HARD FACTS, DANGEROUS HALF TRUTHS, AND TOTAL NONSENSE: PROFITING FROM EVIDENCE-BASED MANAGEMENT Robert Sutton Stanford U

1. HARD FACTS, DANGEROUS HALF TRUTHS, AND TOTAL NONSENSE: PROFITING FROM EVIDENCE-BASED MANAGEMENT Robert Sutton Stanford University

2. Why We Need Evidence Based-Management Three reasons that convinced us the time was ripe

3. IMPETUS #1: REACTIONS TO THE KNOWING-DOING GAP

4. PAY DISPERSION: A TROUBLING �DOING-KNOWING� GAP  �Rank and yank� A,B,C rankings War for Talent �Differentiate and affirm�

5. CONTRADICTED BY EVERY PEER-REVIEWED STUDY �Spread� between CEO pay and next three executives Baseball teams: Smaller differences between top 50% and bottom 50% linked to better attendance, media income, and win-loss records A study of 199 S&P 5000 firms by Mason Carpenter and Gerard Sanders examined the impact of top management team pay in 1992 and on firm performance between 1993 and 1995. After ruling out many alternate explanations (e.g., firm size and diversification), their main finding was that the amount of CEO pay didn�t impact firm performance, but firms where there was a smaller gap between CEO pay and the other top three executives enjoyed superior performance compared to firms where there was a bigger gap.[i] [i] Carpenter, Mason & Wm. Gerard Sanders (2002) Top Management Team Compensation: The Missing Link Between CEO Pay and Firm Performance? Strategic Management Journal. 23:367-375. �A study of 199 S&P 5000 firms by Mason Carpenter and Gerard Sanders examined the impact of top management team pay in 1992 and on firm performance between 1993 and 1995. After ruling out many alternate explanations (e.g., firm size and diversification), their main finding was that the amount of CEO pay didn�t impact firm performance, but firms where there was a smaller gap between CEO pay and the other top three executives enjoyed superior performance compared to firms where there was a bigger gap.[i]

6. IMPETUS #2: THE EVIDENCE-BASED MEDICINE MOVEMENT  Striving to �bring the best evidence to the bedside� in ways that physicians can actually use

7. Dr. Kevin Patterson  �People, doctors included, have a tendency to see what they expect to see. It�s the premise of every sleight-of-hand game. If it makes sense that a treatment will work�then a doctor will, with alarming and disheartening reliability, perceive that it does in fact work.�

8. DR. DAVID SACKETT AND OTHERS IN THE EBM MOVEMENT Weave conversations using evidence into clinical training Summarize evidence in forms that physicians can quickly use and grasp, in journals like Evidence-Based Medicine Often simple things: Hand washing NCH Healthcare �It�s OK to ask� campaign Some of the most read articles in 2003 How to Read a Paper Losartan was more effective than atenolol for isolated systolic hypertension and left ventricular hypertrophy Review: aerobic exercise reduces systolic and diastolic blood pressure in adults The measles, mumps, and rubella vaccine was not associated with autism in children Some of the most read articles in 2003 How to Read a Paper Losartan was more effective than atenolol for isolated systolic hypertension and left ventricular hypertrophy Review: aerobic exercise reduces systolic and diastolic blood pressure in adults The measles, mumps, and rubella vaccine was not associated with autism in children

9. IMPETUS #3: ORGANIZATIONS HAVE PROFOUND EFFECTS ON PEOPLE AND SOCIETY Studies of mortality rates in hospitals British study of 61 hospitals links use of common HR practices � training and performance evaluation systems � to lower mortality rates.

