Treat Your Organization as a Prototype: The Essence of Evidence-Based Management

Design Management Review, Summer 2006 by Pfeffer, Jeffrey, Sutton, Robert I

And, with $50 billion going through Harrah's slot machines each year, Loveman insisted on running experiments to see if holds could be varied-according to the machine's location, for instance-without affecting play. Conventional industry wisdom was that you could not vary the payouts at all, but Loveman didn't accept it. As he asked a group of Stanford students: How can price (which is what the hold really is) be so inelastic when one woman can buy a black dress for $1,000 at a designer store and another woman can buy a similar dress for $100 at Target, and both be equally satisfied with their purchases? Harrah's discovered that you could increase the hold, generating additional money that fell straight to the bottom line.

Know what you don't know

Gary Loveman and other leaders who are able to face and act on the hard facts-Xerox's Ann Mulchay, George Zimmer from The Men's Wearhouse, and Cisco's John Chambers come to mind-all have a way of thinking that is more important than any particular guideline or method. They have realized that true wisdom is reflected in the attitude people have toward what they know, not in how much or how little they know. It's not a new idea; in fact, one of its first manifestations goes all the way back to the philosopher Plato. Describing Socrates' visit to "a man with a high reputation for wisdom," Plato quotes Socrates as concluding:

I formed the impression that although in many people's opinion, and especially his own, he appeared to be wise, in fact, he was not.... I reflected as I walked away, Well, I certainly am wiser than this man. It is only too likely that neither of us has any knowledge to boast of, but he thinks that he knows something which he does not know, whereas I am quite conscious of my ignorance. At any rate it seems that I am wiser than him to this small extent, that I do not think that I know what I do not know.

The power of Plato's ancient insight persists because wisdom (or the lack of it) shapes how people think, feel, and act in so many ways. Psychologists, including John Meacham and Robert Sternberg, have studied the nuances of wisdom, with special attention to the differences between being wise and being smart. One of their most important insights is that, as Plato's quote suggests, wisdom means "knowing what you know and knowing what you don't know." Such an attitude strikes a balance between arrogance (assuming you know more than you do) and insecurity (believing that you know too little to act). This enables people to act on their present knowledge even while doubting what they know. It means they can do things now, as well as keep learning along the way.

Leaders who practice the attitude of wisdom think and act as if their organization is an unfinished prototype, not something that "ain't broke, so let's not fix it." They don't see this prototype as something they might ruin with dangerous new ideas, or that is too much of a mess to fix, or that is impossible to change because there will be too much resistance. You can see this attitude in action at Harrah's, where management constantly looks for patterns in the data and runs experiments to make things better and better.