Organizations & the Local Knowledge Problem

Tim Harford:

A new reality television show, Undercover Boss – which has migrated to the US after airing on Channel 4 last summer – tries to tap into the dissonance between bosses and front-line staff by filming as a senior executive works incognito in the trenches. It is a delicious premise.

When bosses must don a disguise to learn about how their organisations really work, trouble is in store. One of Friedrich Hayek’s obvious-once-pointed-out observations is that society is full of local knowledge, often of a subtle nature and only fleetingly exploitable. That is one reason why decentralised market processes tend to work well. When a hierarchy has to exist, Hayek’s insight is the reason why bosses should want to receive truthful assessments of what is going on the shop floor (they don’t) and subordinates should be happy to provide them (they aren’t).

What makes matters worse for any organisation is that the same dynamic is taking place at every level. Each middle manager is a fresh obstacle to the flow of truth up a hierarchy of wastebaskets. Sensible managers try to let information flow freely, but many are happy to reinforce the barricades for their own peace of mind.

The results of barriers to communication can be catastrophic. H.R. McMaster’s influential study of decision-making during the Vietnam war, Dereliction of Duty , is packed with examples. The joint chiefs of staff were warned by their chairman, Maxwell Taylor, that Lyndon Johnson did not like “split advice”. Johnson’s defence secretary, Robert McNamara, argued that government would be ineffective if department chiefs were to “express disagreement” with the president. Not disobey, but “express disagreement”. Johnson trusted McNamara implicitly and relied too heavily on the advice of a man he praised as a “can-do fellow”. Isolating himself from dissent, the president made a series of disastrous decisions.

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One Response to Organizations & the Local Knowledge Problem

  1. Bob D says:

    I can think of no other better example of applied local knowledge than on the golf course. If you have the option to employ a local caddy, do so. You will have a more enjoyable and productive round due to knowledge that only experience can teach.

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