TO SUCCEED IN the long run, businesses need to create and leverage
some kind of sustainable competitive edge. This advantage can still derive
from such traditional sources as scale-driven lower cost, proprietary intellectual property, highly motivated employees, or farsighted strategic
leaders. But in the knowledge economy, strategic advantages will increasingly depend on a shared capacity to make superior judgments and choices.
Intelligent enterprises today are being shaped by two distinct
forces. The first is the growing power of computers and big data, which
provide the foundation for operations research, forecasting models,
and artificial intelligence (AI). The second is our growing understanding of human judgment, reasoning, and choice. Decades of research
has yielded deep insights into what humans do well or poorly. 1 (See
“About the Research,” p. 30.)
In this article, we will examine how managers can combine human
intelligence with technology-enabled insights to make smarter choices
in the face of uncertainty and complexity. Integrating the two streams
of knowledge is not easy, but once management teams learn how to
blend them, the advantages can be substantial. A company that can
make the right decision three times out of five as opposed to 2. 8 out of
five can gain an upper hand over its competitors. Although this performance gap may seem trivial, small differences can lead to big statistical
advantages over time. In tennis, for example, if a player has a 55% versus 45% edge on winning points
throughout the match, he or she will have a greater than 90% chance of winning the best of three sets. 2
To help your company gain such a cumulative advantage in business, we have identified five strategic
capabilities that intelligent enterprises can use to outsmart the competition through better judgments and
wise choices. Thanks to their use of big data and predictive analytics, many companies have begun cultivating some of these capabilities already. 3 But few have systematically integrated the power of computers with
the latest understanding of the human mind. For managers looking to gain an advantage on competitors,
we see opportunities today to do the following:
1. Find the strategic edge. In assessing past organizational forecasts, home in on areas where improving
subjective predictions can really move the needle.
Building a More
In coming years, the most intelligent organizations will need to blend technology-enabled
insights with a sophisticated understanding of human judgment, reasoning, and choice.
Those that do this successfully will have an advantage over their rivals.
BY PAUL J.H. SCHOEMAKER AND PHILIP E. TETLOCK
; Small improvements in subjective
predictions can lead
to big strategic
; Even a small
amount of training
about decision-making biases can
; Few companies
power of computers
with the latest
the human mind.