sascom voices - The sascom magazine blog

Yesterday at The Premier Business Leadership Series, I had the tremendous pleasure of attending the panel debate Balancing Intuition and Analytics in Decision Making. The panelists were: Malcolm Gladwell - Best-selling author of Outliers: The Story of Success, Blink and The Tipping Point; Tom Davenport - Best-selling author of Competing on Analytics: The New Science of Winning and President's Distinguished Professor at Babson College; and Thornton May - Futurist, Executive Director and Dean of the IT Leadership Academy .

The panel continued a discussion that Malcolm had introduced in his keynote address earlier about Judgment - the ability to make decisions in seconds based on the acquired experience of years of practical application (or the 10,000 hour rule - the amount of time it takes to be truly great at something). As an aside, I really wonder about this - why are there so many young successful people if you need a minimum of 10 years of experience; are they drawing on something more than just experience or raw talent?

At first glance, you would expect the panel to split pretty firmly into two camps: The "experience is king" camp led by Malcolm and the "you can't get enough data" camp led by Tom and Thornton. But what struck me as interesting was actually how close the two camps were: Malcolm admitted that experience needs feedback to be valuable (feedback from objective business analytics for example) and Tom and Thornton acknowledged that Analytics needs interpretation and judgment to put information into context and to formulate an appropriate response. As I paraphrased in Thornton's lunch, business analytics is the most powerful form of business decision-support not decision-making. In my opinion, when you get the mix of education, experience and (reliable) information right, you release executive creativity, not constrain it.

What they all agreed upon was that there has to be a greater understanding of the power and limitations of analytics in the boardroom - there are too many executives who are woefully underestimating or overestimating what can be done with these powerful tools. As the panel agreed, models don't kill businesses; fools with models kill businesses. On the other hand, what can't experts with models achieve?

Anyway, the panel was incredibly stimulating, all three panelists were insightful, funny, engaging story-tellers who could really get their points across and set us up for the afternoon Executive Workshops (I was in Thornton's). Although I must admit to some bias (Malcolm would pick me up on that anyway). I have to admit that, all things considered, this has been the best PBLS so far. If you were one of the unfortunate people who missed the conference (shame on you), I strongly recommend you visit the main site - the keynote sessions and panels were filmed and will be available as streaming video.It's not the same, but you would do yourself a disservice by not taking advantage of it.

Here's looking forward to the next event in the series in mid-2010 in Europe. I hope to see you there.

The panel was bullish for the long term: Within a decade the global economy will have recovered and be in better shape than ever before, but it's going to take time and patience to get there. It will also be a more truly 'globalised' economy.

In the short term, the dollar will continue to be weak, but that isn't going to hurt USA manufacturing and exports, and the medium term may well see export-led growth for the USA for the first time in years. The longer term will continue to see a shift in economic power to those countries with financial and natural resources and the ability to adapt. In any case, whether it is individual companies or whole countries - we should all be preparing now for the recovery that is on its way.

Of course, we will also have to address the issue about how we wean ourselves off the level of public sector spending that has become the 'new normal.' Deficits will have to be cut and that is going to need us all to share a little of the pain of restructuring. Regulation will also have to adapt if we are to avoid falling into the same trap again.

Looks like it is going to be a very interesting couple of days.

Business leaders, who wish to base their decisions on fact and logic rather than emotion or instinct, probably follow a thinking process that lends itself well to the application of business analytics:

• What has caused this issue to be brought to my attention? If not from an external source (e.g. reading the papers) then business reports may well identify some deviation from a normal course of events (increasing costs, falling profitability, etc.) – often displayed on dashboards, indicators that cross boundary conditions can catch the attention, but what do they mean?
• How do I define this issue? How do I express what I know (and do not know) in ways that I can share with colleagues and which are unambiguous and consistent and might then form the basis of a collaborative approach to resolving the issue?
• What is actually happening? Although business reports often allow for drilling into more detail and gathering more facts, they rarely reveal the whole picture (e.g. the correlation between measures, or possibly other indicators that are not being measured). For example, profitability may drop either because costs are rising or sale price is falling or both – but why?
• What are the underlying processes? This is where the depth of business analytics really tells: identifying correlations, sequences, associated conditions & dependencies, and the validity of (previously held) assumptions – getting to the why of an issue and expressing that understanding in a way that can be used
• What might happen (and how can I affect it)? When you really understand what is happening, and why, you can begin to model possible futures – scenarios of ‘what if we?...’ the ability to forecast into the future is where business reporting aften fails – simple trend lines often mislead (as we know, the past is not always a good indicator of the future)
• Who needs to do what, when and how? By building business analytics into your strategy, using analytical techniques to identify critical processes & measures and reporting tools to monitor progress against the plan,  it is possible to build a living, flexible plan that is optimised to securing the optimal future for your organisation and its stakeholders.

