The Science of Business – Part 1 of Many

It’s impossible to read an edition of the Harvard Business Review, Wall Street Journal, Businessweek or The Economist these days without seeing a story on the data deluge – the incredible accumulation of business data and how companies are using it to lower costs and increase profits. The explosion of data along with advances in technology and the quantitative methods to analyze it is giving rise to a movement that can best be called “the science of business” – wherein businesses use scientific principles and evidenced-based methods similar to those deployed in the scientific community to advance their enterprises.

The points of departure for the “science of business” are the basic tenets of the scientific method, which consists of four basic steps:

1. Observe and describe a phenomenon or group of phenomena.

2. Formulate a theory or sequence of hypotheses to explain the phenomena. The hypotheses often take the form of causal mechanisms or a mathematical relations (the more of X the less of Y).

3. Use the theory/hypotheses to quantitatively predict the results of new observations.

4. Perform tests (experiments) of the predictions.

Before a company embarks on a “science of business” focus, however, it must do some internal soul-searching, locating its strategic orientation along the continuum of planning and searching. Planning is more of a top-down, big picture, expert-driven approach to strategy, while searching is a bottom-up perspective that looks for small victories using a trial and error mentality. Planners start with fixed- objective programs designed a priori; searchers are comfortable with variable objectives determined on the fly. Planners are top-down theoreticians; searchers are bottom-up experimental learners. Once an enterprise is comfortable with its orientation along this axis, it’s ready to start designing its unique “science of business” path. Subsequent blogs will further develop this thinking.

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