Are You Using Your Data, or Just Collecting It?

By March 16, 2020 blog No Comments

One of the most important business lessons is also the simplest: success is often the result of making more good decisions than bad ones over time. The question is how to do that.

This should be easier to do today. Technology and business intelligence (BI) provide a wealth of data to guide even the most nuanced decision-making. For many scenarios, there is data that can show you the outcome of past decisions that were similar and reveal the projected outcomes over time.

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Despite this, many leaders aren’t taking full advantage of the tools at their disposal and rely heavily on gut-instinct in situations where data provides a more complete picture. In situations without data or precedent, instinctive decision-making is likely the most viable option. But this strategy is unnecessarily risky in cases where the data shows the outcome of similar situations that have occurred in the past.

In these cases, many leaders use past exceptions as justification to ignore the cost of failure. Reasons for this may vary — from a distrust of analytics to a desire to succeed with a bold, unconventional move — but it can prove costly in the long-run.

An illustration of this is professional gambling. Casinos thrive because many bettors believe they are smarter than the odds, and that they can beat the house with bold betting. These are the gamblers who drive the majority of casinos’ profits.

The bettors who win in the long-run clinically assess the odds of each bet and make careful, data-backed decisions, making their biggest wagers when the odds are in their favor.

Statistics tend to normalize over time, eliminating the short-term aberrations that give the false appearance of good or bad luck. The longer you play the same game, the more the odds win out.

The Flashbulb Memory Problem

When relying on prior experience, consider that memory is inconsistent and fallible. We are more likely to recall extremely unexpected events, rather than more mundane occurrences, thanks to “flashbulb memory.”

According to the American Psychological Association, flashbulb memory describes distinct recollections of emotionally significant occurrences. APA notes, “Though flashbulb memories are more likely to be retained than the memory of an everyday event, they are not always accurate.”

In a business context, flashbulb memory causes people to remember exceptional results, rather than expected outcomes. For example, an executive may vividly remember taking a chance on an unconventional hire and watching that employee grow into a star performer. They are less likely to remember when they made a safer bet on an obviously qualified candidate who turned out to be exactly as competent as expected, or the risky hires that did not work out. The exception becomes the legend.

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Taking Advantage of Data

There’s a huge difference between understanding the importance of data and making it a priority in your organization. Every business needs experts responsible for analyzing pertinent data and helping inform employee decision-making.

For example, at Acceleration Partners (AP), a member of our team is responsible for using BI to tell us which brands, based upon their attributes, past behavior, and failure rates, would be risky to take on as clients. If left to their own devices, a salesperson would naturally not be very inclined to turn away a prospect. BI-informed rules can overrule our sales team if the prospect seems to have a high potential to fail based on past data.

This does not mean it is always a bad idea to take risks. Leaders should still rely upon their instinct if they strongly believe they are right. But comparing that gut-feeling with the data consensus is a good way to test the certainty of the decision.

Likewise, if a leader decides to go against the data, they must take ownership of that choice if things go badly, and bear responsibility for the outcome. Exceptions need to have accountability because, as the saying goes, “Success has many fathers, while failure is an orphan.”

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Setting Rules and Policies

Of course, decision-making is executed at all levels of the organizational chart. While the executive team will handle decisions that make or break the business, successful companies ensure that employees are empowered to make decisions at every tier of the company. Where the data is overwhelming, leaders may choose to set guidelines based on evidence.

Another pertinent example at Acceleration Partners is our approach to counteroffers. In our experience, counteroffers have a poor short-term outcome because they adversely affect the relationship with the employee and only temporarily fix the underlying issues. For example, a study from Heidrick & Struggles found that 80% of senior executives think trust with an employee is diminished after the employee accepts a counteroffer.

Knowing this, we made a blanket policy for our talent team to not extend counteroffers. We think it’s a mistake to do something with such a high failure rate, and by setting a policy, we release less-experienced employees from making those hard choices without the benefit of the data or experience. We are playing the odds.

Educating employees on the historical odds of decisions prevents them from making unnecessarily risky decisions and gives leadership a chance to carefully consult the data and weigh the consequences and costs of failure.

Instinct still has a place in business, but it should not be the only driver of decision-making. By making data and BI a focal point of your team’s strategic thinking, and using it to craft smart organizational policies, leaders can safeguard their businesses against unnecessary failure, and ensure that the company makes more good decisions than bad.

Robert Glazer @ Harvard Business Review

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