FEB 21, 2008 4:19am ET

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The Harvard Business Review on BI for Management


I’ve been a subscriber to the Harvard Business Review (HBR) for about five years. In the aggregate, I’m pretty happy with the articles, almost always reading at least two in their entirety. The writers - academics, consultants and prominent business professionals - at times provide keen insight on pertinent strategic and operational business concerns. I generally find the taxonomies or problem domain dimension specifications very useful. At least every other edition has something spot on pertinent for business intelligence (BI).


HBR is a marketing juggernaut as well. I’m continually bombarded with emails and mailings on the latest HBR publications – from business books, special finance, accounting, supply chain and customer relationship “how tos” to downloads of past magazine articles. And I must admit, the marketing often succeeds, though I purchase through Amazon.com when possible to save money.


Not too long ago, HBR launched a paperback series entitled Harvard Business Review on… , that spans a wide range of “on” topics ranging from corporate strategy and marketing to leadership and supply change management. Each of the more than 50 titles is actually a collection of pertinent HBR articles from the extensive archives. The books can be quite convenient aggregators of information on specific business topics. Indeed, it’s interesting just to note the evolution in thinking in a given area over time.


I recently purchased Harvard Business Review on Making Smarter Decisions and read several articles in sequence that struck me as particularly relevant for educating executives on the business benefits of BI. “The Hidden Traps in Decision Making” identifies the business problem of flawed thinking that subverts many management decisions. “Evidence-Based Management” proposes a business solution for decision-making that revolves on a management embrace of hypotheses, facts, research and a supportive culture for an evidenced-based approach. Finally, “Competing on Analytics,” the technical solution, is the proverbial killer application that puts EBM in play with strategic commitments to data, intelligence and analytics. Interestingly, both “Evidence-Based Management” and “Competing on Analytics” were precursors to Harvard Business School (HBS) books that have received wide acclaim in the management and intelligence worlds.


Business Problem


It’s not difficult to find writings on flawed management decision-making and its impact on firm performance. Every other issue of HBR, it seems, has a case study post mortem of a failed business initiative. The OpenBI Forum has written on The Halo Effect and Fooled By Randomness, both of which identify multiple examples of delusional thinking that have afflicted otherwise successful companies. A personal favorite is Why Smart Executives Fail, an academic survey and analysis of major corporate failures.


“The Hidden Traps in Decision Making” is a handy compendium categorizing the psychological missteps that can lead to flawed thinking and sabotage the best-intended decisions. The culprit is often not incompetence, but instead, heuristics, a process of discovering by intelligent guesswork rather than by evidence from an organized hypothesis. Heuristics ease decision-making by psychologically reducing complexity, often incorrectly simplifying the process. “Rule-of-thumb”, “seat-of-the pants” and other predispositions characterize potentially dangerous heuristic thinking.


Several psychological traps that befuddle business decision-makers are elaborated in “The Hidden Traps in Decision Making.” The anchoring trap is related to the often observed primacy effect, wherein disproportionate consideration is given to early information and initial impressions. The status quo trap, not surprisingly, is a bias towards the current order. In business, the status quo is often the easiest and seemingly less risky path. The confirming evidence trap leads us to seek out evidence that supports our perspective and interpret new information consistent with our biases. The framing trap can lead to different answers to essentially identical questions, depending on how the questions are positioned. The estimating and forecasting traps sometimes manifest in overconfidence in projections, sometimes in overly conservative estimates and other times in overemphasis on the ability to recall inputs to the projections. Alas, all traps play tricks on our decision-making abilities, often leading us unwittingly down a destructive decision path.


Business Solution


So what’s the antidote to the flawed thinking that often drives business decision-making? How can businesses assure that damaging heuristics and delusions do not subvert their problem-solving approaches? “Evidence-Based Management” offers insight from a movement underway in medicine: “the idea that decisions in medical care should be based on latest and best knowledge of what actually works.”1


Dr. David Sackett and colleagues at McMaster University promote evidence-based medicine (EBM) as: “the conscientious, explicit and judicious use of current best evidence in making decisions about individual patients.”2 EBM is committed to applying and disseminating the latest and best evidence from medical research to the treatment of patients. Physicians who practice EBM opt to make decisions based on hypotheses, research and evidence, instead of dogma, obsolete medical school information, conventional but never-proven wisdom and treatments with which they are most comfortable.


The tenets of evidence-based medicine are relevant as well for business. “Evidence-Based Management” contrasts true evidence-based thinking with casual benchmarking, an often delusional exercise wherein companies uncritically emulate what are perceived to be the differentiators from best-performers in their space. Unfortunately, the research behind the benchmarking is often superficial, generally flawed and seldom distinguishes the factors that truly differentiate performance.


An evidence-based approach is built on the scientific method: generate hypotheses, conduct research, assemble evidence, draw conclusions and take actions. EBM represents a mindset change for management, mandating that it put aside conventional wisdom and experience for the results of testing and facts. Management “treats the organization as an unfinished prototype and encourages trial programs, pilot studies and experimentation.”3 The organization assumes an “attitude of wisdom” that humbly appreciates what it doesn’t know, but acts on the best knowledge available while constantly questioning what it does know.


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