Appraising Business IdeasWe don’t know what we don’t know, so we have to proceed with our minds open and be willing to modify what we think we know in the face of credible data. How do we know when we have come across credible data? In the Stanford Social Innovation Review, Hard Facts authors Pfeffer and Sutton, presented some rules to keep in mind when evaluating or developing business ideas:
1. Make sure the cause came before the effect. Some popular business books, such as “The War for Talent,” collect information on the alleged cause – in this case, practices for managing talent – after the alleged effect already happened – in this case, performance.1 To claim that one thing causes another, the cause needs to occur before the effect.
2. Remember that correlation does not mean causation. Studies that use surveys or data from company records to correlate practices with various performance outcomes require careful interpretation. For example, Bain & Company’s home page brags, “Our clients outperform the market 4 to 1.” (www.bain.com. Downloaded Jan. 20, 2006) This correlation doesn’t prove that their advice transformed clients into top performers. For starters, top performers may simply have more money for hiring consultants.
3. Don’t rely on success (and failure) stories. Sorting organizations or strategies into successes and failures, and then digging into their pasts with interviews, questionnaires, and press reports to explain why some “won” and others “lost,” is bad research. People have terrible memories. And after identifying winners and losers, people selectively remember information that reflects these different outcomes.
4. Be suspicious of gurus and breakthroughs. Almost all great ideas and findings are small advances made by groups of smart people working with old knowledge, not giant leaps forward that lone geniuses hatched in their gigantic brains.
5. Take a dispassionate approach to ideologies and theories. “A man hears what he wants to hear, and disregards the rest,” sang Simon and Garfunkel. Learning is difficult when people are driven by ideology rather than evidence.
6. Treat old ideas as if they are old ideas. People who spread management knowledge should say where they got their ideas. They should also review others’ work to avoid reinventing the past.
7. Admit uncertainties and drawbacks. Purveyors of business ideas should routinely admit any flaws in or uncertainties they might have about their ideas. This means revealing that while their wares are the best they can build right now, they will require constant modification as more is learned.
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