Saturday, March 05, 2005

The Wisdom Of Crowds.... and using that Wisdom for Profit

I just finished listening to a very interesting book on CD... The Wisdom of Crowds by James Surowiecki. In his book, he has a number of examples of ways that the judgements / decisions / opinions of a crowd are in fact BETTER than the wisdom of most, if not all, of the members of the crowd.

This is interesting for two reasons.

First, "crowd wisdom" could be an great tool for improving business decisions since many companies are, in fact, just a crowd of people with (hopefully) the common goal of making the company successful.

Surowiecki has many, many examples in his book, but one that he did not use, but should have, is from the book, "The 7 day Weekend" by Ricardo Semler. In Semler's book, the author describes his HIGHLY SUCCESSFUL company that is primarily run by "consensus".

More specifically, he does not "tell" people what to do, they decide what the best course of action is and then implement it. Based on his success, it appears that he is using the wisdom of the crowd extremely well (while also providing an excellent work environment... the "7 day weekend" in the title).

The second reason that this is interesting is that it gives us the specific conditions that are needed for a crowd's decision to be wise. These 3 characteristics (and one method) are:
- Diversity
- Independence
- Decentralization
In addition, there must be some method to Aggregate the information from the crowd or otherwise your crowd isn't much of decision making machine!

Like any new way of thinking it can be a powerful tool. Of course, you need to know how to use the tool or you may end up hurting yourself. [Just ask the internet bubble investors how they used the "wisdom" of the crowd]

I won't go into great detail about what each characateristic means, (I will leave that as a teaser in case you are intrigued enough to buy the book) but I can say that I've found it very useful as I try to make sure that my company is a WISE CROWD and not just another HERD on the way to the slaughter.

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