Being a Stanford graduate, I was already partial to the authors, two Stanford professors, before even starting to read Hard Facts, Dangerous Half-Truths and Total Nonsense: Profiting from Evidence-Based Management. With a title like that? and that cover design? (oh my god, those people at HBS Press have got themselves a mean publishing machine).
Wait. It only gets better. If nothing else, read this book for a benchmark of academic freedom. Few among the Stanford Business School faculty enjoy more of an icon-like status than lecturer – and entrepreneurial legend – Andy Grove. So, in opening the book with an argument about the lack of evidence that stock options enhance organizational performance, they deliver a quick jab to Grove:
“When Andy Grove, former Intel chairman and CEO, got prostate cancer, he assiduously tracked down all the data he could comparing treatment options and their risks and benefits, gathering the best available evidence to guide his medical decisions. That’s what we would expect from a well-trained engineer and scientist. Grove, however, like many of his Silicon Valley friends, continues to insist on the benefits of [stock] options and doesn’t cite evidence for his views – even though with other business decisions, Grove sticks closely to the facts.”
Similar barbs are reserved, later in the book, for Robert Burgelman, whose claim that “strategy is destiny” they quickly proceed to undermine – with a close reading of the Intel story, which Burgelman and Grove have co-taught to generations of students: the key strategic decision in Intel’s story was, apparently, an outsourcing decision made by IBM, which Intel was smart to capitalize on, but which Intel did not influence or even foresee as the lucky break that would build the semiconductor giant. If you ask me, that’s pretty much like pulling the rug from under Burgelman’s feet. Yet, their whole critique seems to be in good faith, extremely civilized, and driven by the authors’ genuine truth-seeking efforts rather than by personal animosity. And I just think that’s very cool.
If you like challenging conventional wisdom, this is a book full of delights and an arsenal of tools for attacking nonsense in your corporate environment whenever you see it:
“Take the case of a senior exceutive from Florida Power and Light, who told us, while attending a Stanfrod executive program, that his compensation was based on the profitability of the utility. The utility’s profitability, since in the short run most of its costs and rates were fixed, depended mostly on the amount of electricity sold, and the amount of electricity sold depended mostly on the temperature. The hotter the summer in Florida, the more power was sold, and the more profitable was the utility. That summer was a particularly hot one in Florida, so the executive got a big boost in pay during the month that he spent at the Stanford Executive Program in california. This executive noted that this incentive system made no sense — unless you believed he could control the weather in Florida”.
The authors handle some big hairy questions (Is work fundamentally different from the rest of life, and should it be? Do the best organizations have the best people? Are great leaders in control of their companies?) In most cases, they don’t have the answers, but they show you under what conditions an answer might be fit for a given situation, and how devilishly difficult it is to get to the answer if you don’t specify those conditions. So, suppose your company spends a lot of time and effort developing and administering a performance management system that ranks people’s performance on a curve or forced ranking, encouraging you as a manager to “use the full curve” in grading your employees, and rewards better performers with monetary bonuses (ever been in one of those companies? :-)). After reviewing decades of experimental research and field studies, Pfeffer and Sutton conclude: “Individual incentives and highly differentiated reward and recognition distributions make more sense when performance can be objectively assessed and when performance is mostly the result of individual effort rather than the product of interdependent activity”. Examples of such jobs are jockeying, cutting trees, and installing windshields. “Similarly, the evidence suggests that more dispersed financial rewards increase the performance (particularly of the highest performers) when tasks entail little or no interdependence and outcomes are clear.” Examples: driving trucks and picking oranges. When was the last time you had a job like that? You probably experienced a fair bit of interdependence even while editing your high school yearbook, didn’t you? “Yet when work settings require even modest interdependence and cooperation, as most do, dispersed rewards have consistently negative consequences on organizations… The negative effect of pay disparity was especially pronounced for high-technology firms, because those firms had the greatest need for collaboration and teamwork.”
Pfeffer and Sutton claim as their practical inspiration Dr. David Sackett’s evidence-based medicine movement: hell, if it works for medicine, let’s try to see if it works for business, too. In the bigger scheme of things (on strategy, organizational change, and leadership), their conclusions remind me of Eric Beinhocker’s The Origin of Wealth, a more theoretical work about contemporary economics which nevertheless seems to me to hint at some of the same truths. And at the end of the day, it’s not about truths, which change anyway: it’s about the method of looking at the facts, applying your brains, and leaving behind those beliefs that happen to be unsupported by evidence. If we all could inject some more of this wisdom into our organizations, we’d probably have earned our salary, and our bonus too.