Today, business managers are constantly barraged by challenges to their decision-making capacity. The number of decisions to be made has been increasing because of more economic activity, mixed with more real-time information produced and transmitted through technological systems and data networks.
Plus, these decisions are now more complex to make because of multiple stakeholders, greater government regulation, cross-country impacts and a general awareness of the need to manage risks.
With all these changes, managers should aim for the same level of quality in decisions as people do in other areas of life. That is, they need to make decisions based on the best knowledge of the truth that they can get, by themselves and by the help of those they trust.
Unfortunately, the search for truth doesn’t come easily and requires a lot of mental work. People make claims about the truth all the time and these claims come at the manager from all directions and with bewildering speed. As a result, managers have fallen for a number of over-hyped claims, which failed to produce and, in some cases, even proved dangerous for businesses.
For example, over-hyped claims convinced business leaders to use stock options to “align” their managers’ interests with the stock price of the company. In many cases, this simply encouraged managers to work with unethical accountants to manipulate their financial statements. The resulting inflated stock price bubbles eventually burst, with innocent parties taking much of the damage.
A dangerous concept to enter business practice in my view has been the phrase “best practice.” Introduced by benchmarking practitioners to encourage continuous improvement, it is now an overused term, often meant to impress even without substantial basis. Listeners who are not doing the “best practice” are tempted to think that they are being left behind, leading them to jump on the latest fad.
What are some popular hyped claims today? Cryptocurrencies, big data analytics come to mind. Will pursuing these ideas be good for companies? That’s an open question and these are definitely important things to look at. Like a scientist, the prudent manager needs to ask important questions when faced by hyped claims. More importantly, they must press for answers. Resistance by people to answer these questions is a clear red flag.
What’s the evidence on success and failure cases? Scientists obsess about evidence and managers should, too.
Data come in many useful forms, which include narratives, numbers, videos, etc. It would be a mistake to prioritize only quantitative evidence. For example, despite their objective appearance, accounting numbers can be manipulated. During the Global Financial Crisis, many of the banks that were distressed and had to be bailed out by government were given clean audits from the top accounting firms! Numbers need to be independently corroborated by other types of evidence and from different knowledgeable people. One has to look at unsuccessful cases, too. This gives a balanced sense of what the claimed practice actually achieves.
How and why does it work? It isn’t enough that something works; a manager must be able to explain why it does. If a good race driver knows what’s under the hood of his car, a good manager must know what’s going on behind the nice numbers supporting a claim. Financial derivatives during the 2000s and cryptocurrencies today are notoriously difficult to understand. Only those who can understand them should go anywhere near them.
Can I try it on a small scale to see if it will work for my company? Managers should be careful not to be over-eager when trying out new things. Coca-Cola infamously launched a new formula for Coke in the ‘80s, only to relaunch its “Classic” formula less than three months later, after it received thousands of angry customer letters and calls. A pilot implementation usually makes sense.
Hyped claims are here to stay. But managers who think like scientists will be better able to separate the over-hyped claims from truthful reality. This is one of management’s most important jobs.
Dr. Benito Teehankee is a full professor of management at De La Salle University, vice chairman for CSR of the Management Association of the Philippines and chaiman for Research at the Shareholders Association of the Philippines. Email: firstname.lastname@example.org