Octothorpe Software’s decisive action plan

Every week Techvibes republishes an article from Business in Vancouver. This article was originally published in issue #1094 – October 12 – 18, 2010.

The annual New Ventures BC (NVBC) competition has faced some growing pains in recent years.

“The challenge we’ve had is that as we’ve become bigger, with more companies and more judges to manage, it has become harder for us to train and manage the judges so that they have relatively uniform decision-making capabilities,” said Bob de Wit, NVBC’s executive director.

To put it simply, NVBC’s judges are biased.

Call it the American Idol effect: at one end of the spectrum, NVBC has Simon Cowell-type judges who are consistently overly critical of competing companies; at the other end, Paula Abdul-type judges who consistently let competing companies off the hook lightly.

For this year’s competition, which closed in September with three promising B.C.-based startups receiving a total of $306,000, NVBC turned to Octothorpe Software for help in eliminating its judging biases.

Founded in Vancouver in 2004, Octothorpe brings science into the decision-making process using analytics, software, academic brainpower and a patented formula for “ordinal ranking.”

The company keeps its client list private, but says the list includes top-rung universities, Fortune 500 companies and professional and amateur sports teams.

What its clients have in common is a need to make better and faster decisions.

de Wit said Octothorpe helped NVBC normalize judging data and reduce the impact of biases between judges.

“We didn’t want to get rid of the judges,” said de Wit. “We wanted to deal with the variances in judging. We didn’t change anything about how we did business, we just took our results, ran them through Octothorpe’s analytics and ended up with better results.”

It sounds simple enough, but Octothorpe’s offering is steeped in science.

For example, Peter Tingling, the company’s founder and CEO, noted that there are roughly 40 scientifically documented biases that lead people to make poor decisions.

They include:

•the recency bias, in which decision-makers are likely to favour the person or thing they saw most recently;

•the poor-probability estimation bias, in which the average person can’t tell the difference between a one-in-1,000 chance and a one-in-10,000 chance of something occurring; and

•group thinking: if your neighbour or colleague favours something, you’re also more likely to favour it.

The company has developed a system for accounting for such biases and more.

“I’m a decision theorist,” said Tingling, “and I can tell you that how people make decisions is that they sit down and they model things in their mind. What we do is take that mental model and put it into a system.”

He said many business managers still prefer to use intuition – even though it has been repeatedly proved that most people can’t manoeuvre their way through large amounts of ambiguous or uncertain data.

“Decision-making is the essence of management,” said Tingling. “Yet more people take golf lessons than seek to improve their decision-making.”

Tingling founded the company after wrestling with one of the toughest business decisions in his career.

Over the course of two days while in a managerial role with a financial institution, he had to fire 140 of the institution’s 300 employees.

“We let people go that we should have kept, and we kept people that we should have let go,” said Tingling. “And I thought, there has to be a better way of doing this.”

He went back to school for a PhD in organizational and technological decision-making before founding Octothorpe.

He is its largest shareholder. A handful of private Canadian and U.S. investors support him.

In addition to a software package that helps obviate decision biases, the company provides its clients with technical and analytical support to make better decisions.

It has helped universities select the right candidates to admit for certain programs, and it has helped companies decide who to hire, who to fire and who to dole out bonuses to.

It’s still expanding its client base, but one major professional sports team has hired Octothorpe to help it select rookie prospects and another professional team is hiring the firm in October for similar work.

The company’s software was even used by at least one general manager in the National Hockey League during this summer’s draft in Los Angeles.

Tingling said the company negotiates the cost of its service piecemeal – according to the money that each client saves in avoiding making poor decisions. Given that few people are aware of or even using decision science, it can deliver an advantage to the believers.

“You have to see what other people don’t see.”