Despite your best intentions, it’s hard to bring the best evidence to bear on your decisions. why?

The Dismal Record of Business Ethics

First were the business scandals of the early 2000s, from Enron to WorldCom, producing photos of handcuffed executives. “The supposedly ‘independent’ auditors, directors, accountants, and stock market advisers and accountants were all tarnished,” wrote Mortimer Zuckerman, editor-in-chief of U.S. News & World Report. “The engine of the people’s involvement, the mutual fund industry, was shown to be permeated by rip-off artists rigging the system for the benefit of insiders and the rich.” 62 Then, as the Iraq war wore on, reports came back of sweetheart deals and gross abuses by civilian contractors working in Iraq war zones.

In 2007, it became apparent that banks and others in the financial industry had forsaken sound business judgment—including ethical judgments—by making mortgage loans (subprime loans) to essentially unqualified buyers, which led to a wave of housing foreclosures and helped push the country into a recession. Since then, the media have presented us with a display of Ponzi schemes (Bernard Madoff, Allen Stanford), insider trading (Sam Waksal, Raj Rajaratnam), corporate sleaziness (work-stressed suicides at Apple’s China supplier Foxconn, a fatality at a Kentucky coal mine evading safety regulations), excessive profiteering (as when a pharmaceutical company raised the price of one medication from $13.50 a pill to an astonishing $750 a pill), and similar matters. 63

Through it all, voices were being raised that American capitalism was not doing enough to help the poorer nations in the world. Companies in wealthier countries, Microsoft’s Bill Gates has urged, should focus on “a twin mission: making profits and also improving lives for those who don’t fully benefit from market forces.” 64

All these concerns have forced the subject of right-minded decision making to the top of the agenda in many organizations. Indeed, many companies now have an ethics officer, someone trained about matters of ethics in the workplace, particularly about resolving ethical dilemmas. More and more companies are also creating values statements to guide employees as to what constitutes desirable business behavior. 65 As a result of this raised consciousness, managers now must try to make sure their decisions are not just lawful but also ethical. 66

https://html1-cluster-e.mheducation.com/smartbook2/data/151605/highlighted_epubmhe/OPS/img/chapter07/kin32657_p0704.png Buy a pair, give a pair. Warby Parker (named after two characters in a journal by 1950s Beat Generation writer Jack Kerouac) was established in 2010 by four former Wharton School students. The company operates on two premises: (a) Designer glasses can be sold at a fraction of the price of the hugely marked-up luxury alternatives. (b) For every pair of glasses sold, a pair could be distributed among the hundreds of thousands of people in need. “Glasses are one of the most effective poverty-alleviation tools in the world,” says one of the founders. “They increase one’s income by 20%, which is equivalent to adding a full extra day of work a week.” 67 Are you more inclined to buy from companies like Warby Parker or shoe seller TOMS (which gives away a pair of shoes to a needy person for every pair sold) that tie sales of their products to helping impoverished people around the world?© Astrid Stawiarz/WireImage/Getty Images

Road Map to Ethical Decision Making: A Decision Tree

Undoubtedly the greatest pressure on top executives is to maximize shareholder value, to deliver the greatest return on investment to the owners of their company. But is a decision that is beneficial to shareholders yet harmful to employees—such as forcing them to contribute more to their health benefits, as IBM has done—unethical? Harvard Business School professor Constance Bagley suggests that what is needed is a decision tree to help with ethical decisions. 68 A decision tree is a graph of decisions and their possible consequences; it is used to create a plan to reach a goal. Decision trees are used to aid in making decisions. Bagley’s ethical decision tree is shown below. (See Figure 7.3 .)Page 211

FIGURE 7.3 The ethical decision tree: What’s the right thing to do?

That’s what Google Inc. wanted to know when in 2009 it embarked on a plan code-named Project Oxygen. After a year of work, statisticians produced eight rules for becoming an effective Google manager, as shown below. (See Table 7.2 .)

TABLE 7.2 WHAT THE EVIDENCE SHOWS: GOOGLE’S EIGHT RULES FOR BEING A BETTER MANAGER Rules are listed in order of importance.

1. Be a good coach.

2. Empower your team, don’t micromanage.

3. Express interest in team members’ success and personal well-being.

4. Don’t be a “sissy”: Be productive and results oriented.

5. Be a good communicator and listen to your team.

6. Help your employees with career development.

7. Have a clear vision and strategy for the team.

8. Have key technical skills so you can help advise the team.

Source: J.-C. Spender and B. A. Strong, Strategic Conversations: Creating and Directing the Entrepreneurial Workforce (Cambridge, MA: Cambridge University Press, 2014), p. 141.

Some of these may seem obvious, even silly: “Have a clear vision and strategy for the team.” “Don’t be a ‘sissy’: Be productive and results oriented.” Really?

