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Evidence based business?

We've been advocating for some time that governments should take evidence more seriously. Where possible, data should be opened up to public scrutiny, and policies should be tested to see whether they actually work.

The recent announcement of new 'What Works' centres is an important step in the right direction towards more intelligent, and competent government.But what of business? If it's right for powerful governments to be held to account for their effectiveness, should the same principles apply to big corporations? After all large businesses are heavily involved in fields that have been central to the evidence debate - from prisons and reoffending to healthcare and education - sometimes selling to individual customers and sometimes to big public purchasers.

So why shouldn't businesses commit themselves to doing what works? A simple first step would be to make an internal commitment that new products and services are assessed using something like Nesta's ladder of evidence (shown below) which provides a reasonably unambiguous framework against which to judge projects and programmes.



Source: Puttick, R. & Ludlow, J. (2012) Standards of Evidence for Impact Investing, Nesta, UK

Businesses might commit only to scale up the ones that work and, where there isn't enough evidence, commit some resources to gathering it (in the way that pharma companies have to do clinical trials).

This sort of approach is likely to matter most in fields where harm and effectiveness matter. It isn't particularly relevant to fashion (though 'what works' in haute couture is an intriguing idea ...). It isn't applicable to much of retail; to electronic devices; or utilities - though all of these should be subject to rigorous independent consumer testing, of the kind Which? has done since the 1950s.

Evidence matters most when businesses are providing goods and services which have some of the properties of public goods, that are bought with public money or that make claims parallel to those made within public sectors. So examples would include many products relating to health, from brain gyms to vitamins, diet supplements to smoking cessation kits. Other examples would include environmental products - from solar panels to hybrid cars.

The food industry might be transformed by a commitment to evidence - at the moment a lot of smart brainpower goes into pumping sugar into foods which are then presented as healthy. Financial services are reluctantly coming to terms with the idea that they shouldn't sell products which are harmful to buyers. Education is a particularly important field, where as our recent research showed there is very patchy evidence as to what works, and easy opportunities for big firms to take advantage of poorly informed parents or teachers. Other fields include pretty much all commissioned services, and fields covered by payment by results and the like. These already provide stronger incentives to act on evidence - but too few contracts have required the transparency that's needed for the system to become smarter. I also think 'smart cities' could try to become smart. At the moment there is a plethora of marketing claims, and plenty of promising case studies for smart cities, but almost no independent evidence about whether the claims stack up. As a result there is little to help a Mayor know what they should or shouldn't buy.

If businesses made serious commitments to evidence this would help to reinforce an ethos of value creation - the idea that business is there to be useful to others, not just to extract their money (an idea that some business leaders lost sight of). It would strengthen the reputations of the good, and weaken the reputations of the bad. A lot of the hot air around CSR would vanish, and the genuinely good projects would stand out more clearly. The ones which are mere AstroTurf would have to be quietly shut down, as would the self-serving presentations that fill so many conference schedules (which might just adopt a humbler, more authentic tone).

The simple idea that business should be more evidence based will not convince everyone. Some will argue that there is no parallel between evidence for government and evidence for business. Consumers can vote with their feet if they don't like what businesses are doing, or if they think their products are flawed. 'Caveat Emptor' - buyer beware, sums up this attitude. The counterargument is that despite being surrounded by vast amounts of information the public have very little access to reliable evidence. Moreover they are often not the direct purchasers of goods and services; so in many contexts 'caveat emptor' is logically equivalent to arguing that voters should take responsibility for judging whether government policies work, not governments.

Another argument says that this is the job or choice of shareholders. They are where the buck stops. Certainly there are good reasons for wanting shareholders to become more intelligent users of their power, not just to stop foolish mergers and half-baked business strategies, but also to introduce greater scrutiny of social and environmental outcomes. Shareholders should be on the right side of this argument - but they too can't be relied upon to police evidence, any more than political parties in parliaments can be relied upon to keep the governments they support honest about it.

Ideally what would happen is an alignment of enlightened management and enlightened shareholders around the idea that businesses should sell goods and services that actually work, just as governments should try to implement policies that work. Evidence based business may be an idea whose time is coming - one aspect of a more transparent and more intelligent public culture. It's probably a step too far for most CEOs in the very near future. But a few in strategic fields will see this as a good way to build trust. In the short run sales and share prices may be hit. But in the longer run the firms which move in this direction first will reap dividends, both metaphorically and literally.

Author

Geoff Mulgan

Geoff Mulgan

Geoff Mulgan

Chief Executive Officer

Geoff Mulgan has been Chief Executive of Nesta since 2011. Nesta is the UK's innovation foundation and runs a wide range of activities in investment, practical innovation and research.

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