Experimentation Based Management

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This book by Ian Ayres provides a very readable summary of what can be done to improve performance using the incredible volumes of data accumulated in business, government, health care, and education. The chapters about randomized testing are particularly interesting to experimentation based management. Randomized tests are also increasingly being used to evaluate various government programs, finding eg. that additional job location assistance more than paid for itself for those receiving unemployment benefits, guiding HeadStart programs to target those most likely to benefit. Capital One has been running randomized tests since at least 1995 - tests include page layout, and type and size of offers.

Managers regularly implement new ideas without evidence to back them up. They act on hunches and often learn very little along the way. That doesn’t have to be the case. With the help of broadly available software and some basic investments in building capabilities, managers don’t need a PhD in statistics to base consequential decisions on scientifically sound experiments. Some companies with rich consumer-transaction data—Toronto-Dominion, CKE Restaurants, eBay, and others—are routinely testing innovations well outside the realm of product R&D. As randomized testing becomes standard procedure in certain settings (website analysis, for instance), firms learn to apply it in other areas as well. Entire organizations that adopt a “test and learn” culture stand to realize the greatest benefits. That said, firms need to determine when formal testing makes sense. Generally, it’s much more applicable to tactical decisions (such as choosing a new store format) than to strategic ones (such ...

Tom Davenport posted on his Harvard Business School Publishing blog his view on the future of strategy. He stresses the importance of experimentation: A Culture of Experimentation and Learning A company focused on entrepreneurial execution would have a culture based on experimentation and learning, so that no major strategy or initiative is undertaken without extensive testing, the use of a control group, and other aspects of the scientific method. In this sort of culture, any particular strategy, process design, or performance metric is only a hypothesis about how the world works. It should be tested and confirmed on a small scale before proceeding to the large scale initiative. Capital One, for example, undertakes more than 60,000 experiments a year in credit card marketing and other financial offerings. Toyota is also known for its culture of experimentation and learning. Entrepreneurial execution is an effective compromise between the overly deterministic approach of strategic engi...

Ingersoll-Rand is a giant company that makes dreary products such as industrial grinders, used in auto-shops to sand down auto bodies. Historically, Ingersoll-Rand has been slow a bringing new products to market, with an average four-year product introduction cycle. The company decided to to something about the slow development cycle. It created a project team whose goal was to produce a new grinder in a year - one quarter the usual time. This team did a lot of things right in this direction, including the use of stories to emphasize the group's new attitude and culture. One story, for instance, involved a critical decision about whether to build the new grinder's casing out of plastic or metal. Plastic would be more comfortable for the customer, but would it hold up as well as metal? The traditional Ingersoll-Rand method of solving this problem would have been to conducted protracted, careful studies of the tensile and compression properties of both materials. But this was the...

From the "Business Model Design and Innovation" blog. Best Management Book 2009: "Business Model Innovation" by Osterwalder & Pigneur, Produced by ULURU by: Alexander Osterwalder The title of this blogpost is probably a bit cocky and it would certainly be completely off the mark if it were just about another management book... What will be different about this book that Professor Yves Pigneur and I are writing in collaboration with ULURU is the business model. We are launching this book based on an innovative business model, which is quite different from any other management book published to date. However, before revealing any ideas that we have come up with during our brainstorming sessions, I would like to get some inputs from you. Please help us design a great book by telling us what you would expect from a book by us on the topic of business model innovation. What will make you buy it? Take this survey to tell us what you would like to see in this book A...