Some years ago a discipline was developed called evidence based medicine. It is based on using studies of outcomes to make medical decisions rather than on subjective feeling. An early example of evidence based medicine was the decision to see if blood letting was an effective way of treating various ailments. It was found that sick people who were treated with blood letting died at a higher rate than sick people who received no treatment at all. Blood letting had been one of the corner stones of medicine for centuries and in fact the leading British medical publication is still called the "lancet" the device used to drain blood.
The writers of this book suggest that like any ideas Management theories should be tested to see if they actually work. They are of the view that some ideas work, some don't and some are counter productive. To illustrate the notion of testing they first discuss a Casino in Nevada. The running and management of casinos has had what could be called basic unchallenged assumptions. They are:
* High rollers should be encouraged by the provision of free rooms alcohol and the like
* Large ostentatious buildings are important in attracting customers
* Advertising is effective
The writers talk about a Casino manager who rather than become a captive of the notion of accepted wisdom tried different things and then measured the financial gain. The managers name was Gary Loveman. What he found out was that the group who targeted the greatest revenue were retired people who would play machines for longer periods of time as a form of entertainment. The source of these customers were the local area. Direct mail was the best means of encouraging these people and as they lived in the area they were not interested in free rooms. What they responded to was the gift of $60 worth of playing chips. Other groups such as families with children were much less profitable as they had much less of their income to gamble and were poor targets for advertising.
On the cost side Loveman found that if money was spent on staff selection and training and some realistic notion of what the job was like was communicated to staff retention rates increased 50%.
Having outlined the idea of a methodology of approach the book looks at some of the conventional management approaches. One of the accepted truisms of modern management is incentive style pay systems. Do they in fact work? The answer is sometimes they work, sometimes they don't and other times they can be disastrous.
The best example of a successful incentive scheme is assembly production. The authors speak of a plant in which windscreens are installed in cars. In this case an incentive scheme achieved big productivity gains. The worst example is that of the New Orleans police. New Orleans had a big increase in crime and incentives were designed to reward police for reduction in crime figures. What happened was that instead of a decrease in crime the police simply faked the figures reporting offences as less serious matters. This initially led some of them to get reward payments but led to a clean out of the New Orleans police with large numbers of senior management being sacked. Clearly there are some differences which are important in working out when incentive schemes will work. With a production line it is easy to see if someone is cheating. One can look at the production for both quantity and quality. With a civilian authority dealing with a police department the flow and knowledge and the ability to understand what is going on is more limited.
It is clear however that incentive systems can send out rather bad signals and often can be counterproductive. Thus one of the goals of most organisations it to have their employees to work as a team. Another goal is to have the employees think that they are valued. Both of these goals are ones that run contrary to a system which may encourage competition and feelings of being seen as inferior to other employees. The point that the book makes is simply that such systems cannot be seen as by default good and their effects in a given system must be measured to see how they perform.
Another good example is the discussion of strategic plans. One of the writers attended a function run by a large law firm. The law firm had a secret strategic plan. The writer said the he was certain that he could guess the secret plan. He suggested that it was:
* Growing high margin areas
* Getting out of low margin areas
* Easing out historically low profit partners
* Bring in more profitable partners
* Move from a location based to practice based structure
The thing is that a large number of consultancy firms make a living out of working with law firms and offering such advice. The reality is that the advice is simply a set of truisms and that the key is not having those ideas but being able to move toward the goal. They key in any organisation is not the plan but the execution. As a result strategic plans have been going out of fashion and are seen as mainly effective at providing revenue streams for consulting firms.
The book suggests that there are no simple answers to any question and the best management tool is for managers to be open minded and to know their limitations and when they do not know the answers.
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