Evidence-Based Management

The field of medicine may have a cure for business ills. In 2003, the Midwest Business Group on Health (MBGH) published a report estimating that 30% of the $1.4 trillion spent on health care in the U.S. was wasted. So where does $420 billion go? The report argues that providers overuse some procedures and treatments, underuse others, and misuse still more. The total cost of overtreating, undertreating, and mistreating is somewhere around $420 billion. An underlying theme in the report is that billions of dollars could be saved if health care providers relied more on evidence-based medicine. Evidence-based medicine is medical care that relies on the best available evidence for diagnosis and treatment.

This may sound like a condemnation of the medical profession. On the contrary, I believe that the vast majority of health-care providers are truly well-intentioned. I also believe that they’re a pretty smart bunch. After all, they passed organic chemistry (unlike yours truly). The opening paragraph may also sound like I’m about to argue that evidence-based care can cut the cost of health care paid by employers. That may be true (and it’s certainly the argument made in the MBGH report), but I think evidence-based medicine has even greater lessons for the business world.
How much money are companies losing by not using evidence-based management? What’s the total cost of overmanaging, undermanaging, and mismanaging? This figure may be impossible to calculate, but it has to be in the billions if not trillions of dollars. Is there even any such thing as “evidence-based management”? That’s the same question asked by Carnegie Mellon professor Denise Rousseau in her presidential address to the Academy of Management in 2005. She argued that evidence-based management does exist and evidence-based medicine provides a good role model for the field of business management.

There are many reasons that health care providers may not provide evidence-based care. The biggest reason is probably the fact that it is physically impossible for providers to keep up with the enormous amount of medical research being published on a daily basis. The same thing happens in management. Managers are further disadvantaged, however, by the fact that most health care providers are trained (at some point in their education) to find, read, and evaluate new scientific evidence. In other words, they learn how to learn. Business managers, unfortunately, rarely receive this training. As a result, managers often rely on their “gut”, “instinct”, or “experience”.
Here’s a simple example. We’ve known for decades that hiring managers make better hiring decisions when they use structured interviews instead of unstructured interviews. Unstructured interviews, however, remain more popular. That’s why you might be asked during an interview: “If you were a tree, what kind of tree would you be?” This interviewer has no evidence that “oaks” make better employees than “willows”. Instead, the interviewer thinks they have some sort of super-power that allows them to derive meaning from the answer. How many good employees are lost through this type of decision-making?

The evidence-based medicine movement is nearly 30 years old, but only beginning to have a major impact. Management education and training need a major overhaul that encourages managers to value evidence and learn where to find it. A recent book by Stanford professors Jeffrey Pfeffer and Robert Sutton (Hard Facts, Dangerous Half-Truths and Total Nonsense: Profiting from Evidence-Based Management) is a good place to start.

Personally, I think I would be a St. Helena Gumwood.