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A trail of crumbs, runes and exclamations along my path in search of a better way to live and make a living, and a better understanding of how the world really works.



September 21, 2006

Who’s Most Capable of Making Decisions?

Filed under: Working Smarter — Dave Pollard @ 21:50
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Recently I reported some corporate backlash against James Surowiecki’s ideas in The Wisdom of Crowds and its message that, if organizations were smart, they could dump a lot of expensive senior executive and consultant/expert baggage and get better decisions by putting critical questions collectively to employees, customers and appropriately ‘qualified’ elements of the ‘general public’.

The objections point out that ‘crowds’ are not great at doing everything. But that’s exactly Surowiecki’s point: The very things that crowds are good at are precisely those things that executives, consultants and experts pride themselves on doing.

A couple of readers asked me if I could distill Surowiecki’s arguments into some kind of decision tree to decide who is best to make decisions. This is my response.

We need to start by looking at who the alternative decision-makers are, and what knowledge, skills and talents they offer that are relevant to the decision-making process:

Knowledge of the Problem (Context) Knowledge of Solutions that Have Worked Experience Solving Similar Problems (Know-How) Knowledge of People that Can Help Solve the Problem Ability to Imagine New Solutions that Might Work Knowledge of Tools, Models & Methods that Can Help
Executives,
Consultants,
Sr. Managers,
Other ‘Experts’
Moderate Moderate Moderate Moderate Low Moderate to High
Creatives, Working Individually Low (High after briefing) Low (High after briefing) Moderate Moderate High Moderate to High
Creatives, Working Collectively Low (High after briefing) Moderate (High after briefing) Moderate High High High
Qualified ‘Crowd’: Co-Workers High High High High Low Low
Qualified ‘Crowd’: Current & Potential Customers Very High Moderate Very High High Low Low
Qualified ‘Crowd’: Informed Public High Moderate High High Low Low
Researchers Low (High after research) Low (High after research) Low Low (High after research) Low Low (High after research)
Each Individual Varies Varies Varies Varies Varies Varies

These would be, I think, Surowiecki’s assessments, based on the research in his book. They are also mine, based on thirty years of varied business experience. The reason why executives, consultants, senior managers and other experts don’t rate ‘high’ in any of the six categories of relevant capacities for decision making is (a) they are usually individuals, and can only know as much as any busy individual can know, (b) in the case of outside experts, they lack experience/context actually working for the organization, and (c) in large organizations executives are paradoxically sheltered from awareness of problems due to the “bad news doesn’t travel upwards” (because “they shoot the messenger”) information behaviour that is endemic to our society.

For those who haven’t read The Wisdom of Crowds, a ‘qualified crowd’ is one that is (i) intellectually diverse, (ii) independent and objective, (iii) each member has access to unique knowledge, (iv) each member is basically informed, and (v) each member is appreciative of (cares about) the problem or decision at hand.

Surowiecki identifies five things that qualified crowds can — if asked appropriately — be very good at:

  • ascertaining (all the) pertinent facts surrounding an issue
  • predicting outcomes
  • making a decision among a discrete set or finite range of alternatives
  • determining an optimal process to follow (in simple or complicated situations, but not complex ones)
  • assessing causality (in simple or complicated situations, but not complex ones)

In all except the first type, the crowd must be given a set or range of alternatives to choose from, and, when they are, Surowiecki says, the ‘errors’ in judgement tend to cancel each other out, so that the crowd’s consensus tends to be consistently better than that of executives, consultants and other experts. If you don’t buy this, you’ll have to read the book — his argument is compelling and well-substantiated (it’s also intuitively sensible).

In situations of the first type, ascertaining (all the) pertinent facts surrounding an issue, the crowd is contributing more collective knowledge than any small group of ‘experts’ could hope to have, and are ‘better’ at doing this by sheer dint of numbers.

