In certain situations the crowd is much smarter than the smartest individual. Businesses in the new age are leveraging this and some of these rules can be applied to teams and groups.

The Internet is changing a lot of things. One of the most significant developments is how the multitude is being used to solve problems. When you want to search for information, Google is the first choice not because it is the most intelligent search agent but because it aggregates what many users and web pages have chosen for a particular word searched. Similarly Linux is fast emerging a strong alternative to Windows, and what is amazing is that it is entirely developed by thousands of programmers voluntarily. Code for bug fixes and enhancements are sent to the core team by these volunteer programmers on their own volition and the best of these are integrated into Linux. It is amazing that sheer voluntary effort can challenge the dominance of a large corporate like Microsoft. I was equally fascinated when I came across wikipedia.org an encyclopedia where anyone can contribute and get published immediately with the only caveat that what you write could be edited out by any other visitor. No central supervision, no central command, and it works. Wikipedia has been my refuge many a time when I am looking for answers.

In the book ‘The Wisdom of Crowds’ James Surowiecki illustrates “Why the many are smarter than the few.” The most common example is the way the stock markets work, most of the time the stock markets seem to provide an accurate value of the underlying stock, however like Cornell economist Maureen O’Hara said “While markets appear to work in practice, we are not sure how they work in theory.”

James Surowiecki says that the crowd makes smart choices when there is diversity of opinion, independence (peoples opinions are not determined by people around them) decentralization, (people are able to specialize and draw on local knowledge) and aggregation (some mechanism exists for turning private judgments into a collective decision.) Linux provides all these conditions. It is hard to fathom how something tangible can be built in such a seemingly unstructured way, but this system does work. Well we are familiar with the “Invisible Hand” of the market and democracy does seem to work, despite all the chaos. My hunch is what we see in Linux and Wikipedia is just the beginning, a lot more smart solutions are going to be based on leveraging the crowd.

So how does one apply these to teams and organizations? “The fundamental paradox of any corporation, says James Surowiecki, is that even though it competes in the marketplace, it uses non-market instrument-plans, commands, and controls to accomplish its goals. Mainly because of “transaction costs” which include search and information costs, bargaining and decision costs, policing and enforcement costs.” (Costs - which the internet is fast reducing). It can be said safely that predictable and specified tasks are better done through specialized teams and people. When it comes to decision making James Surowiecki says that the value of expertise is in many contexts overrated. He says that a large group of diverse individuals will come up with better and more robust forecasts and make more intelligent decisions than even the most skilled “decision maker.”

The four conditions mentioned above, however, need to be fulfilled for groups to arrive at smart answers. If not a group, it could easily resemble a mob. There are several traps that organizations face when looking at solutions from a group angle. Like Collective decision-making is too often confused with the quest for a consensus. Consensus does not mean the best decision. The second trap is that Democracy often means endless discussion rather than a wider distribution of decision-making power. (Just like it happens to citizens in our country perhaps, we get to vote but do we have a say in any decision-making? Would Bangalore roads not be better maintained if the contractor doing the job was accountable to the residents of the area where the road is?).

For smart decisions to be taken real information needs to be exchanged, however this does not happen in most companies because as James Surowiecki says “there is a deep-rooted hostility on the part of bosses to opposition from subordinates. This is the real cost of a top-down approach to decision making: that it confers the illusion of perfectibility upon the decision makers and encourages everyone else simply to play along. Having real decision-making power involves first that the decisions about local problems should be made, as much as possible by people close to the problem. Second decentralization makes easier coordination. Instead of having to make constant resort to orders and threats, companies can rely on individuals to find new, more efficient ways of getting things done. There is however a catch. Decentralized markets work well because they are constantly getting feedback from customers.

In a corporation however the feedback is indirect, individuals are rewarded on what they are expected to do rather than on what the market decides is right. This leads to inefficiencies like people seeking more for their own divisions. There is a whole new paradigm out there, people are exploring and bet

The author is the Chief Catalyst of businessgyan. His area of intrest include business strategy and innovation. For feedback and more information,mail: This e-mail address is being protected from spam bots, you need JavaScript enabled to view it

Issue BG53 Aug05

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