Seven Keys to Cost Effective Business Intelligence: Part 1
Data is hot. So, as with any trend, folks begin thinking that data is the way to solve their problems. As financial data consultants, this is great.
But while we love the enthusiasm, we want to acknowledge that what we do is rarely transformative in itself. Don’t be oversold. As our data consultants like to say, having good data can keep you from being stupid. But being smart is a whole lot harder.
1. Past performance is no guarantee of future results.
We hear that disclaimer in mutual fund ads. It’s a cliché, but it’s absolutely true. Things change. For example, in the early 90s, my family’s chain of men’s clothing stores had a mediocre year. Why? Because sweaters, which had been a leading category for years, stopped selling. This impacted the entire clothing industry. Consumer desire changed and suddenly everyone had too many sweaters on hand.
Could a report have told us months in advance that this was going to happen? Not really.
2. Spreadsheet jockeys don’t rule the world.
I’m going to quote Ron Kaplan, CEO of Trex, because he said it so well:
If making money were a function of analysis, the whole world would be run by 28-year-old M.B.A.s. But it isn’t. It’s run by men and women who’ve got enough experience and judgment to look at all the facts and the analysis and then sit back and say, ‘Well, do I feel lucky.’ –Ron Kaplan, as quoted in The New York Times
Having worked with dozens, if not hundreds, of companies over the last 20 years, I realize that spreadsheet jockeys aren’t the real leaders. Leaders know how to lead. They know how to sell. They can inspire other people to believe in their vision. And I don’t see spreadsheet jockeys taking over that role any time soon.
3. Data can prompt action, but it can also be an excuse for inaction.
You can find dozens of articles describing how great data-driven executives are. But are they really? Or is this a classic case of selection bias? No one writes about companies that focus on data and get nowhere—because that wouldn’t sell software.
Recently, I read Strategy: A History by Lawrence Freedman. It has a great example of a data driven executive who went off the rails: Robert MacNamara. He helped rebuild Ford Motor Company after World War II and eventually became Secretary of Defense. He insisted on data driven methods. And he was in charge during the tremendous success (yes, that’s sarcasm) of the Vietnam War.
So, what are data projects good for? They must have some value, or we wouldn’t be in business. Basically, it comes down to not being stupid. Leaders need to take chances. They need to have emotional intelligence and data intelligence. And they also need to know whether their “good idea” worked or not. Often, people keep doing unprofitable and stupid things because they don’t know or can’t agree on their numbers. This is the problem that good financial data consultants solve.
As former New York Senator Daniel Patrick Moynihan said, “Everyone is entitled to his own opinion, but not to his own facts.”