Importantly, business analytics allows every form of leader to think and act more effectively. Visionary leaders can peer into the future looking for new sources of competitive advantage, operational leaders can focus on what is important right now, people leaders can align their resources to promote increasing contribution (and reward) and so on.

For further reading, you might like to read more about 'critical thinking'

I was thinking the other evening about the various types of business models and especially on the nature of lasting competitive differentiation (yes, I know, I really should get a life). It's all the fault of Tom Davenport's writings on 'Competing on Analytics', I keep getting inspired by it.

So, here is what was going through my mind: traditional thinking seems to imply that, presupposing you have something your customers value, competitive differentiation seems to stem from three major areas:

1. What you have/offer is unique, impossible for your competition to (quickly) copy or mimic (typically of R&D centric organizations) or,
2. You are simply the best at it - your product or service is just miles better than the competition and customers are prepared to pay you for the difference or,
3. You are the 'low cost' supplier - the cheapest, the one customers turn to when they can't afford unique or best.

So, if a company decides that its business model is going to be based around being cheapest, it will relentlessly drive out cost from all parts of its business - from purchasing, internal processing and distribution and sales. The additional costs of 'primary' R&D or 'best in class' are probably seen as too great to allow them to also be the lowest cost supplier. Now, I appreciate that this is simplistic and many organizations try to have some coverage in 2 or more of these areas. Nonetheless, most business schools will tell you to choose which of these you are trying to be and then focus on that.

But I disagree because, whilst it might have been true previously that being affordable and best-in-class were inimical, Business Analytics, combined with modern processes and systems, allows you to leverage an asset you already have - data - to create additional business value.

Here are some examples:

• Analysis of customer behavior allows you to tailor their experience by only focusing on what they really want - you save money by not wasting marketing on unwanted customer communications, they have a best-in-class experience because it feels personalized and, persists across channels
• By understanding and predicting risk you can make better credit decisions - extending credit lines to maximize revenues without overextending your risk to loan defaults
• Performance management analysis and forecasting allows for increases in the quality and value of your internal processes whilst also driving down the cost.
• Customer analytics with production forecasting and 'short run' manufacturing allows for personalized products at close to 'off the peg' prices.
• I could go on and on...

So, business analytics can be at the heart of a new unique - the ability to be best and affordable and best of all, it allows you unique insights into your supply base, your own organization and market/customer behavior - an insight your competition can't have.

I've been catching up on my reading on fraud strategy recently (I was asked to contribute a couple of pages to a new book on the subject). And whilst there have been some great strides forward on the technology front, it seems to me that we still haven't fully faced up to the magnitude of the task at hand...

• In Cybersource's Fifth Annual UK Online Fraud Report, their survey shows that 'fraud losses consume more than 1% of revenue for 37% of UK online merchants; 13% lose more than 5% of their revenue'.
• According to APACS - The UK Payments Association, 'UK card fraud losses for 2008 totaled £609.9m, online banking fraud losses £52.5m and cheque (check) fraud losses £41.9m ...the main driver for growth in card fraud is on those transactions without chip and PIN protection'.
• Also, from KPMG's Fraud Barometer - 'More than £1.1bn of fraud came to UK courts in 2008  ...the highest level recorded since 1995'.

I am not trying to imply that the world is sitting on its hands doing nothing - clearly not...

• Earlier this year, the UK Government (in the form of the National Fraud Strategic Authority) formally launched the National Fraud Strategy
• The NHS is having increasing success in catching fraudsters thanks to the efforts of the NHS Counter Fraud and Security Management Service (NHS CFSMS)
• And SAS continues to build on its software and services solutions to counter fraud.

But it's only when these things are brought together that a truly comprehensive approach to preventing, detecting and resolving fraud becomes a reality.

A counter-fraud platform / framework that crosses the silos of an enterprise’s operations is vital in an age of ever more sophisticated fraudsters. As the UK’s experiences with Chip and PIN have shown, cutting down fraud in one area tends to migrate it to others (with Chip and PIN, the fraud migrated to Card Not Present frauds (calls centers and online) and a reemergence of cheque fraud). Counter fraud professionals are also aware that organized criminals are targeting businesses (including Financial Services institutions) from the inside – either attempting to get their own people hired, or engaging an existing employee with their criminal conspiracies – there is no point locking the front door if you are going to leave all the windows and the back door open.

So, the recipe for success in reducing losses to fraud requires:

• Addressing people (culture), processes and systems
• Suppliers, employees and customers
• A committed, continuing effort across the organisation.

