Thursday, November 24, 2005

Pure as the driven data

In a recent conference speech, IDC analyst Robert Blumstein had some interesting observations about linking business intelligence applications to corporate profitability. Noting how many business decisions are still made based on spurious, incomplete or entirely absent data, he notes that "It's easier to shoot from the hip, in many ways". I found this comment intriguing because it echoes similar ones I have heard before in my corporate career. I remember one of my managers saying that many corporate managers didn't seek data to support their decisions because they felt that using their "judgment" and "instincts" were mainly what they were being paid for. This syndrome was summarized elegantly by historian James Harvey Robinson, who said: "Most of our so-called reasoning consists in finding arguments for going on believing as we already do."

I personally believe that there are very, very few managers who are so gifted that their instincts are always right. The world was always a complex place, but it is ever more so now with a greater pace of change in so many ways. Hence I believe that being "data driven" is not only a more rational way of responding to a complex world, but that it will lead to greater success in most cases. As the economist John Maynard Keynes said on being questioned over a change of his opinion: "When the facts change, I change my mind -- what do you do, sir?". I have observed that the most impressive managers I have seen are prepared to modify their decision in the face of compelling new information, even if that contradicts their "experience", which was often built up many years ago in quite different situations.

Making business decisions is hard, all the more so in large organizationss where there are many moving parts. There are many insights that good quality data can give that contradict "experience". One customer of ours discovered that some of their transactions were actually unprofitable, which had never come to light since the true costs of manufacturing and distribution were opaque prior to their implementing a modern data warehouse system. All the people involved were experienced, but they were unable to see their way through the data jungle. In another customer, what should have been the most profitable product line in one country was also being sold at a loss through one channel, but again the true gross margin by channel was opaque prior to their new data warehouse system; in this case it was a problem of a poorly designed commissionn plan that was rewarding salesmen on volume rather than profitability. "Data driven" managers will seek to root out such business anomaliess through the analysis of hard data, fact rather than opinion.

It is often noted that data warehouse projects have a high failure rate. Of course there are many reasons for this, such as the difficulty most have in keeping up with businesss change, and the vagaries that beset any IT project. Yet could part of the problem be that, at least in some cases, the people for whom the systems are supposed to provide informationn simply would prefer to wing it?

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