Tapping the Wisdom of Crowds.

It's easy to see why Business Week and Forbes.com thought The Wisdom of Crowds, by James Surowiecki, was a Best Book of the Year. It offers big ideas that can drive big changes. Let's say you entertain the notion that your business is run half as well as it could be. This is the book to pick up to be sure you reframe your thinking to avoid pitfalls managers often fall into when formulating strategies.

Surowiecki argues that large, diverse groups of people are a great deal smarter than a roomful of "experts." The Wisdom of Crowds is an exploration of why this is the case. The evidence presented is credible, in part because of case studies that quantify results, in part because most readers must admit they don't test their problem-solving assumptions, and in part because the insight into the behavior in the examples is intuitively persuasive.

One example cites a scientist who spent his life seeking to validate the indispensability of elite individuals and groups--i.e., the experts. At a county fair, he conducted an experiment involving 787 fair-goers who were asked to guess the weight of an ox. When the inputs were averaged, the crowd, made up of people with different levels of knowledge and expertise, guessed the ox weighed 1,197 lbs. The ox weighed 1,198 lbs. Many other examples in this vein drive home the wisdom of crowds. A diverse group, not communicating with each other but guessing individually, will almost always get it right. This is true whether the crowd is pinpointing the weight of an ox, the price of a stock, the location of a lost submarine or the winners of Hollywood Oscars.

According to Suroweicki, there are three types of problems crowds are geniuses at solving. The first he calls cognitive problems--questions for which there is a definitive answer. For example, who will win the Super Bowl? The second problems are those of coordination. How do buyers find sellers and companies organize operations? The third set falls under the banner of cooperation. This last category involves "getting self-interested, distrustful people to work together."

It's all well and good that business editors think this is an important book. However, for the book to be useful for metalcasters, there must be some way to render its ideas practical. Let's look at team-building. If you assemble a group to address a problem, are you handicapping the outcome right from the start? Your "experts," though they may come from different departments, already have self-selected the casting industry and your company with its unique operating environment. While there may be diverse--even passionate--opinions within this group, how relevant are those differences compared to what might have been uncovered by truly diverse inputs from customers, suppliers, competitors and other people inside and outside your industry? The key to formulating effective strategies starts with asking the right questions. Many critical questions never emerge from insiders, no matter how intelligent, experienced and well-intentioned.

The second set of problems, those of coordination, also can yield better answers when subjected to the wisdom of crowds. Over the last decades, many companies have deployed best practices and discovered that they could double throughput with existing resources or maintain historical levels of throughput with half the people previously needed. These achievements are now being revisited by companies challenging themselves to do it all over again. In almost every case, management has had to bring in new leaders and build new teams, because the heroes of yesteryear have trouble seeing how anything more could possibly be done.

The third set of problems, those of cooperation, may be the most challenging. Agreeing on a definition of "reasonable pay" is one example of cooperation that Surowiecki gives. In this reviewer's experience, one company had a very clear definition of what constituted reasonable pay. However, on the eve of going public, their advisors took the CEO aside and explained that the management of this company was significantly under-compensated compared to peer-group companies. This discrepancy would look odd to potential investors, who would wonder if the company had top talent in leadership positions. Raises across the entire management team resolved the issue, but this input never would have been uncovered unless it came from outsiders with an entirely different perspective on salary levels.

Surowiecki is not saying experts don't have their place, because they do. But, he is saying you can do damage by not learning how to uncover and tap the wisdom of crowds.

William J. Libby, Libby Communications