What’s important here, however, is how Google arrived at what would seem to be commonsensical advice: by analyzing performance reviews, employee surveys, nominations for top-manager awards, and other sources. “The result was more than 10,000 observations of manager behaviors,” says one report. “The research team complimented the quantitative data with qualitative information from interviews.” 72 In other words, Google looked at the evidence.

(Figure 7.3)

Evidence-Based Decision Making

“Too many companies and too many leaders are more interested in just copying others, doing what they’ve always done, and making decisions based on beliefs in what ought to work rather than what actually works,” say Stanford professors Jeffrey Pfeffer and Robert Sutton. “They fail to face the hard facts and use the best evidence to help navigate the competitive environment.” 73 Companies that use evidence-based management—the translation of principles based on best evidence into organizational practice, bringing rationality to the decision-making process, as we defined it in Chapter 2 —routinely trump the competition, Pfeffer and Sutton suggest. 74

Page 213

Seven Implementation Principles

Pfeffer and Sutton identify seven implementation principles to help companies that are committed to doing what it takes to profit from evidence-based management: 75

· Treat your organization as an unfinished prototype. Leaders need to think and act as if their organization were an unfinished prototype that won’t be ruined by dangerous new ideas or impossible to change because of employee or management resistance. Example: Some Internet start-ups that find their original plan not working have learned to master “the art of the pivot,” to fail gracefully by cutting their losses and choosing a new direction—as did the founders of Fabulus, a review site and social network that attracted no users, and so they launched a high-end e-commerce site called Fab.com . 76 (Unfortunately, Fab CEO Jason Goldberg was inclined to pivot the business rather than solve basic problems. “You can change a business once or twice,” says one former employee, “but after that you’re drowning.” 77 After creating and losing 500 jobs and creating and losing $850 million, Fab ended and was bought for a fraction of its value by another company.)

· No brag, just facts. This slogan is an antidote for over-the-top assertions about forthcoming products, such as “the deafening levels of managed hype across much of Silicon Valley,” as one reporter characterized it. 78 Other companies, such as DaVita, which operates dialysis centers, take pains to evaluate data before making decisions. So does SAS Institute, the privately owned software company, No. 8 on Fortune’s 2016 “Best Places to Work For” list. As we’ve seen, Google has used data to find out what makes a better boss. 79

https://html1-cluster-e.mheducation.com/smartbook2/data/151605/highlighted_epubmhe/OPS/img/chapter07/kin32657_p0705.png Evidence-based decisions. Google used evidence-based analysis to find out what makes a better boss. They found that what employees value most are even-keeled bosses who take an interest in employees’ lives and careers, who make time for one-on-one meetings, and who help people work through problems by asking questions instead of dictating answers. Would you expect a “just-the-facts” approach to be normal in high-tech businesses or unusual?© Cole Burston/Bloomberg/Getty Images

· See yourself and your organization as outsiders do. Most managers are afflicted with “rampant optimism,” with inflated views of their own talents and prospects for success, which causes them to downplay risks and continue on a path despite evidence that things are not working. “Having a blunt friend, mentor, or counselor,” Pfeffer and Sutton suggest, “can help you see and act on better evidence.”

· Evidence-based management is not just for senior executives. The best organizations are those in which everyone, not just the top managers, is guided by the responsibility to gather and act on quantitative and qualitative data and share results with others.

· Like everything else, you still need to sell it. “Unfortunately, new and exciting ideas grab attention even when they are vastly inferior to old ideas,” the Stanford authors say. “Vivid, juicy stories and case studies sell better than detailed, rigorous, and admittedly dull data—no matter how wrong the stories or how right the data.” To sell an evidence-based approach, you may have to identify a preferred practice based on solid if unexciting evidence, then use vivid stories to grab management attention.

· Page 214

If all else fails, slow the spread of bad practice. Because many managers and employees face pressures to do things that are known to be ineffective, it may be necessary for you to practice “evidence-based misbehavior”—that is, ignore orders you know to be wrong or delay their implementation.

· The best diagnostic question: What happens when people fail? “Failure hurts, it is embarrassing, and we would rather live without it,” the authors write. “Yet there is no learning without failure. … If you look at how the most effective systems in the world are managed, a hallmark is that when something goes wrong, people face the hard facts, learn what happened and why, and keep using those facts to make the system better.” 80 From the U.S. civil aviation system, which rigorously examines airplane accidents, near misses, and equipment problems, to mall owners replacing vacant department stores (Macy’s, Sears) with new kinds of anchor tenants (Dick’s Sporting Goods, Wegmans Food Markets) as the backbone of shopping centers, evidence-based management makes the point that failure is a great teacher. 81 This means, however, that the organization must “forgive and remember” people who make mistakes, not be trapped by preconceived notions, and confront the best evidence and hard facts.

