What gives cognitive bias a competitive edge today..
and why data driven decision making prevents it from being a liability in
tomorrow’s world
As we head into 2016,
it’s natural to think of the future, what it holds and how we will fair out
when it arrives! Shall our children enjoy an uninterrupted run of good luck and
will our lives only get better with the success we have worked so hard for??
All very natural questions to think about in the new year yet we rarely think
of the strategic decisions made by others that can impact events creating
missed opportunities and/or unseen dark clouds on the horizon of our life’s
path.
Thinking about this strategic review of our lives, how many of us have thought strategically about the future assuming patterns of future success based on a summation of our past experiences? How many have done so without any real interrogation of the past to see if it is feasible to repeat into the future? This oversight of thought is known as cognitive bias (aka intuitive bias), which by Webster’s definition is “Common tendency to acquire and process information by filtering it through one's own likes, dislikes, and experiences.”
Cognitive bias has its origins in evolution. We created a mental filtering system to manage the large volumes of data we receive every day and through a learning process of experience, education and observation, we developed a short cut list of actions to speed up our reaction times, which to date increase our chances of survival. Whether it’s steering clear of an angry Lion on the Savanna or under pressure in the office where we “skim” through a 200 page report by reading the 2 page bullet point summary; our ability to maintain performance under pressure relies on our ability to make lightning fast decisions that rely on prediction based on past experiences. In essence, the decision we made “successfully” in a 100 near-similar cases to date will gain favour with us over a perfect match solution someone else told us about just the other day.
So, sounds like all is well? I would agree if the decision was based on 2 minutes before work to get a Mocha Latte or an Americano coffee. However, what is the case when you have a major decision to make on strategy that affects many people along with large amounts of resources in an organisation?? After all, if you have the right man in the driving seat, then trust his gut, it’s worked this far… right??
My considered answer is
this. The “gut call” is fine to a point but our world is changing even faster
than ever. We cannot rely on even successful past experiences to solely guide
our future strategic decision making. We need to embrace data driven decision
making by creating a process pipeline for it; where we can evaluate a data rich
and clearly presented issue(s) before reaching any swift conclusions based on
our experiences, likes and dislikes (aka cognitive bias, the “gut call”). Companies
who embrace data driven decision making will increasingly build a competitive
edge over those who don’t for the following reasons:
- Dynamic Markets - they change and trend even faster with the onset of the information era and if you don’t understand your customers wants and needs nearly at an individual, real-time level based on their behaviour, then you will lose out to the competitor who can
- Impact Awareness - the age of industrialist capitalism is coming to a clear impasse where the impact of strategic decisions on staff, internal productivity, performance, regulatory compliance and social responsibility all matter as much as the impact on revenue, which in times past (and present for some companies) was the sole consideration. The need for transparency and accurate insights by mapping the impact of strategic decisions is increasingly more important than ever
- The Disrupter Effect - the information age has levelled the playing field to a great extent for new tech start ups who have proven to be vibrant, savvy and able to disrupt pre-existing non tech industries. Apple’s disruption of the music industry is a classic example of this. Microfinance based start ups like Grid Finance shows great disruption potential to the retail arms of banks and lower level investment companies providing a direct investor - beneficiary platform at a fraction of the cost a bank or investment company would take in fees and/or equity
- Faster to Market - the onset of the information era and web 2.0 technologies (cloud) has made it possible to develop and bring to market new products in a fraction of the time to times past. The effect of this in the marketplace is felt by shortening the cycle of new product generation, which in turn is making product life-cycles shorter and more prone to disruption
- Risk Management - develop risk management structures for enterprise that cover your risks in the main areas of business, finance (including FX) and operations. Use tools like risk registers, risk mapping, scenario planning and risk assessments in all major strategy decisions.
- Data Management - a data management platform should be built and structured so as you know how to get to your data in a highly available state, retrieving what you want, when you want.
- Process Management - process management structures should be easily maintained, executed, highly effective and auditable via control points in the process flow that feeds into metrics for the business. This should be automated to the extent that it is feasible based on company size and data quality. If the control points don’t enforce data quality, then they need to be revised until they do.
- Predictive Analytics - transactional data feeding analytical data sets is one of the biggest tools one can get in the modern era. That said, if a robust process management structure does not guarantee good quality data sets, then predictive analytics will produce no qualitative analysis. The need to get the quality and structure of your data sets right from input to analysis cannot be overstressed. It’s the basis of a value creating “data pipeline.”
Technology is marching
ahead at strength in all areas above, which is why a business considering how
they make their senior level decisions should be considering the above points
plus more to create an infrastructure of awareness that will make the
enterprise more able to meet dynamic markets and act and/or react in time to
build upon prior success into an ever uncertain future. The future is here, do
you use a data driven approach to decision making? Do leave a comment with your
thoughts...
Sources/Credits:
Pics;
Credits;
Cognitive Bias: http://www.businessdictionary.com/definition/cognitive-bias.html
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