From the Bookshelf This is a fortnightly review of bestsellers for business executives Follow the crowd By Nicole Wong It turns out that crowds may be smarter than you think What does weighing an ox have in common with the Google system? How does the maintenance of Linux relate to the organisation of a leading fashion retailer? The answers to these questions are intriguing and, at first, may seem hard to believe. They are based on the fact that in our daily lives, as well as in the complex world of business and finance, the best solutions often are "what everyone thinks" and are a product of the combined intelligence of people like you and me. Regular Internet users are not surprised by the speed and accuracy of the Google search engine, yet few stop to ask how the instantaneous results, giving us just the data we need, actually come about. James Surowiecki's The Wisdom of Crowds, points out that Google's success is based in our "collective intelligence". Its PageRank system calculates the number of previous links to a page and these are listed accordingly for the next similar search. The user may not know which page is the most relevant, but averaging collective data generally directs them to the right destination. Common knowledge That process may work in the information age, but what is to say that something similar could be applied in other cases? The author cites the 1906 study conducted by Francis Galton to support his theory. That involved around 800 people, including butchers and casual bystanders, who were asked to guess the weight of an ox. The average of all the estimates was calculated and, much to Galton's surprise, the figure was within one pound of the correct weight. "The crowd" may indeed know something that individuals do not, but clearly certain qualifications and conditions are needed if the theory is to hold water. Think about Linux, the open source software provider, for a minute. Thousands of programmers do free "fixes", making the operating system ever more reliable and robust. The resulting success of Linux, according to the author, lies in the diversity, independence and decentralisation of the collective intelligence involved. Professionals from around the world work independently and contribute solutions for a decentralised system. That is ideal for Linux, but can it translate into other business settings? In Chapter 10, the author shows how the retailer Zara has expanded rapidly by mobilising the collective wisdom of its employees. The latest designs are the result of feedback from staff, comments from customers, and actual sales recorded in the network of 300 stores. The team of designers interprets this information and relays updated creations to Zara's highly automated factories. New fashions are in stores faster than the competition can manage, and they are also guaranteed to reflect anticipated customer demand. Collective wisdom This example also brings up the issue of hierarchy within a company, dealt with in the later chapters of The Wisdom of Crowds. Decisions in Zara are, to a great extent, coordinated by the employees and not directed by senior management. Such "bottom up" organisation is the essence of collective wisdom: crowds, with their detailed local knowledge, hold the key to success in markets, businesses and economies, as well as in societies and nations. Content highlights: The average of collective data creates better solutions than individual knowledge Collective wisdom produces optimal results if it is qualified by the conditions of diversity, independence and decentralisation Local knowledge of crowds is instrumental in achieving market success. About the authors James Surowiecki is a staff writer at The New Yorker, where he writes the popular business column, "The Financial Page". His works have appeared in a wide range of publications, including the New York Times, the Wall Street Journal, Artforum, Wired and Slate. Published in May 2004, The Wisdom of Crowds has received rave reviews from readers and critics worldwide for its thought-provoking arguments and lucid writing. Editor's note The Zara case study serves as an excellent example of how decentralisation can have an impact on the retail industry. Martin Christopher offers industry insights in Logistics & Supply Chain Management 3rd Ed (2004) with reference to Zara's business model. Other useful information about Zara's management success can be found in Pankaj Ghemawat and Jose Luis Nueno's case analysis ZARA: Fast Fashion (2003), and David Bovet and Joseph Martha's Value Nets: Breaking the Supply Chain To Unlock Hidden Profits (2000). Taken from Career Times 28 January 2005 Your comments are welcome at [email protected]