CIO upfront: 'Business leaders have to learn how to take multiple small actions with their analytics'
- 25 January, 2016 08:30
In this year's SUNZ conference, four senior leaders experienced in using information and technology to sustain transformation journeys will come together to talk through an analytics issue that all organisations must at some point solve.
‘The Purposeful Data Play: How to Extract Meaning for Business’ is a topic that goes to the heart of the business case of analytics investments.
It’s a difficult topic and one most senior leaders involved in analytics are grappling with. The answer will determine whether an organisation is successful in moving from data to insight.
What is meaningful is contextual and dependent on the frame of reference. We see this whenever business leaders ask, ‘Give me some data that shows X’ and analytics leaders respond ‘We only have data on Y’.
Senior leaders have to build clarity where there was none and do so in a way that is both realisable and transformational.
Meaning is a slippery thing. The study of history has been described as ‘An argument about what facts mean.’ Ask yourself ‘what does the American Revolution mean?’ and then pose the same question to someone else and you’ll get two different answers. Both of which can be valid and accurate. Meaning can sometimes be reduced to what can be formally inferred from a piece of information. But this doesn’t satisfy the needs of business leaders.
Meaning emerges from the frames we use. In business this might seem a non-issue... but the theory and practice of management pre- and post-GFC are quite different. Frames matter and this is where analytics can help.
As Daniel Kahneman wrote in ‘Thinking Fast and Slow “…most of us passively accept decision problems as they are framed and therefore rarely have an opportunity to discover the extent to which our preferences are frame-bound rather than reality-bound”.
Analytics can help with framing bias by providing alternative views and external reference points. This is called broad framing: “Broad framing will be superior in every case in which several decisions are to be contemplated together” (Kahneman)
A critical step in extracting meaning for business is mitigating our natural tendency toward narrow framing, expectations bias and anchoring. Another is ensuring that we use the information to stimulate learning. Senior leaders make decisions under conditions of uncertainty with long futurity. Uncertainty is where more than one possibility exists and futurity refers to the full time span over which a decision is effective. Transformation journeys are highly certain and have long futurity.
Decisions require action to take effect: decisions without action are simply intentions and we all have those. Senior leaders have to learn how to take multiple small actions with their analytics. Another lesson the historian understands well is that there are no facts about the future: there is only conjecture. Facts occur in the past and analytics helps identify facts that are helpful in improving conjecture.
Taking small steps with analytics is about senior leaders learning how to update their conjectures with new information. Without taking a step, all leaders have is more conjecture. This is important because it is the basic task of senior leaders to form an achievable theory of the future. We are familiar with the idea of vision, but less so with the more important idea of having a clear theory of the future.
Senior leaders have to build clarity where there was none and do so in a way that is both realisable and transformational. This is extremely difficult and not just because sustained thinking is hard work. Senior leaders are by necessity strategists and strategy is about alternative paths to alternative places. The vision will help carry people along, but it is the theory of the future that will provide the specifics for how to get there.
This is what Karl Weick referred to as ‘disciplined imagination’: “The ‘discipline’ in theorizing comes from consistent application of selection criteria to trial-and-error thinking and the ‘imagination’ in theorizing comes from deliberate diversity introduced into the problem statements, though trials and selection criteria that comprise that thinking.”
There is a special case of uncertainty that haunts the dreams of senior leaders: risk. Our brains are wired to see risk in terms of awful disaster. But risk is the essence of business. We commit resources to an uncertain future because we wish to improve the present. Risk is the natural state of the business leader. In terms of making decisions, risk is about the chance and cost of being wrong (being wrong is where another alternative had a better outcome and we would have taken it if only we had known). Analytics helps business professionals get past soft scoring risk methods (which only encourages an illusion of control) and learn how to use probability to improve decisions that involve a high chance of being wrong.
This goes to the very reason why we make such substantial analytics investments: better information to reduce uncertainty and improve our chance of making the right call. But business leaders will need to become comfortable with the world of probabilistic quantification. Because to do otherwise creates a fatal reliance on their analytics colleagues. The problem is not in the weakness of the functional model for transforming organisations: it is about the fundamental problem of communication in a data heavy world.
Information emerges from communication: otherwise it is just data. Effective communication requires a common language. For analytics professionals to help business professionals each must learn the others’ language. This means business leaders learning the fundamentals of estimating under conditions of uncertainty.
As we can see, there is a lot to be done to extract meaning for business. It can be easy to criticise senior leaders. But they are dealing with unprecedented challenges of organisation. Mitigating framing bias, improving decision making under uncertainty and constructing a good theory of the future are three significant challenges for senior leaders. This is why having the opportunity to hear the views of the panel at SUNZ2016 is something I’m really looking forward to.
Rohan Light is the founder of Decisv, a management business that provides leaders with risk-based, decision-focused foundation management services.
Rohan worked at the enterprise level in Inland Revenue in a series of specialised roles in the risk, design, portfolio management and business group domains. He began to be consulted by business people on issues of strategy, management and execution, which led to the formation of Decisv. His formal strategy work led to teaching strategic thinking as an Associate at VUW’s Professional and Executive Development.
He cofounded the Enterprise Analytics Forum, a community of practice that meets to discuss issues relating to the fundamental challenges analytics poses to pre-digital business models. He extended his involvement in the analytics sector when he was appointed Chairman of the SAS Users of New Zealand. His purpose here is to help build a world class analytics capability for New Zealand.
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