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
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
- 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
- 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
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.