Evidence-Based Advice
You may have heard of “evidence-based medicine,” the notion that medical decisions should be based on clinical research and evidence. What scares me about the term is the implicit suggestion that medicine is currently based on something other than evidence. The same squeamishness occurs when I hear the term “evidence-based consulting,” which was used in a recent article in Consulting magazine. The lead author is Ray Hill, who heads consulting for IMS Health, a company better-known for collecting data on the drugs your physician prescribes.
I believe the article is correct in its assumption that something other than evidence has driven most consulting and other advice-based industries (e.g., investment banking, advertising agencies, law firms) in the past. Their advice has been based largely on experience. At best you get a seasoned advisor who has seen many client situations, or perhaps your advisor has access to a knowledge management system that provides some vicarious experience to those who bother to seek it out.
Now I realize that not all professional services are based on the quality of the advice they provide. David Maister, the king of professional services analyst/consultants, has often reminded me that the relationship between the advisor and advisee counts for just as much in the value of professional services. David has a great new book called Strategy and the Fat Smoker, which relates his own (successful) attempts to improve his own health to the ability to help clients change their business behaviors, and it focuses heavily on client relationships.
But the quality of advice is important too, and I don’t think that mere experience is enough for the advice-givers of the future. They’re going to have to offer a higher standard of evidence, including data, analysis, and fact-based insight. This is already happening in advertising, where ad agencies are increasingly being asked to demonstrate with empirical evidence that ads actually work. Sir Martin Sorrell of the huge WPP Group has called econometrics the “holy grail” of advertising.
So far the holy grail of consulting has been to grow some gray hair so that clients believe your pronouncements. Hill and his co-author J.J. Sendelbach’s article in Consulting suggests that data will soon be required (not surprisingly, IMS Health has a lot of it). They suggest that evidence-based consulting will be specific to particular industries, but I am not sure that has to be the case. You could also imagine that strategy firms could gather data on particular strategic interventions across industries, and the effects they have had on business performance. Too bad that McKinsey, Bain, BCG, etc., weren’t piling up this data over the last 30 or 40 years!
Read all of Tom Davenport's Next Big Thing posts.
MORE ON EVIDENCE-BASED MANAGEMENT:
Hard Facts, Dangerous Half-Truths, and Total Nonsense: Profiting from Evidence-Based Management (Hardcover)
Competing on Analytics: The New Science of Winning (Hardcover)
Optimize The Power Of Analytics to Drive Superior Performance and "Out-Think" Your Rivals (Collection)
To Make the Best Decisions, Demand the Best Data (HBR Article)
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Tom Davenport holds the President’s Chair in Information Technology and Management at Babson College, where he also leads the 
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Dear Prof. Davenport,
The reluctance to use facts, data, and analysis may be traced to the premise that management is often synonymous with instinct, intuition, gut-feeling and as an extension, with experience. How else can one explain the bizarre phenomenon of oil companies getting into the PC industry in the 80's with obvious disastrous consequences? More often than not, organizations enter businesses about which they may know nothing about merely because it appears profitable, fashionable or just the thing to do to catch the attention of stakeholders.
Even where facts are collected and analyzed, the final decision is made by extraneous factors. The (in)famous case of the British tobacco giant acquiring a motel business after two years of extensive "research" is a case in point. That the company lost some $700 Million in the process is another matter. More alarming was the silence of all the managers who had collected data, and had hard evidence to prove that the acquisition would be a failure.
In recent times, the cost of some acquisitions would be hard to explain on the basis of available evidence. A leading mobile service provider entering the Indian market based on a valuation that has no rational basis makes one wonder at the real motivation for such moves. The only beneficiaries seem to be the businessman who first invested in the venture and the Indian business house that was in deep trouble just a few years ago.
An interesting aspect that needs to be explored is that some of the organizations that you have mentioned are also responsible for the valuation of firms. Are they doing it on the basis of available evidence or in the hope that things will work out fine or just keeping their interests in mind?
Warm regards
- Posted by B V Krishnamurthy
October 25, 2007 12:46 AM
Consultants stating the obvious, there's something out of box.
The problem with the above article, other than the incorrect passing suggestion that somehow IMS clients can't share their data with the McKinseys, Bains, BCGs, etc., is that IMS data is often dreadfully inaccurate. Now this is entirely different from evidence based medicine, where unknown unknowns are widespread.
Nevertheless a more critical thesis of IMS value is this: IMS data relies on statistical sampling, as disease states, and treatment paradigms become increasingly segmented statistical sampling must be increased in order to maintain small confidence intervals on the data. What has IMS done? Spent a lot of money on consulting (which has lower margins according to recent explanations of poor earnings).
As such, in my opinion, IMS accuracy may be limited to high volume products (Lipitor, Nexium, Zyprexa, etc.), i.e. the blockbuster model. Which is easy to estimate from public sources anyway. Boutique data firms focusing on specific channels, and with a deep understanding of the disease pathway may be better positioned to identify opportunities, particularly those faced by the smaller pharma companies who have increasingly agility in development and marketing. (Not to mention the fact that all these big pharma layoffs represent knowledge capital opportunities for the smaller players).
IMS is placing a bet on big volume drugs, consulting services and big pharma. All very risky.
- Posted by Mickey Disco
December 23, 2007 3:02 PM