mindless state isn’t easy
Change Can Be Hard to Accept • The confirmation bias problem – we love our beliefs and dismiss ideas that clash with them. Kodak and digital photography
Change is Hard to Accept • Shoot the messenger problem – executives often don’t like to hear the bad news: • The HP VP who gave Carly the bad news about Compaq products – she blamed him.
Most Changes Fail • Mergers • Enterprise Software – Implementations take longer than expected and fail at substantial rate (Hershey missed Halloween) • Quality Improvement. Often window dressing and linked to more incremental innovation (Kodak)
Most Changes Fail • Layoffs –Bain study shows that layoffs associated with modest drops on stock price and may take 18 months to get savings – and firms often need the people again by then. • New product introductions. Less than 1% of compounds developed by pharma firms ever sold. 30% to 60% of new product introductions fail.
The Dilemma of Change • The only thing more risky than doing change is not doing any at all!
Some Decision Criteria • Is there a good reason to believe that the new practice is actually better? • Is the change really worth the disruption? • Is it best to only make symbolic changes? • Are people already suffering from the flavor of the month problem • Will you be able to pull the plug – at least cheaply.
Watch the Self-Fulfilling Prophecy Does change really need to be difficult and take a long time? Urgency, deadlines, and belief it can happen can help a lot: Continental Airlines: From worst to first in on time performance in a year DaVita: Went from near bankruptcy and suspect treatment outcomes, to, less than 2 years later, stock price up from 2 to $40 and among the best treatment outcomes in the businesses
Big Four for Making Change Happen After A Decision • Dissatisfaction • Direction • Overconfidence – punctuated by self-doubt and updating • Embrace the mess
DANGEROUS HALF-TRUTH: GREAT LEADERS ARE IN CONTROL OF THEIR COMPANIES, AND OUGHT TO BE? Leaders matter far less than most people think – their control is partly a cognitive illusion
Former GE executive Spencer Clark “Jack did a good job, but everyone seems to forget that the company had been around for over a hundred years before he ever took the job and he had 70,000 other people to help him.”
THE DILEMMA: LEADERSHIP REQUIRES MAINTAINING THE ILLUSION OF CONTROL • If you don’t pretend to be in control, you will never get or keep a leadership job. • If you don’t pretend to be in control, you will never achieve any actual influence over the situation and make necessary changes
“I think it is very important for you to do two things: act on your temporary conviction as if it was a real conviction; and when you realize that you are wrong, correct course very quickly …. And try not to get too depressed in the part of the journey, because there’s a professional responsibility. If you are depressed, you can’t motivate your staff to extraordinary measures. So you have to keep your own spirits up even though you well understand that you don’t know what you’re doing.” - Andy Grove, Intel
How to fuel the illusion and reality of control: Playing The Blame Game Taking credit (and some blame) for what happens—and always talking as if the situation can be controlled Research shows that leaders who attribute setbacks to controllable but internal factors preside over more successful organizations
ACCEPTING RESPONSIBIITY THE RIGHT WAY Take at least partial responsibility for the problems, particularly those that actually are your fault (Loveman and a bad health insurance decision) Announce actions you are taking—and others can take—to bolster performance
WARNING 1: BECOMING A LEADER CAN MAKE YOU A JERK! Putting people in power: Makes them oblivious to reactions and needs of people with less power Makes them more focused on satisfying their own needs and wants
THE COOKIE STUDY • Three Berkeley students, five cookies • Two students brainstorm and the third has the power to evaluate their ideas • Those with power tend to: • Take the fourth cookie • Eat with their mouths open • Leave more crumbs
WARNING 2: THE BEST LEADERSHIP IS SOMETIMES LESS LEADERSHIP The message from George Patton, John Wayne, and MBA education…Leaders: • Monitor • Ask questions • Give lots of feedback
“When you plant a seed in the ground, you don’t dig it up every week to see how it is doing.” - William Coyne, Former EVP, 3M
PARTING THOUGHT 1: MASTER THE OBVIOUS AND MUNDANE • Obvious: Nothing can have an effect unless you actually do it • Mundane: Conscientious people and standing-up (and washing your hands!)