I am currently working on a ‘hobby project’ – a thesis about what might follow on from Corporate Darwinism. You don’t have to believe in the theory of evolution via natural selection, but the metaphor, when applied to capitalist economies and especially in competitive business, is too attractive to pass by without some comment.

The idea of Corporate Darwinism is not new - it's been heavily discussed for decades because the analogies seem so attractive (and a lot of the basic language and tenets are similar too). Initially I was looking to find some new application of the existing body of knowledge, but then I realised that Darwinism as a sole inspiration for corporate strategy is failing us. Competition implies that there are winners and losers, but the losers are starting to be whole groups and, like an overly virulent infection, we are killing the host upon which we all depend (our planet).

So far my research on the subject has produced the mind map from hell – tons of data (nodes) and lots of relationships - and organising it into a readable publication is stretching my meagre abilities, but here are a few of my key observations so far:

The second day of the conference began with a keynote address by Lord ‘Nick’ Stern of Brentford, the world-renowned economist and author of the Stern Review.

Firstly, Nick reviewed the carbon flow-to-stock cycle: we emit greenhouse gases as a by-product of our consumption, these gases build up (flow into) the atmosphere where they add to the global stock of such gases, finally the planet can absorb a certain amount of these gases. Historically a proportion of this absorption via the bio mass contributed via the carbon-cycle to fossil fuels which we then burn today as part of our consumption. Lord Stern also pointed out the critical interactions between this carbon-cycle and the water-cycle, and it’s most noticeable manifestation – climate change. Global warming is a major contributor to climate change, but it is not the only factor and is itself a result of the ‘double whammy’ of increasing greenhouse gases and the planet’s reducing capacity to absorb them.

From an economist’s point of view, this is a result of a fundamental failure of markets; we are not paying a realistic price for the things we consume because we do not properly account (pay for) the damage that our consumption does. To put it bluntly, we are passing a high proportion of this real (but hidden) cost of 'damage' on to our children and grandchildren. This doesn’t mean that we need to abandon the market system – but we do need to fix it. This has been done before; for example, prohibiting drink-driving does impact personal liberty, but reduces the ‘real cost’ of this irresponsible action by lowering the number of accidents, injuries and deaths. At the time it was controversial, but ask any young person today who has grown up with the legislation about whether they would repeal it now and they will laugh you out of the house. In my view, our current profligate abuse of the planet’s resources and biosphere is mass drink-driving, and the victims are going to be those not even born yet.

But Lord Stern wasn’t all doom and gloom. He is more optimistic that we can reduce the currently project risks of catastrophic climate change if we are prepared to act now and it need not mean an end to economic growth. In real terms, it will add 1-2% of cost onto global GDP, but this would be a one-time increment. This needs to be viewed as an exercise in risk reduction – by intervening now, we dramatically reduce the likelihood that our children will live in a totally different (and less pleasant) world. In a new initiative called the ‘Global Deal on Climate Change’ Lord Stern outlined what he believes we must do:

• reduce emissions of greenhouses gases by 50% by 2050
• engage the poorer countries
• make an international ‘cap and trade’ market work
• cut global deforestation by providing financial incentives and alternatives
• introduce and research new technological solutions and
• adapt (re-tool) our global economy

The role of business in all of this is to look at climate change as a ‘risk’ issue, as well as an opportunity, set an example to both government and consumers by moving on this issue ahead of legislation, communicate the opportunities and best practices and engage with government to drive the agenda.

Yesterday (29 Apr) I was one of 1,200 or so delegates at the London leg of the Premier Business Leadership Series conferences – a SAS-sponsored, invitation-only executive conference. As a SAS employee you might be expect me sing its praises, but as someone who has been going to conferences for over 20 years it is no longer that easy to impress me. However, impressed I was – the venue, the organisation but most especially the quality of the speakers all contributed to a sense of knowing why ‘Premier’ is in the title of the conference. My blog entry today (and hopefully tomorrow) represents my personal takeaways from the conference.

The day started with a panel session hosted by UK TV news personality Nicholas Owen and brought together 3 globally-respected economists; Gerard Lyons PhD of Standard Chartered, Joseph Quinlan of Bank of America Global Wealth and Investment Management and Dennis Turner of HSBC plc. Between them the panel touched on some of the real issues that are driving the current global economy and affects the economic outlook for tomorrow.

Clearly there is an adjustment going on in the world economy, with a range of views as to what this means for the traditionally USA-led western economies (with some disagreement about whether there is going to be a recession, or just a slowing of growth). What was more interesting to me was the view that there has been a ‘decoupling’ of East and West, where a slowed western economic performance is sharply contrasted with continued growth in Russia and the East. There was also a consensus that the Eastern economies are not as dependent on Western markets as trading partners as previously, with new trade corridors with each other making up a larger share of their balance of trade.

