Reliability Rules Always- Valutrics

Bigger, more complex companies demand new tools to run and manage them. Indeed, improved technology and statistical-control tools have given rise to new management approaches that make even mega-institutions viable. Long gone is the day of the ‘gut instinct’ management style,” they continued. “Today’s business leaders are adopting algorithmic decision-making techniques and using highly sophisticated software to run their organizations. Scientific management is moving from a skill that creates competitive advantage to an ante that gives companies the right to play the game.” 4

The smart and capable McKinsey folks are far from the only ones casting intuition into the dustbin of history. Many businesses increasingly rely on algorithm-based decision-making and decision-support software. They become highly skilled at using algorithms to produce outcomes that are reliable, that is, consistent and predictable. But I am troubled by this tendency and by the confidence of thinkers like Baily and Davis that the cultivation of reliability represents the one true course to business success. Companies that devote all their resources to reliability lack the tools to pursue outcomes that are valid, that is, that produce a desired result. Indeed, many organizations see no value at all in valid outcomes. Little wonder, then, that those same organizations don’t know how to manage validity-seeking activities to generate lasting business value.

Reliability-oriented management systems are, as the McKinsey article rightly observed, vital to the operation of any large organization. But they are no panacea. An ERP system can provide useful real-time data to track whether resources are being used efficiently, but it cannot generate a robust strategy. CRM systems put a wealth of data at the fingertips of customer-service reps, but data is no substitute for intimacy, as corporations discover when customers complain that the systems make them feel as if they are buying from Big Brother. Six Sigma and TQM systems drive out waste from the business as currently configured, but they will not generate innovative new business designs. KM systems will (sort of) organize all the knowledge in a corporation, but they cannot produce imaginative breakthroughs. Advances in knowledge emerge from the pursuit of valid results. That pursuit calls for a different set of tools and processes and, indeed, a different sort of organization.

To acknowledge that algorithms have their limitation is not to disparage their very real business value. When a business has sufficiently honed its heuristic knowledge and moved it along the knowledge funnel to an algorithm, costs fall and efficiency increases, to the benefit of the organization and its stakeholders. But an organization that defines itself as being primarily or exclusively in the business of running algorithms is taking a high risk, even though highly reliable processes are supposed to eliminate uncertainty. What organizations dedicated to running reliable algorithms often fail to realize is that while they reduce the risk of small variations in their businesses, they increase the risk of cataclysmic events that occur when the future no longer resembles the past and the algorithm is no longer relevant or useful.

A business that is overweighted toward reliability will erect organizational structures, processes, and norms that drive out the pursuit of valid answers to new questions. It fails to balance its pursuit of reliability with the equally important pursuit of validity, leaving it ill-positioned to solve mysteries and move knowledge along the funnel. Such organizations inevitably come to see maintenance of the status quo as an end in itself, short-circuiting their ability to design and redesign themselves continuously. This wouldn’t be such a big problem if the world never changed; in those circumstances, continuing to replicate the success model would make lots of sense. However, as we all know, the world is continuously changing, and with every change, crucial new mysteries spring up that reliable systems simply won’t address or even acknowledge. By implicitly or explicitly focusing on reliability only, organizations deny themselves the immense value that can be unleashed by balancing reliability and validity in a design-thinking organization and expose themselves to the risk of being outflanked by a new entrant. The business that fails to balance reliability and validity will find itself flat-footed when rivals advance knowledge through the funnel.

But why do so many businesses have such a pronounced tilt toward reliability if that tilt does not serve their long-term interest? The short answer is that the modes of reasoning that produce reliable outcomes are familiar to businesspeople from long exposure and experience. The mode of reasoning that produces valid outcomes is sufficiently unfamiliar that it is often seen as no reasoning at all. Given those baseline attitudes, it is no surprise that most firms put reliability at the center of the business universe and drive validity to the margins.

In most large business organizations, three forces converge to enshrine reliability and marginalize validity: the demand that an idea be proved before it is implemented, an aversion to bias, and the constraints of time.