11. II. WHAT IS EVIDENCE-BASED MANAGEMENT? A way of thinking Being committed to �fact-based� and �evidence-based� action Treating your organization as an unfinished prototype Knowing what the theory and evidence is, and using it in formulating decisions and actions

12. CORPORATE MERGERS When a larger company buys a smaller company with stock About 70% fail to deliver the anticipated economic value Analysis of 93 studies covering over 200,000 mergers: Negative effects of shareholders value evident less than one month after announcement

13. MERGERS ARE ESPECIALLY RISKY WHEN.... When CEOs suffer from hubris � bigger acquisition premiums When the two companies are closer to the same size (e.g, Daimler-Chrysler) Insufficient attention is devoted to integration Siebel business development executive admitted all acquisitions had failed and �cultural conflicts� were the cause in each case

14. HOW CISCO BEAT THE ODDS Focus on acquiring smaller companies, close by, and where there is cultural fit. Devote enormous effort to merger integration Do constant post-mortems and constantly update Cisco�s decision-making and merger integration process So they are committed to an evidence based approach, have the confidence to act on what they know and the humility to doubt it, they treat the merger process as an unfinished prototype, and know what the best existing theory and evidence is � and actually use it. So they are committed to an evidence based approach, have the confidence to act on what they know and the humility to doubt it, they treat the merger process as an unfinished prototype, and know what the best existing theory and evidence is � and actually use it.

15. III. MANAGEMENT IS A CRAFT, NOT A SCIENCE You can only learn it by doing it Like medicine, using better evidence = higher success rate

16. CEO Wim� Roelandts of Xilinx Spent 29 years at HP First job, overseeing a single employee, last, 20,000 �Luckily, all the early mistakes I made affected only one person.�

17. IV. Hazards of Business Advice There is too much Much of it is bad Much of it clashes

18. The market for business knowledge 2000+ business books published per year (35,000 in print, conferences, dozens of business publications films and Web events, �experts,� consultants, and consulting firms, lots of �research�)

19. WARRING BOOK TITLES In Search of Excellence Charisma: Seven Keys to Developing the Magnetism that Leads to Success Love is the Killer App The Peaceable Kingdom Managing with Passion Out of the Box Built to Last: Successful Habitsof Visionary Companies The Myth of Excellence Leading Quietly: An Unorthodox Guide to Doing the Right Thing Business is Combat Capitalizing on Conflict Managing by Measuring Thinking Inside the Box Corporate Failure by Design: Why Organizations are Builtto Fail

20. Standards for Judging Business Advice Treat old ideas as if they are old ideas What are the incentives? Avoid the �best practices trap�

21. A. Treat old ideas as if they are old ideas HBR�s �breakthrough ideas� Don�t hire �jerks?� Do practice evidence-based management?

22. James March on �breakthroughs� �Most claims of originality are testimony to ignorance and most claims of magic are testimonial to hubris.�

23. B. What are the incentives? Mergers and sales of enterprise software Who gains and loses, regardless of the financial outcome for your firm?

24. C. The trouble with �best practices� What is good for them might be bad for you It might help you, if implementing it doesn�t kill your company first Great people and companies succeed despite rather than because of some practices � �correlation is not causation.�

26. V. Being Wise is More Important Than Being Smart �Act with knowledge, while doubting what you know� Use �thought trials,� pilot programs, and experiments View your organization as an unfinished prototype

27. Examples of Seeing A Business as an Unfinished Prototype IDEO�s David Kelley shaves off his mustache Experiments at Yahoo!

29. IE Version Netscape Version

30. Small change, big difference Centering search box DID increase searches as predicted Tested 20 different versions of Home page, live! On Yahoo home page since April 2000 Better user experience, millions in incremental revenue

31. The Attitude of Wisdom Having the courage to act on what you know now and the humility to doubt what you know � and change what you do when better information comes along.

32. �I think it is very important for you to do two things: act on your temporary conviction as if it was a real conviction; and when you realize that you are wrong, correct course very quickly �. And try not to get too depressed in the part of the journey, because there�s a professional responsibility. If you are depressed, you can�t motivate your staff to extraordinary measures. So you have to keep your own spirits up even though you well understand that you don�t know what you�re doing.� - Andy Grove, Intel

33. PARTING THOUGHT 1: MASTER THE OBVIOUS AND MUNDANE Obvious: Nothing can have an effect unless you actually do it Mundane: Conscientious people and standing-up

34. Parting thought 2: See yourself as others do If they know that 70% of mergers fail, why do so many CEOs believe that their mergers will succeed?

35. Parting thought 3: The best single diagnostic question WHAT HAPPENS WHEN PEOPLE FAIL? Forgive and remember The importance of setbacks, for leadership development and for organizations