So what happens in the real world when important decisions must be made? In my experience, this is the typical process:

  1. The executives decide whether they have sufficient knowledge of the problem, sufficient knowledge of solutions that have worked in the past in similar situations, sufficient experience solving similar problems, sufficient knowledge of people who can help solve the problem, and sufficient knowledge of relevant tools, models and methods that can help. Usually they decide they already have all these things (or feel they should have them) so they do not consult others. If they don’t, they tend to bring in outside experts, who lack contextual knowledge of the problem. They may involve researchers. They are unlikely to involve other subordinates in the organization, or customers.
  2. The executives decide whether they have sufficient capability to imagine new solutions that might work to solve the problem. Usually they decide they do (or feel they should) so they do not consult others. If they don’t they tend to bring in outside experts, who lack contextual knowledge of the problem. They may involve creative people within the organization, either individually or collectively. They are unlikely to involve other subordinates in the organization, or customers.
  3. The executives decide all by themselves which of the alternative solutions that have come from steps 1 and 2 to implement. That, after all, is why they’re paid the big bucks.

If you accept the capacities in the chart above, the result of this ‘business as usual’ process is clearly sub-optimal. Consultants and other outside experts bring precisely the capacities that the executives already have, and none of the ones they lack. Involving researchers and creatives will improve the quality of the decision somewhat, but not as much as involving the crowd. And that assumes that nothing gets lost in the ‘translation’ of knowledge between the researchers, creative people and executives. What’s worse, many researchers and creative people will tell the executives what they want to hear, not necessarily the truth — they lack the independence and objectivity that ‘qualify’ a crowd.

Here by contrast is the optimal process, for complicated (not complex) problems:

  1. The executives identify and qualify a crowd of co-workers, customers (including prospective customers) and informed members of the public, and interview them, in interactive sessions witnessed by the organization’s creative people, to augment their (the executives’ and the crowd’s) collective knowledge of the problem, knowledge of solutions that have worked in the past in similar situations, experience solving similar problems, knowledge of people who can help solve the problem, and knowledge of relevant tools, models and methods that can help.
  2. The executives then charge the creative people (who by virtue of their involvement in step 1 now have a deep contextual understanding of the problem and how to approach it) with imagining new solutions that might work to solve the problem, working both individually and as a team. These creative people do not assess or rank these potential solutions — their job is simply to identify alternatives.
  3. The executives then canvass the crowd from step 1, presenting them with the solutions that have worked in past, those which the executives based on their experience think have potential, plus the alternatives that were surfaced in step 2. The crowd makes the final decision.

This learn-analyze-imagine-assess-decide-on-action process involves each group of stakeholders doing what they do best. If there are appropriate incentives for the crowd (and sometimes that’s as simple as recognition and thanks), this process need not be cumbersome, and to some extent it can be automated (members of the ‘crowd’ can to some extent self-qualify by going through an online qualification survey, and step 3 can also be done entirely online). It is course frightening to executives, because it reveals their true, limited value in the decision-making process. In fact just about anyone can perform the three steps above (they are mostly administrative and facilitative), bringing into question the need for highly-paid executives, and a hierarchical decision-making organizational structure, at all. So this approach is clearly more amenable to egalitarian, non-hierarchical organizations. It’s also bad news for the consultants and outside experts — they aren’t needed in the process at all.

Here, from an earlier article, are 25 business problems that such an approach might solve:

  1. How can we improve employee productivity?
  2. How can we reduce business/credit/security risk?
  3. How can we become more innovative?
  4. Should we outsource IT, KM, HR and/or marketing?
  5. Which of these new product ideas will be successful?
  6. What price should we sell this new or old product for?
  7. How will sales/prices be affected by future innovations?
  8. How will sales be affected by inflation, int. rates etc?
  9. How will material & labour costs change in the future?
  10. How can we reduce our fixed costs & overhead?
  11. How can we increase our market or customer share?
  12. How can we (a) find or (b) keep the best people?
  13. Which acquisitions should we make, at what price?
  14. How much is our company worth?
  15. What service/community wraparounds would work?
  16. How much should we be paying staff, management?
  17. Which companies should we partner with?
  18. Which functions should we centralize, decentralize?
  19. How should we penetrate a new market/demographic?
  20. How can we increase customer satisfaction/retention?
  21. Which suppliers should we use?
  22. How can we reduce employee theft, fraud, error?
  23. Where are we paying more taxes than we have to?
  24. How should we protect our intellectual property?
  25. What new businesses should we start, or spin off?

