More wisdom of crowds

Another good chapter in The Wisdom of Crowds discusses decision-making in organisations.

The only reason to organize thousands of people to work in a company is if together they can be more productive and more intelligent than they would be apart. But in order to do that individuals need to work as hard to get and act upon good information as they would if they were small businessman competing in the marketplace. In too many corporations, though, the incentive system was (and is) skewed against dissent and independent analysis.

Surowiecki cites research that showed that executives who got promoted tended not to disclose information about conflicts and problems. He quotes Chris Argyris’ view that one of the things that gets in the way of the exchange of real information is a deep rooted hostility on the part of bosses to opposition from subordinates – compounded by managerial pay linked not to performance but to how one performs relative to expectations. In a classic market, the individual operator gets paid what he/she charges; only in organisations is this element of reward linked to expectations introduced, and its effect – he argues – is to distort the flow of good information.

As Harvard Business School professor Michael C Jensen points out, tell a manager that he or she will get a bonus when targets are realized and two things are sure to happen. First managers will attempt to set targets that are easily reachable by lowballing their estimates for the year ahead and poor-mouthing their prospects. Second, once the targets are set, they will do everything they can to meet them, including engaging in the kind of accounting gimmickry that boosts this year’s results at the expense of the future. The result, Jensen says, is that companies are “paying people to lie”.

As elsewhere, Surowiecki provides strong arguments for what I’d call distributed decision-making by diverse groups with access to rich and contrasting sources of information – and against the tendency to rely on individual geniuses to make the right call. Challenging the 90s cult of the CEO, he comments,

What’s perplexing about this faith is how little evidence there is that single individuals can consistently make superior forecasts or strategic decisions in the face of genuine uncertainty.

This whole views chimes strongly with the lessons Improv has taught me about the power of diverse players to collectively create coherent drama – where if one person attempts to control the others, the collective output deteriorates.

Where branding makes this worse

Much traditional branding practice seems likely to contribute to the sort of avoidance of truth that Surowiecki talks about. If an organisation insists on keeping up a front to the outside world, it seems likely to cut itself off from at least some of the feedback that world is giving it, making it numb to information it might benefit from. It’s interesting that Surowiecki goes on to talk of the value of reducing boundaries in organsations so that intelligence flows more freely; I see the hype of marketing as one of those boundaries to the flow of intelligence.

Further, branders often champion uniformity and consistency – for instance in the way an organisation communicates. Yet Surowiecki argues for diversity as a key to good collective intelligence.

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1 thought on “More wisdom of crowds

  1. Jo'blog

    Crowds, 1 – Experts, 0

    Johnnie Moore has had a lot to say about James Surowiecki’s brilliant book, The Wisdom of Crowds, myself, I’ve been thoroughly enjoying the unabridged audio version. I commented before that I thought the principle was great in theory, but

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