How evidence-based management helps to increase organizational performance: A practitioner's perspective
Niklas Luhmann, one of the most influential sociologists of the 20th century and father of social systems theory, once stated that organizations are made of decisions (Luhmann 2000). He even went further and argued that every decision taken builds on past decisions which accumulate to an organization’s future. On a more practical level, making the right decision can be a matter of life and death in high risk environments such as aviation, medicine, or the military. In business, decision-making quality is a key determinant of organizational performance. We’ll take a look at the state of decision-making in the business sector and how Evidence-based Management can help you as a manager and professional to improve your decision-making quality.
As a manager and professional, decision-making is daily business.
For managers and professionals, decision-making is daily business. Day in and day out we are confronted with various types of decisions ranging from small ones, such as when to schedule meetings, to strategic ones, such as when to launch a new product into the market. We are convinced that most, if not all the time, our intuition-based decision making approach leads to high quality outcomes. This makes us proud of our decision-making skills and also meets the implicit expectation of our followers and coworkers which require us to be competent and decisive (Hogan und Kaiser 2005).
When somebody asks why we think we take the right decisions, we relate to our experience, education and the knowledge we have accumulated during our professional life. But this is not all. In addition, more often than not we keep our knowledge up to date by reading business books and CEO biographies on how to solve tricky business problems and become a successful manager. On top of this we participate in internal and external training programs led by consultants and gurus, who promise to teach us how to develop our organization to the next level by following the most recent management trends and models. Isn’t that enough to make sure we make the right decisions?
The 'Evidence Movement' targets at increasing decision-making quality in medicine, law enforcement and management.
These questions were the starting point of the so called 'Evidence Movement', which has its origin in the healthcare sector and since then has reached many other areas, notably also including management (Baba und HakemZadeh 2012). The driving force behind evidence-based practices is the increasing awareness that human decision-making is prone to bias and failure, which in turn leads to poor outcomes. This is especially true in high risk areas such as the healthcare sector, where poor decisions can be a matter of life and death. However, it is not just healthcare where poor decisions can have a catastrophic impact (Strauch 2016). Day in and day out managers and professionals like us make decisions that shape the future of our organizations. Evidence-based Management (EBM) targets at helping us to improve decision making quality. However, why do we need EBM in business?
There are more than 200 different biases that affect decision-making quality.
Looking at recent insights from research and science unveils that the traditional intuition-based decision-making approach mentioned above leads to poor outcomes. One of the key factors that undermines our decision-making performance is bias. In one of the first attempts to structure the more than 200 biases that describe how we are influenced by others, context and ourselves, Spetzler (2016) identified six different bias categories:
• Social influences • Protection of mindset • Personality and habits • Faulty reasoning • Automatic associations • Relative thinking
As a practitioner, we are not required to know all those biases in detail. However, it definitely would help to be aware that our decision-making behavior is not as rational and straightforward as we might think. It would be even more beneficial to know that there are different bias categories that describe how we unconsciously tweak our decision-making behaviour in the one or other (undesirable) direction.
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A considerable amount of information we are exposed to is of questionable quality.
Another factor that impacts our decision-making quality is the information or evidence we utilize to make decisions. Most of us tend to believe that the information we are exposed to throughout the day is valid and “true”. Scrutinizing the business books, newspaper articles, social media posts and consultancy white papers etc. in more detail reveals that most of them don’t live up to basic quality standards as for instance are used in scientific research. And most business professionals don’t read scientific journals (Rynes et al. 2002) because they are hard to read and many of them are still hidden behind paywalls.
When we cannot solely rely on the popular business literature, why don't use the internet to search for relevant information? While there is a huge amount of relevant content created every day, it strongly depends on where you look for it. Many articles, blog posts and website target at selling us the most recent management trends they think are required to increase organizational performance (and make money out of it). This is why it is always a good advice to question easy answers to complex questions. Critical thinking is one of the key skills we need to cope with the increasing amount of information available.
Stress and cognitive overload undermines decision-making quality.
Finally, there are factors like stress and cognitive overload that impact the way we make decisions. Those factors weigh heavy on our decision-making quality when times get though and the pressure to deliver results increases. For instance, stress and a lack of sleep is a combination that many business professionals face on a regular basis, that has a negative impact on our ability to make high quality decisions (Larsen 2009). This effect is reinforced when the situation involves a high level of decision complexity which draws on our cognitive resources (Dobbins und Han 2009).
Evidence-based Management is an approach that helps to increase decision making quality
Evidence-based Management doesn’t provide answers to specific business problems. This also makes Evidence-based Management different to many of the management trends and fads that promise to solve business problems by following recipes like pre-determined models or organizational interventions. Instead, Evidence-based Management is an approach that helps us to reflect on how we make decisions and gives guidance on how to improve our decision-making quality. How does Evidence-based Management work?
Evidence-based management encourages us to use a structured decision-making process.