I said that the above process is optimal for complicated problems. What about complex problems, like these?:

  1.  Should our central bank raise interest rates next month, and by how much?
  2.  What is the $US going to be worth, relative to the Euro or a global currency basket, this time next year?
  3.  Which alternative voting system is the best?
  4.  What’s the best way to motivate people in the third world to have fewer children?
  5.  How could we break our dependence on fossil fuels within the next decade?
  6. What’s the answer to eliminating popular support in many countries for terrorist attacks?
  7. How can we fairly reduce global disparities between rich and poor, and improve distribution mechanisms to get resources desperately needed by the poor to their destinations?
  8.  How can we motivate both polluters and the public to take appropriate steps to stop global warming?
  9. How can we create a health care system that offers quality, universal care affordably?
  10. How can we create an education system that teaches critical life skills and enables its graduates to be self-sufficient, productive, and informed, engaged citizens?

The process for such problems must of necessity be emergent, rather than prescriptive as for merely complicated problems. Such problems do not lend themselves to (anywhere near) ‘complete’ knowledge, rigorous analysis, determination of clear causality, or predictability. In fact, such problems don’t have ‘solutions’ per se at all. What can emerge is a collective understanding sufficient to allow all of the participants in the process to contribute knowledgeably, positively and responsibly to addressing the problem in self-organized adaptive ways, individually and collectively, in the context of their own lives and work. This process is essentially the same process that indigenous cultures have used for millennia to address such problems, and the same process used by ‘complex system’ methodologies like Open Space:

  1. The project champions constitute themselves and selected researchers (perhaps including a qualified or self-qualified crowd) to collect, organize and share as much relevant information as possible about the problem/issue.
  2. The project champions then invite anyone with sufficient passion around the issue to commit appropriate time and energy to the project, to study the information collected in step 1 and attend one or more facilitated, self-managed sessions to explore and discuss the problem/issue. Those who accept the invitation become in effect a second self-qualified crowd.
  3. The project champions document the proceedings of these sessions and facilitate the organization of groups to pursue collective actions emerging from them, involving attendees and others as appropriate. But, most importantly, each attendee is charged with the responsibility to pursue individual actions and to individually initiate other collective actions involving non-attendees, that they think make sense in the context of their own life and work as a result of the understanding they have acquired from the sessions.

This learn-explore-imagine-converse-emerge-let-self-decide-on-action process is structurally similar but significantly different in methodology and responsibility than that outlined above for complicated problems. Each process respects the different characteristics of the problem/issue and appreciates the need for a different approach to it.

What I have observed over the past few years is encouraging: Organizations with enlightened leadership (and leaders with modest egos) appear to intuitively appreciate the limitations of the ‘boss-decides-in-a-vacuum’ approach to management, and are starting to involve line staff and customers more in at least the information-gathering (step 1) part of the decision-making process. This isn’t tapping the wisdom of crowds but it’s a big step in the right direction. Some organizations are even beginning to realize that prescriptive ‘solutions’ to complex problems (and generally all problems that involve human behaviour and interaction are complex) don’t work, and are starting to devolve authority and responsibility to individuals on the front line to make more tactical decisions.

I’ve seen less willingness to involve creative minds in organizations in imagining alternative solutions, to actually devolve decision-making authority to crowds, or to give individuals decentralized authority and responsibility to make strategic decisions. But perhaps as some brave organizations start to do this, successfully, others will follow.

Laterally-thinking readers will probably have realized that these processes aren’t limited to business or even organizational contexts. Think about its application to problems in a family context, where the larger community is the ‘crowd’ (if you’re lucky enough to live in a community whose members know and care enough about each other to qualify as a crowd under Surowiecki’s five criteria) — and you’ll understand what ‘ittakes a village to raise a child’ could really mean.

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