Experimentation Based Management

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 ...