A Taboo in Most Industries: Using Gut Feelings to Take Business Decisions

Do we, and should we, use our gut feelings to take important decisions at our workplace? Research by Gerd Gigerenzer seems to indicate that we do–much more than what we publicly admit–and that in many cases it’s the right thing to do.

Heads of departments, members of executive boards and top managers from technology service providers and from a large car manufacturer were found to rely on their gut to take decisions in more than 50% of cases. However, they never admit to this in public because a rational and calculated explanation is expected by customers, colleagues and shareholders.

As a consequence of this demand to take fact-based decisions, energy is often wasted in trying to rationally justify actions or decisions that were truly based on intuition. A common example in industry is to hire a group of expensive consultants to justify what a manager is going to do anyway. Or, even...

Cooperation in the Workplace

Cooperation, unlike compromise, is a state wherein two or more parties behave in a way that achieves mutual gains.

In this follow-up paper, we go back to the basics and look at cooperation between the workers of an industrial organization: within teams, between departments or among the overall workforce of a company.

From Theory

In his The Evolution of Cooperation, Robert Axelrod presents a number of ways to foster cooperation.

Enlarge the shadow of the future: mutual cooperation can be stable if the future is sufficiently important relative to the present.
Change the payoff: effectively making the choice of defection less attractive.
Foster the perception of social or cultural relatedness.
Teach people to care about each other: winning is not a matter of doing better than the other player, but of eliciting cooperation from him.
Teach reciprocity and the benefits of tit-for-tat: do...

Freedom and Responsibility Culture

Netflix’s Take on HR: Is the Manufacturing Industry Doomed?

In their influential power point deck explaining how Netflix shaped its company culture and motivated performance, Patty McCord and Reed Hastings present a very compelling case.

Their take on HR management resonates far beyond tech companies in Silicon Valley. It is very relevant to many industrial companies where the picture is much less focused, consistent, and readable.

Whereas many companies–in their blind push in contradictory directions–end up creating frustration, complacency and confusion, Netflix seems to have managed to define a clear, engaging vision for its people.

It is not rare to see companies promoting a whole range of almost contradictory values (Excellence and Continuous improvement with Rigor, Loyalty and Respect, Creativity, Unlimited thinking and Freedom with Service mindedness and Teamwork), unfocused...

Jun 27, 2014

Expert Forecast vs. Dart-Throwing Monkeys

“People who spend their time, and earn their living, studying a particular topic produce poorer predictions than dart-throwing monkeys who would have distributed their choices evenly over the options.”

Daniel Kahneman, Nobel Prize in Economics and author of Thinking, Fast and Slow

Far from the celebrated homo economicus, which is a strong assumption in most economic thinking, human beings are often irrational. We are consistently and predictably biased in a number of ways: anchoring, loss aversion, availability heuristic, overconfidence, planning fallacy, etc.

For instance, our capacity to remember the past far outweighs our capacity to imagine the future. So when we (experts, analysts, planners…) make forecasts, we tend to reproduce the past instead of genuinely envisioning the future.

“If economists could make reliable predictions about the economic world, far more of them would...

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Is Cooperation Desirable?

Cooperation is a state wherein two or more parties (individuals, organizations, or nations) are behaving in a way that achieves mutual gains. By this definition, cooperation can only emerge in those environments that allow win-win situations. Companies find themselves very often in this scenario when employees work with each other or when they deal with external customers. Given its positive outcome, it’s a widespread goal for most organizations to foster cooperation among their population.

The roots of human cooperation, like of all human behavior goes back many millennia. Humans developed the unique trait of “social learning”, the learning of new techniques and behaviors by imitating others and improving upon it once we understand the goal of the action.

In our competitive environment this had two consequences. Firstly, social learning is also visual theft as one member learns from...

Burning Platform or Real Change?

The framework presented by Chip and Dan Heath in Switch: How to Change Things when Change is Needed poses a compelling challenge to the classical burning platform model.

Instead of a laundry list of measurable objectives that may quickly amount to information overload, you should communicate a clear and simple vision and you should script the first critical moves in order to motivate your people’s rational-self.

And instead of a crisis, you should inspire your people with positive feelings–such as hope, optimism and pride. Instead of raising the bar, you should lower the bar, so that your people’s emotional-self can overcome its dread and take the first steps on the change journey.

Before

We are in a crisis. We are aggressed on the market. Our products have technical problems. Our competitors are delivering better value than us. And our customers have lost faith in us as a reliable...

Planning in the Aerospace Industry: Biases and Insights from Behavioral Economics

The effectiveness of planning has become a critical requisite for the success of industrial companies. In fact, production planning often impacts customer satisfaction and the bottom-line. Under-planning may lead to missed deliveries, while over-planning is a recipe for an oversized supply chain.

That is why it is important to assess the effectiveness of planning and strive to improve the underlying process. In this study, we took cues from behavioral economics to measure irrationality in decision making.

In order to quantify the accuracy and precision of the planning, we took the industrial planning of 4 European aerospace companies and compared it to actual aircraft deliveries over a span of up to 17 years.

The findings give us a first benchmark. Overall, we found low levels of accuracy with a clear tendency to plan above the actual needs—pointing to over-optimism. In addition, when...

Christian Criado-Perez

Christian’s papers on exp(industry).