In his latest book Exponential Organizations, Salim Ismail talks about the huge shift in speed that our economy is undergoing at the moment. He talks about the traditional method of allocating resources often revolving around making big bets on the future, which with change occurring so rapidly, is so often a fools endavour.
Of course, there have been many studies over the years that have highlighted the challenge many people have in accurately predicting the future. The fallibility of even the wisest expert has given rise to the wisdom of crowds and the subsequent rise in areas such as crowdsourcing.
A recent study from researchers at the University of Notre Dame underlines this challenge. The researchers monitored the performance of a group of fund managers in Sweden to see if these experts performed any better than your average investor. The outcome will perhaps come as no surprise.
“We asked the question whether financial experts make better investment decisions than ordinary investors,” the researchers say. “We identified a group of investors who have an extensive knowledge of finance attained through prior training and day-to-day experience with financial markets, namely mutual fund managers, and compared private investment decisions by these financial experts to those made by individual investors who are similar to them along a number of socio-economic characteristics, but presumably lack financial expertise.”
The research found that the performance of these experts was generally no better than average investors. The experts had no special ability to pick out star stocks, nor did they manage the risk of their portfolio any better. Heck, they generally didn’t even trade any better than your average Joe.
The only time the experts were found to outperform the amateurs was when they were party to better quality information than the amateurs.
“Most experts will not help you improve your performance beyond what could be achieved by investing in passive indexes,” the authors conclude.
So what does this mean for how we respond to the changing world? Ismail describes the need for what he calls Massive Transformative Purpose, which is broken down into five traits for how you manage internally, and five for how you deal with the external world.
- Staff on demand
- Community & Crowd
- Leveraged assets
The staff on demand section is, I think, particularly pertinent. In a recent post for Harvard Business Review, Gianpiero Petriglieri talks about the challenges many of us face when it comes to learning. He says that whilst most organizations value the output of learning, few provide the time and the resources to support learning.
It leads to a permanent battle for organizations to ensure that their permanent workforce has the skills required to be useful. With the shelf-life of a particular skill now said to be only a few years, this is a challenge that isn’t going to go away.
Being able, therefore, to tap into knowledge and expertise, wherever it may reside is likely to become increasingly valuable for any information based business.
There have been a legion of examples of organizations opening up a process to the crowd, and the crowd delivering better outcomes, in less time and for less money, than the best experts internally had ever managed.
This shift is causing us to rethink what it means to be an expert, and indeed what it means to say we have access to such people.