Why Business Schools Need to Teach Experimentation

Elizabeth R. Tenney, Elaine Costa, and Ruchi M. Watson at Harvard Business Review: “…The value of experiments in nonscientific organizations is quite high. Instead of calling in managers to solve every puzzle or dispute large and small (Should we make the background yellow or blue? Should we improve basic functionality or add new features? Are staff properly supported and incentivized to provide rapid responses?), teams can run experiments and measure outcomes of interest and, armed with new data, decide for themselves, or at least put forward a proposal grounded in relevant information. The data also provide tangible deliverables to show to stakeholders to demonstrate progress and accountability.

Experiments spur innovation. They can provide proof of concept and a degree of confidence in new ideas before taking bigger risks and scaling up. When done well, with data collected and interpreted objectively, experiments can also provide a corrective for faulty intuition, inaccurate assumptions, or overconfidence. The scientific method (which powers experiments) is the gold standard of tools to combat bias and answer questions objectively.

But as more and more companies are embracing a culture of experimentation, they face a major challenge: talent. Experiments are difficult to do well. Some challenges include special statistical knowledge, clear problem definition, and interpretation of the results. And it’s not enough to have the skillset. Experiments should ideally be done iteratively, building on prior knowledge and working toward deeper understanding of the question at hand. There are also the issues of managers’ preparedness to override their intuition when data disagree with it, and their ability to navigate hierarchy and bureaucracy to implement changes based on the experiments’ outcomes.

Some companies seem to be hiring small armies of PhDs to meet these competency challenges. (Amazon, for example, employs more than 100 PhD economists.) This isn’t surprising, given that PhDs receive years of training — and that the shrinking tenure-track market in academia has created a glut of PhDs. Other companies are developing employees in-house, training them in narrow, industry-specific methodologies. For example, General Mills recently hired for their innovator incubator group, called g-works, advertising for employees who are “using entrepreneurial skills and an experimental mindset” in what they called a “test and learn environment, with rapid experimentation to validate or invalidate assumptions.” Other companies — including Fidelity, LinkedIn, and Aetna — have hired consultants to conduct experiments, among them Irrational Labs, cofounded by Duke University’s Dan Ariely and the behavioral economist Kristen Berman….(More)”.