Skip to main content

What is experimentation based management?

Experimentation-based-management (XBM) is a branch or variant of evidence-based-management (EBM). EBM is an emerging movement to explicitly use the current, best evidence in management decision-making. It was first presented by Jeffrey Pfeffer and Robert I. Sutton in a seminal Harvard Business Review article published in 2006 in which they invited managers to ground decisions in the latest and best knowledge of what actually works. Pfeffer and Sutton were inspired by evidence-based medicine, a movement that has taken the medical establishment by storm over the 90’s.

EBM developed as a response to a set of emerging factors in health care: concerns about practice variation; the rapid growth of medical technology, leading to a proliferation of diagnostic and treatment options; the patient empowerment movement; and psychological research that raised questions about the quality of human judgment and decision making. Research uncovered that physicians did not use much of the research which was out there – only about 15% of their decisions were evidence based. Thus the movement to make sure that decisions in medical care are based on the latest and best knowledge of what actually works.

These factors can be easily transposed to the practice of management. As expressed by Pfeffer: “Decision makers do things because they believe in them or because the competition is doing it. Management is filled with fads and fashions and executives do whatever is in. They also do what they’ve done before and worked or what they are good at. Rarely do they do things because it makes sense in their organization’s particular situation and circumstance”.
The EBM website spells out five principles of EBM:

  1. Face the hard facts, and build a culture in which people are encouraged to tell the truth, even if it is unpleasant.
  2. Be committed to “fact based” decision making — which means being committed to getting the best evidence and using it to guide actions.
  3. Treat your organization as an unfinished prototype — encourage experimentation and learning by doing.
  4. Look for the risks and drawbacks in what people recommend — even the best medicine has side effects.
  5. Avoid basing decisions on untested but strongly held beliefs, what you have done in the past, or on uncritical “benchmarking” of what winners do.

Experimentation-based-management (XBM) takes principle number three and brings it to the forefront. It’s mainly a difference of spirit and tone. XBM emphasizes discovery, invention, and an expeditionary mindset. This blog is about defining XBM and contributing to its body of knowledge.
Labels:

Popular posts from this blog

The importance of testing assumptions

Behavioral economist Dan Ariely’s talk from the TED conference last month was recently posted online. In the first 4.5 minutes of it, Ariely (who wrote the best-selling book Predictably Irrational ) addresses, through his own experience, a topic that is also quite relevant for innovators in an uncertain environment: the importance of testing assumptions through experiments.
Read more

Capital One: benchmark in experimentation based management

Capital One is a diversified financial services company offering a broad array of credit, savings and loan products to customers in the United States, UK, and Canada. It ranks #115 on the S&P 500 and #4 in Diversified Financials (BusinessWeek, 2005). Its stock has outperformed the S&P index since 1999. Founded by Richard Fairbank in 1988 based on his belief that the power of information, technology, testing and great people could be combined to bring highly customized financial products directly to consumers, Capital One has emerged as one of the America's largest consumer franchises with almost 50 million customer accounts and one of the nation's most recognized brands. In an interview for Fast Company Magazine Nigel Morris, Cap One’s president thus defined the reason behind their success: “Very few companies have the ability to test and learn.” Testing and learning form the foundation on which Capital One is built. The company tests every product offering, every proce...
Read more

Culture of experimentation and future of strategy

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...
Read more