Everything starts with an understanding of the specific situation (or business challenge) and what has to be achieved with your management intervention. While this might sound obvious, there are many cases where expectations, contextual factors and formal objectives are not taken into consideration. As a consequence, the decision quality is poor by design. By reminding us to briefly stop and ask what has to be decided (business problem/issue), who is involved and what is the desired outcome Evidence-based Management helps us to fully grasp the decision situation even under stress.
Evidence-based management has critical thinking in its heart and points towards four types of evidence.
The traditional intuition-based decision-making approach strongly relies on experience. Evidence-based Management makes us aware that experience or professional expertise is just one of four possible sources of evidence that should be considered for decision-making. Besides our professional expertise, Evidence-based Management points towards organizational data, scientific literature and stakeholder values and concerns as additional sources of evidence (refer to above picture). Depending on your time restrictions and the decision magnitute, do a comprehensive review of all four sources of evidence or just a brief mental “walk-through” in case you are already aware of it (e.g. from former decision processes). After you acquired the evidence critically appraise it and aggregate the key take-aways in a way such that you can apply them in your specific business setting. Finally, assess the outcome and align your intervention strategy accordingly.
Evidence-based management has a strong emphasis on context and situational factors.
Evidence-based Management combines qualitative and quantitative evidence which makes it very attractive for complex business settings. There is for instance a strong body of quantitative evidence available on the effect of goal agreements on performance. This makes it easy to conclude that goal setting theory (the theoretical foundation behind goal agreements) has a positive impact on performance. However, in order to better understand the “how” and “why”, Evidence-based Management encourages us to also take a look at qualitative studies that look beyond whether goal setting works or not. Having stakeholders and experts considered as source of evidence also increases the contextual embeddedness of the decision-making process. Especially strategic decisions are usually complex by nature. Taking a holistic approach as suggested by Evidence-based Management is the very basis to coping with a high level of complexity.
There are resoures around the web that provide guidance on how to become an evidence-based manager.
Evidence-based Management is part of a broader movement that targets at increasing decision-making quality in organizations crucial for our society. There are resources around the web that can help you on the way to becoming an Evidence-based Manager. The Center for Evidence-based Management, also called CEBMa, is the leading authority in the area of evidence-based management and leadership.
CQ, which stands for Collaboration Quotient, is an Evidence-based Management learning platform for executives, managers and professionals. It offers trainings, seminars and courses for management practitioners from various backgrounds that target at solving pressing business problems following an agile and evidence-based approach. Besides offering trainings, seminars and courses, CQ provides a search feature that allows you to find Dossiers, which translate years of social science research into distilled, practical advice that is both empirically supported and easy to comprehend.
ScienceForWork is a webblog that publishes evidence-summaries in the area of human resource management and leadership. It is a great place to look for key take-aways from research findings that really make a difference in daily management practice.
References and further reading
Baba, Vishwanath V.; HakemZadeh, Farimah (2012): Toward a theory of evidence based decision making. In: Management Decision 50 (5), S. 832–867. DOI: 10.1108/00251741211227546.
Dobbins, Ian G.; Han, Sanghoon (2009): Rules Versus Evidence in Memory and Non-Memory Decision-Making. In: Military psychology : the official journal of the Division of Military Psychology, American Psychological Association 21 (1), S. 113–122. DOI: 10.1080/08995600802554755.
Hogan, Robert; Kaiser, Robert B. (2005): What we know about leadership. In: Review of General Psychology 9 (2), S. 169–180. DOI: 10.1037/1089-26184.108.40.206.
Larsen, Rolf P. (2009): Decision Making by Military Students Under Severe Stress. In: Military Psychology 13 (2), S. 89–98. DOI: 10.1207/S15327876MP1302_02.
Luhmann, Niklas (2000): Organisation und Entscheidung. Wiesbaden: Westdeutscher Verlag.
Rynes, Sara L.; Colbert, Amy E.; Brown, Kenneth G. (2002): HR Professionals' beliefs about effective human resource practices. Correspondence between research and practice. In: Hum. Resour. Manage. 41 (2), S. 149–174. DOI: 10.1002/hrm.10029.
Spetzler, Carl S. (2016): Decision quality. Value creation from better business decisions. Hoboken, New Jersey: John Wiley & Sons Inc.
Strauch, Barry (2016): Decision Errors and Accidents. In: Journal of Cognitive Engineering and Decision Making 10 (3), S. 281–290. DOI: 10.1177/1555343416654629.
Markus is one of the founders of CQ and leads trainings in the area of Management and Mechanical Engineering. He holds a Master and Doctoral Degree in Economics and Computer Science from the Technical University of Vienna and a MSc in Organisational Behaviour from Birkbeck College, University of London. Being a dedicated "Knowledge Worker", Markus has continued his career with various private sector assignments in the management consulting, automotive and mechanical engineering industry.