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
Staying ahead of the
information game is becoming increasingly more dynamic, harder to predict
especially if the decision maker has no access to data when making the
decision.That said, as the onset of technology has driven the information era
and the rise of disruption. It also drives the data driven decision making
approach, which companies can now use to their competitive advantage. Companies
wanting to embrace it are well advised to consider the following:
- 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...
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