Evidence-Based Management in Business: Will it make a difference?

In the early 2000s, the concept of evidence-based medicine emerged. Dr. David Sackett defined it as using current best evidence in patient care decisions, and it has gained traction. Despite abundant research, only about 15% of medical decisions are based on evidence, with many relying on outdated knowledge, traditions, experience, and vendor information.

Similarly, managers often need to pay more attention to reliable evidence, leading to less effective decision-making. An evidence-based approach in management could provide a competitive edge, though it is challenging due to the variability among organizations and the weaker evidence base. Adopting better logic and evidence in management practices can enhance organizational performance.

What is wisdom?

When doctors or managers make decisions based on something other than the best evidence, it is often due to reliance on personal experience over research. Practitioners may find firsthand information more convincing than journal data despite acknowledging the limited sample size of their observations. Managers similarly rely on past practices without considering differences between organizations. Specialists often default to familiar treatments, and marketing can skew the information practitioners receive, promoting products with exaggerated benefits.

Ideology also affects decisions. For example, stock options are defended as fostering an ownership culture, though evidence shows no consistent performance benefits. The first-mover-advantage myth persists despite mixed evidence, and cultural beliefs further reinforce this notion. Uncritical emulation, or casual benchmarking, is another issue. While benchmarking can be helpful, copying top performers without understanding the underlying logic can be ineffective. Failed attempts by dozens of ride-sharing apps across the globe to imitate Uber’s success are notable examples.

Six common substitutes for evidence:

• outdated knowledge
• personal experience
• specialist skills
• marketing hype
• ideology
• casual benchmarking

Illustrate why evidence-based decision-making is rare. Relying on these substitutes is not optimal for evaluating practices. Evidence-based management can improve outcomes, as demonstrated by companies successfully implementing it.

Is Forced Ranking good?

At Oxford’s Centre for Evidence-Based Medicine, decision-making starts with framing an answerable question, like whether to adopt forced employee ranking. Popularised by General Electric, this system ranks employees on a bell curve, rewarding the top 20%, developing the middle 70%, and dismissing the bottom 10%. Many companies consider this system due to GE’s success and its promotion in business literature. However, evidence suggests that forced ranking may not be beneficial.

Evidence-based management would question if their company is similar enough to GE to expect similar outcomes. They would scrutinize the supporting data, noting flaws such as incorrect causality assumptions in studies like The War for Talent. Negative evidence includes findings that performance improves with team continuity and that wide pay disparities harm productivity and morale.

Studies show that forced ranking can decrease collaboration and trust, and pay dispersion correlates with poorer performance, even in sports like baseball. Additionally, research in the auto industry indicates that systems emphasizing teamwork and minimizing status differences outperform those focusing solely on individual talent. This evidence suggests that adopting forced ranking may yield different results than the desired ones.

How to reinforce your company with evidence-based managers

Implementing evidence-based management is challenging but essential. Managers should prioritize training, technologies, and practices that support informed decision-making. Encouraging a culture of inquiry, where evidence of efficacy is demanded, logic is scrutinized, and experimentation is rewarded, fosters better decisions. Cultivating an "attitude of wisdom" ensures continuous learning and applying the best available knowledge. Here are some tips to create such an environment within a company.

Demand evidence

Kent Thiry, CEO of DaVita, emphasizes evidence-based management to turn around the struggling company. Thiry and his team implemented systems to track performance, ensuring data-driven decisions. At DaVita Academy, Thiry supports claims of industry-leading treatment quality with specific, quantitative comparisons. Reports start with patient care effectiveness data; monthly reports include a DaVita Quality Index. Missing but important metrics are noted as "not available" to motivate data collection. This focus on evidence contributed to a 50% decrease in voluntary turnover, superior patient care, and strong financial results.

Emphasizing evidence-based decision-making in an environment that requires complete transparency is crucial.

Scrutinise Logic

More than merely requesting research to support proposals are required for accurate, evidence-based management. Managers must examine gaps in logic, exposition, and inference, especially since most management studies are non-experimental. Understanding research limitations and thinking critically are essential. Senior executives should unpack assumptions behind policies or practices, fostering a culture of critical evaluation. They should explore whether assumptions make sense, asking if they align with organizational realities. Be wary of consultant claims; for example, Bain & Company claims that clients outperform the market but lack proof that their advice is the cause.

Adopt the Attitude of Wisdom

True wisdom in evidence-based management comes from recognizing how much remains unknown. Effective managers act on the best available knowledge while continually questioning their assumptions. This balance of humility and decisiveness can be achieved by supporting ongoing professional education and encouraging inquiry and observation even without rigorous evidence.

For example, executives at a struggling computer company discovered product issues firsthand by visiting stores and gathering qualitative data. Such practices demonstrate that real-world observations are crucial for informed decision-making, fostering a culture that values evidence over guesswork and belief.

What will be the impact?

Like evidence-based medicine, evidence-based management relies on sound data for decision-making. Initial studies show improved medical outcomes, but business settings need broader evidence. The theoretical argument remains strong: decisions grounded in solid evidence foster better outcomes. Practical studies, like those showing stand-up meetings saving time without sacrificing decision quality, exemplify its benefits.

However, adopting this approach may challenge traditional power dynamics, as data-driven decisions level hierarchies. Leaders must choose between preserving their status and improving organizational performance. Embracing evidence-based management transforms managerial thinking, leveraging logic and facts for effective leadership and better organizational results.