Book Review

The Wisdom of Crowds: Why the many are smarter than the few and how collective wisdom shapes business, economies, societies, and nations
by James Surowiecki

In this fascinating book, Surowiecki explores the idea that "large groups of people are smarter than an elite few, no matter how brilliant-better at solving problems, fostering innovation, coming to wise decisions, even predicting the future." He begins with a story about British scientist Francis Galton who, while visiting the annual West of England livestock fair, came upon a weight-judging competition. An ox had been on display and members of the gathering crowd were lining up to place wagers on the weight of the ox. Eight hundred people tried their luck; they were a diverse lot, many 'non-experts'. When the contest was over and the prizes had been awarded, Galton borrowed the tickets and ran a series of statistical tests on them. He added all the contestants' estimates and calculated the mean of the guesses. Galton thought the average guess would be way off the mark but he was wrong. The crowd thought the ox would weigh 1,197 pounds. It actually weighed 1,198!

At the heart of the book, as the author states, under the right circumstances, groups are remarkably intelligent and are often smarter than the smartest people in them. Chocked full of great examples, i.e. the internet, the stock market, the Bay of Pigs invasion, traffic jams, Italian soccer, and SARS, the author makes the point-groups are smart.

Did you know that within minutes of the January 28, 1986 space shuttle, Challenger, disaster, investors started dumping the stocks of four major contractors, Rockwell International, Lockheed, Martin Marietta, and Morton Thiokol, who had participated in its launch? Morton Thiokol's stock was hit hardest of all. By the end of the day, its stock was down nearly 12 percent. (By contrast, the other three stocks had started to creep back up and, by the end of the day, their value had fallen only around 3%.) The stock market had almost immediately labeled Morton Thiokol as the company responsible for the disaster and there had been no clues in the media or elsewhere to the cause of the accident. "Regardless, the market was right. Six months after the explosion, the Presidential Commission on the Challenger revealed that the O-ring seals on the booster rockets made by Thiokol became less resilient in the cold weather, creating gaps that allowed the gases to leak out."

What does this mean for family businesses? The strategic decisions that family businesses have to make are often complex and difficult. As the author notes, "But we know that the more power you give a single individual in the face of complexity and uncertainty, the more likely it is that bad decisions will be made". I often see a business owner struggle with problem, only to find that when he or she presents it to the appropriate group-the family, the board, the management team in the right way, the solution becomes evident. The 'wisdom of crowds' has the potential to make a profound difference in the way companies do business. The author also describes the decision making practices of successful companies and concludes, "as a result, there are good reasons for companies to try to think past hierarchy as a solution to problems."

Suggestions to create group wisdom for making sound strategic decisions:

• Meet face to face
  
  
• Start with no preconceived notions, premature judgments about how things should be
  
  
• Early in the debate, emphasis dissent over consensus
  
  
• Encourage debate and minority opinions
  
  
• If you don't have a real Devil's Advocate, you become one
  
  
• Watch the order in which people speak. "Earlier comments are more influential, and they tend to provide a framework within which the discussion occurs." Make sure that the people who know what they're talking about speak first.
  
  
• Talkativeness feeds on itself. "Talkative people are not necessarily well liked by others in the group, but they are listened to…..people will tend to think of the talkative person as the most influential… whether or not they are."
  
  
• If small groups, the board, the family, etc are included in the decision making process, then, they should be allowed to make decisions. If groups, i.e. board, family councils, management teams are used for purely advisory purposed, they lose the true advantage, the collective wisdom.