Measuring business growth
Kristy Towry
Kristy Towry

Measuring your performance as a business is critical. If you want to grow and be successful, you need to understand what you do well—and not so well. To paraphrase a couple of old adages, we all learn from our mistakes and our experience.

But in today’s bumpy and fast-changing business landscape, measuring performance can be tough; tougher still if yours is a complex organization or industry.

Whatever you’re looking at to gauge your firm’s performance—whether it’s customer satisfaction, say, or repeat purchases—your measures might well be less than perfect. And that’s because of noise—abstruse or unreliable data that makes it hard to unpack key metrics accurately and to learn from them.

How successful a firm is in negotiating this performance measure noise depends on how that firm learns, said Kristy Towry, John and Lucy Cook Chair and professor of accounting at Goizueta.

She has led a study that looks at the way organizations and the people in them manage their learning. And she finds that we’re way more adept at cutting through the noise when we learn from each other, rather than basing our learning on our own firsthand experience.

Together with colleagues Jongwoon “Willie” Choi 11PhD, University of Wisconsin–Madison; Gary Hecht, University of Illinois; and Ivo Tafkov 09PhD, Georgia State University, Towry ran a number of lab experiments to explore learning strategies in situations of greater and lesser complexity.

They recruited 70+ university students and asked them to play a game, going head-to-head with a computer to pick the correct number in a sequence.

At first, these participants were asked to go it completely alone against the machine, building a strategy based exclusively on their own personal experience. Random noise was introduced at different points during the game play to capture how successful this lone decision-making was and whether there was any improvement in strategy over time.

The experiment was then repeated to capture the same insights, but this time participants watched each other play in order to assess how they learned from each other’s successes and mistakes as well as their own.

A final experiment looked at the impact of varying noise on both types of learning.

What Towry and her colleagues found was that when there’s a lot of noise in the data we’re working with, our strategic learning is considerably improved when our learning is vicarious—that’s to say, when we learn from each other.

This is down to how much of the big picture we see, said Towry. And experiential learning can make us myopic.

“We know from psychology and from the results of this study that experiential learning—basing what we learn mainly off our own firsthand experience—can limit us. Experience tends to make us over-focus on what is happening in the here and now or what has just happened. We forget what happened before and don’t build that into our decision-making.”

Vicarious learning, on the other hand, helps us to see the bigger picture.

“When we’re learning from each other, it’s also experiential, but the learning is augmented by other people’s experience, meaning that we have a broadened perspective. We’re better able to see the big-picture patterns and trends.”

When there’s a lot of noise and complexity to negotiate, vicarious learning helps us make better decisions. And this has huge implications for businesses operating in today’s environment.

“Our world is not cut and dried at the best of times. Right now we are dealing with the COVID-19 crisis and the fallout on world economies and trade. The business context for most firms operating in this context is very far from stable, so we can assume there’s a lot of complexity and noise affecting our performance indicators. And with so much change afoot, the experiences we are all having in the workplace are what I would call fairly idiosyncratic,” said Towry. “Business leaders should be very aware of this.”

To optimize strategic learning and thrive in complexity, firms need to find ways to allow vicarious learning to happen, she said.

That means thinking about how to break down barriers to knowledge sharing, be they organizational silos or emerging challenges associated with things like remote working. Sharing information, insight and understanding is essential.

Learn from experience, by all means, said Towry. Just make sure it’s someone else’s experience too.