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Sunday, July 24, 2011

Wisdom of Crowds: Post #1--Overview

The Wisdom of Crowds by James Surowiecki (Anchor Books, 2005). Reviewed by Steve Gladis, Ph.D., July 2011.

Overview: Here’s a question—Who’s smarter than any CEO? Answer—the marketplace. So, does that make product development a crap shoot? Hardly. In fact, long before a product gets developed, CEOs have a built-in marketplace to help them. They’re called employees. In a smart and readable text, New Yorker writer James Surowieki, in the genre of Malcolm Gladwell (Blink, The Tipping Point, & Outliers), gives us hope in the form of a crowd. Here’s the shorthand summary of the book: When the educated guesses of a diverse and informed group—guessing about possible outcomes of uncertain events—are aggregated, a near perfect answer results. Surowiecki supplies us with compelling historical and modern-day examples, including one he conducted in Times Square by asking people to guess how many jelly beans were in a jar. But believe me, his examples get bigger and better when he discusses how companies like Eli Lilly, GM, and Hewlett-Packard have successfully enlisted the wisdom of internal crowds to predict where to invest their money for the future. He even offers the Federal Reserve as an example of how a complex issue can be addressed with a structure that uses internal crowds for collective judgment.
A couple of other key concepts were pointed out by the author. First, if you want such groups to be effective, you have to give the group a method to aggregate the opinions and data of their members. Second, if you engage a group in decision making, allow them to assist in implementing decisions. Too often we task groups and then treat them like they were merely advisors. This is the kind of book that senior officers of a company and board members should read right before strategic planning time and not long after it’s all over. According to the author, wise crowds need to have four elements: 1) independence from each other; 2) diversity in their point of view; 3) decentralization; and 4) a good aggregation method. Briefly, independence keeps groups from falling into an “expert” or power trap; diversity of point of view and opinion allows others to look at the problem from different and often revealing perspectives that provide varying glimpses into complex issues; decentralization points out the need for diverse people to think independently from each other in a way that doesn’t comingle the data; and aggregation ensures a way of collecting those data points while preserving the singularity of it. This week, I’ll talk about each of these four of these constructs that make wise crowds.

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