What Makes It Hard to Be Evidence Based

Despite your best intentions, it’s hard to bring the best evidence to bear on your decisions. Among the reasons: 82 (1) There’s too much evidence. (2) There’s not enough good evidence. (3) The evidence doesn’t quite apply. (4) People are trying to mislead you. (5) You are trying to mislead you. (6) The side effects outweigh the cure. (Example: Despite the belief that social promotion in school is a bad idea—that is, that schools shouldn’t advance children to the next grade when they haven’t mastered the material—the side effect is skyrocketing costs because it crowds schools with older students, and angrier students, demanding more resources.) (7) Stories are more persuasive, anyway.

A decision-making style reflects the combination of how an individual perceives and responds to information. A team of researchers developed a model of decision-making styles based on the idea that styles vary along two different dimensions: value orientation and tolerance for ambiguity. 134

Value Orientation and Tolerance for Ambiguity

Value orientation reflects the extent to which a person focuses on either task and technical concerns or people and social concerns when making decisions. Some people, for instance, are very task focused at work and do not pay much attention to people issues, whereas others are just the opposite.

The second dimension pertains to a person’s tolerance for ambiguity. This individual difference indicates the extent to which a person has a high need for structure or control in his or her life. Some people desire a lot of structure in their lives (a low tolerance for ambiguity) and find ambiguous situations stressful and psychologically uncomfortable. In contrast, others do not have a high need for structure and can thrive in uncertain situations (a high tolerance for ambiguity). Ambiguous situations can energize people with a high tolerance for ambiguity.

When the dimensions of value orientation and tolerance for ambiguity are combined, they form four styles of decision making: directive, analytical, conceptual, and behavioral. (See Figure 7.4 .)

FIGURE 7.4 Decision-making stylesSummary graphic of four decision making styles, organized by value orientation and tolerance for ambiguityPage 220https://html1-cluster-e.mheducation.com/smartbook2/data/151605/highlighted_epubmhe/OPS/img/chapter07/kin32657_p0707.pngSuccess. Peyton Manning, quarterback for the Denver Broncos, led his team to victory 24–10 over the Carolina Panthers in the 2016 Super Bowl. As the leader of his team, a quarterback must make many decisions about what is the right way to success. If you were a quarterback, which of the four general decision-making styles do you think you would embody?© Zuma Press Inc/Alamy

1. The Directive Style: Action-Oriented Decision Makers Who Focus on Facts

People with a directive style have a low tolerance for ambiguity and are oriented toward task and technical concerns in making decisions. They are efficient, logical, practical, and systematic in their approach to solving problems.

People with this style are action oriented and decisive and like to focus on facts. In their pursuit of speed and results, however, these individuals tend to be autocratic, to exercise power and control, and to focus on the short run.

2. The Analytical Style: Careful Decision Makers Who Like Lots of Information and Alternative Choices

Managers with an analytical style have a much higher tolerance for ambiguity and are characterized by the tendency to overanalyze a situation. People with this style like to consider more information and alternatives than those following the directive style.

Analytical individuals are careful decision makers who take longer to make decisions but who also respond well to new or uncertain situations.

Photo of Ursula M. BurnsFortune 500 CEO. Ursula M. Burns is chairwoman and CEO of Xerox, a company long known for making copiers and printers but now also selling business services. A bright student, she holds bachelor’s and master’s degrees in mechanical engineering and is the first African American woman to head a Fortune 500 company. Because of racial stereotyping, African American leaders operate at a disadvantage, according to one study, with strong performance being misattributed to market factors outside their control or to humor or public speaking skills rather than to intellectual prowess. 135 What kind of decision-making style would you expect Burns to have?© Paul Morigi/Getty ImagesPage 221

3. The Conceptual Style: Decision Makers Who Rely on Intuition and Have a Long-Term Perspective

People with a conceptual style have a high tolerance for ambiguity and tend to focus on the people or social aspects of a work situation. They take a broad perspective to problem solving and like to consider many options and future possibilities.

Conceptual types adopt a long-term perspective and rely on intuition and discussions with others to acquire information. They also are willing to take risks and are good at finding creative solutions to problems. However, a conceptual style can foster an indecisive approach to decision making.

4. The Behavioral Style: The Most People-Oriented Decision Makers

The behavioral style is the most people oriented of the four styles. People with this style work well with others and enjoy social interactions in which opinions are openly exchanged. Behavioral types are supportive, are receptive to suggestions, show warmth, and prefer verbal to written information.

Although they like to hold meetings, people with this style have a tendency to avoid conflict and to be concerned about others. This can lead behavioral types to adopt a wishy-washy approach to decision making and to have a hard time saying no.