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Criticizing "Decision Theory" – The Underlying Principle of Most Business Best Practices The Conclusion of a Series on Best Practices

Originally published August 4, 2011

In Part 1 of this series of 3 articles, I criticized best practices for quickly becoming dogmatic. The idea of standing on the shoulders of others is appealing, but misguided. In Part 2, I explained how the well-known management guru C.K. Prahalad followed the Enlightenment path when he introduced the concept of “next practices” instead of “best practices.” In this concluding part, I dive a little deeper and examine and criticize the grounds of most business best practices.

The Age of Enlightenment was not without criticism in the 18th and 19th centuries. The foundation of Enlightenment is to trust rationality and reason instead of authority and dogma. This supposes that human beings possess the cognitive capabilities to understand issues of great complexity, that people are able to build up vast knowledge, and that rational behavior and decision making can lead to advancements in society. It supposes that people are willing to question their beliefs and are able to abandon traditions and profoundly change the way they work.
 
Others have argued that this is not the case. They contend that people have rational limitations and that the human brain simply cannot grasp the full complexity of reality or the full consequences of big decisions. Rationality and reason have certainly helped in the areas of science, technology and philosophy, but greatly fall short in trying to shape society, politics, social structures and morality.
 
In fact, today this debate is in full swing in the area of strategy. Traditionally it has been dominated by "decision theory.” Decision theory focuses on  identifying the best decision to take, assuming an ideal decision maker who is fully informed, fully rational and able to compute with perfect accuracy. Decision theory dates back to the 17th century and has its roots in mathematics and statistics. French mathematician and philosopher Blaise Pascal (1623-1662) contributed to it, and another huge contribution comes from the field of operations research, developed by military planners during World War II. Decision theory has all the marks of Enlightenment philosophy.
 
However, this view is now heavily challenged by a field called "behavorial economics,” based on what is called "bounded rationality. ” Bounded rationality was introduced by Herbert Simon in 1957 and means that rationality of individuals is limited by the information they have, the cognitive limitations of their minds, and the finite amount of time they have to make decisions. Bounded rationality maintains that most people are only partly rational and are, in fact, emotional/irrational in the remaining part of their actions. Marketers have exploited this for years (e.g.,"Buy three, get one for free,” "Only two per customer,” "Only $1.99").

If behavioral economists and Enlightenment philosophers were not separated by a century or two, they would immediately join forces to criticize most best practices. This is odd because they have opposite beliefs. The Enlightenment philosophers believed in technology advancements and the unlimited capabilities of mankind. As I described in Part 2 of this series, best practices are the solutions for yesterday's problems, and you have to think for yourself. The behavioralists would argue the opposite – you can't think things through. They would say that business is not rational, people are not rational, and decision making is not rational. They would point out that most business best practices aim to optimize accountability, maximize productivity, improve business performance, and other lofty rational goals. Behavioralists would claim that most best practices, because they are based on decision theory, miss the mark. They are lip service, not real-life practices at all.

Why Now?

There are many parallels between the past and the present. The Age of Enlightenment coincided with a growing economy, growing population and a growing middle class. Urbanization increased, and the first signs of what we now call consumerism appeared. Furthermore, in the West we learned more about Eastern cultures and the great civilizations of non-Christian cultures. And perhaps most importantly, science was developing with enormous speed. Many constraints were lifted, and it was simply time to question the old ways and reinvent society. Dogma was for the poor, the illiterate and the ignorant. Enlightenment was a step up in Maslow's hierarchy of human needs, from being concerned about physiological needs, safety, and a sense of belonging to being concerned about esteem and self-actualization.

Current themes in IT greatly resemble the circumstances of the Age of Enlightenment. Back then science was developing at an incredible rate; today, technology is. We are now almost completely globalized and get real-time information from all over the world. The current generation (Generation Y) grew up using information technology, the growing middle class of information. Many of the constraints we were working under have been lifted. Hardware capacity is growing, and bandwidth and connectivity through the Internet seem unlimited in the modern world. The Information Age of Enlightenment redefines how we think, live and work. In the dramatic words of Jean-Paul Sartre (1905-1980): "We are free to reinvent ourselves. If we see ourselves as only objects with fixed identities, we cease to Be."

Self-Defeating Prophecy

Although I’ve spent more words criticizing best practices than validating them, it seems both arguments are equally convincing. Best practices lead to average results and you should think for yourself versus it is better to stand on the shoulders of giants and learn from what others have done. In short, should best practices be adopted, adapted or abandoned?

The best practice for using best practices (this would be a meta best practice) is to admit that best practices per definition are a self-defeating prophecy. If everyone adopts them, who's the best? At the very least, best practices should be called something else. For non-competitive areas, copying what others are doing is a very good idea. You know you'll be fine and that's enough. In fact, in those areas it would even be conceivable to adapt the organization to the best practice instead of the other way around. The goal would be simply to achieve regulatory compliance, to create a benchmark based on reasonable cost, or to not have to bother too much so that the company's leaders can focus on more competitive areas. We should not refer to best practices in this case, but to "shared practices.”
 
Most strategists agree that a successful strategy differentiates your organization from the competition. Therefore, in those areas that are most competitive, another approach to best practices is needed. In those areas, best practices per definition cannot be "best,” because they need to be different. Best practices in these situations should be referred to as "baseline practices.” Based on a sound understanding what others have learned, these practices are only the starting point. They need to be heavily adapted to the unique requirements and capabilities of the organization. Alternatively, you could decide to reverse the best practice and do the opposite, to create the antithesis and become a challenger in the market.

Enlightenment and post-modernism meet. The opportunities are limitless, but different in each and every case.

  • Frank BuytendijkFrank Buytendijk

    Frank's professional background in strategy, performance management and organizational behavior gives him a strong perspective across many domains in business and IT. He is an entertaining speaker at conferences all over the world, and was recently called an “intellectual provocateur” and described as “having an unusual warm tone of voice.” His work is frequently labeled as provocative, deep, truly original, and out of the box. More down to earth, his daughter once described it as “My daddy sits in airplanes, stands on stages, and tells jokes.” Frank is a former Gartner Research VP, and a seasoned IT executive. Frank is also a visiting fellow at Cranfield University School of Management, and author of various books, including Performance Leadership (McGraw-Hill, September 2008), and Dealing with Dilemmas (Wiley & Sons, August 2010). Frank's newest book, Socrates Reloaded, is now available and is highly recommended. Click here for more information on how to get your copy today.

    Editor's Note: More articles and a link to his popular blog are available in Frank's BeyeNETWORK Expert Channel. Be sure to visit today!

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