That said, the West has sufficient capacity in their economies to weather the storm, provided the politicians can avoid the trap of populist policies of protectionism; pulling back from the global free market right now may not be a viable long-term strategy, even if it does win some votes. The UK economy was held up as an example – the current economic factors are positive so growth will slow, but it will still be growth. That fundamental economic strength and market liberalism will be vital as ‘UK limited’ starts to play its part as a business unit of ‘Global plc’. One cautionary note was sounded however about the levels of debt in the UK, especially in the younger segment of the population; sustained economic growth cannot be founded on continued borrowing – there has to be some real earnings in there somewhere.

I was reading an article in Project Manager Today magazine (more interesting than it might sound) about 'Unknown Unknowns and Risk' and it made reference to Donald Rumsfeld's infamous comment about "we know there are some things we do not know". Actually, he was making sense in a garbled sort of way as he referred to a well-known model of knowledge vs. awareness - an example of which is the Johari Window.

In the article, this matrix is adapted to explain the relationship between knowledge and risk, where not knowing what you don't know implicitly represents an unquantifiable risk. Interesting enough surely, but it got me to thinking about the nature of Business Intelligence, Analytics and decision-making in changing environments.

Many organisations think they know what they know - they make decisions in the certainty that they are acting on valid assumptions and to exploit their core strengths (I have however come across many examples where this 'certainty' was a lot less certain than assumed).

Research-led organisations know what they don't know and explore the implications of their ignorance, but do so towards a specific objective (they want to change unknown to known).

Amnesiac organisations are not realising perhaps one of their greatest untapped assets -
the volumes of data and information that they generate doing business, but which simply gets filed and never looked at again. Using a proactive approach, they could (re-)discover what they already knew and exploit it (the multiplier return on the investment to do this is often many-fold).

Finally, they say that 'ignorance is bliss' - I for one don't agree (I hate surprises). That said, it's a perfect environment for experimentation
without preconception - even if the results are going to be unpredictable.

Whatever quadrant you find yourself in, one thing remains true - awareness (and exploitation) of what you know (or don't know) is the least risky place to be - just ask anyone associated with the sub-prime lending market right now.

Reflecting on this, I also realised that there are times when I don't know what the situation is, or what it demands of me - that's when I become a micro-manager. This is particularly true during periods of business transformation. But, over the last six months, I have adopted a simple, powerful methodology that delivers results time-after-time:

1. Really, really understand where you are today
2. Learn from it, and then move on
3. Project yourself into the future - what does it look like?
4. Work out what is needed for 3. and how, when and who will get it
5. Do it today!

Whilst it's exciting to be in uncharted territory, it is a lot less stressful when you have the appropriate tools. For me that means not just having a transformational infrastructure, but also the individual skills - something I'm going to working on over the next few months.

Meanwhile, It's never too late to change - UK's oldest newlyweds

I've been spending the last few months working on a major business transformation programme, and it's an exciting place to be. As part of the steep learning curve involved in adapting a generic approach to something specific for the programme I find myself occasionally having an "ah ha!" moment - a flash of inspiration or insight. I would like to share with you one example.

The programme team is completely in agreement about where we are (sometimes called the "as is" state) and we have a very good idea of where we want to be in a couple of year's time (the "to be" state). What is not clear is exactly how to get from one place to another; we know the direction we need to go & the distance to be covered, but not all of the challenges we are going to face. Well, I've been having real problems explaining to some of my colleagues that this is normal and OK; they keep looking for some hidden, detailed implementation plan (probably 200 pages of closely typed project plan with 100s of milestones and deliverables all neatly laid out with responsible owners).

Yesterday inspiration came to me - imagine a map of North America in the early 1800's; lots of detail about the cities on the East Coast and some details of what lies on the West Coast. Along comes the California Gold Rush of 1849 and suddenly a lot of people want to cross overland from East to West in a hurry; they knew where they were, they knew where they wanted to be but there was precious little information on what lay between. Nonetheless, they set off, encountering mountains, lakes, unfriendly people of all sorts - they had to deal with it all as it arose but they didn't lose sight of where they were going and why. It was hard, it was dangerous and it could be cruel, but for many it beat staying where they were.

So why the history lesson? Imagine if Government had tried to write the specification for that mass migration; there would have been committee after committee, risk assessments, detailed specifications for everything from the wagons to the beans, months sent in selection processes, progress reports every 5 miles with more committees to decide how to cross the newly-discovered rivers, deal with the indigenous peoples, etc. I've no doubt that the journey would have been less harsh and fewer people would have suffered but by the time they reached California, all the gold would have been long gone - taken by the more agile. Governments (both elected officials and civil servants) do not like uncertainty.

So it struck me that today, much of the UK Government's "Transformational Government" agenda is in danger of falling into the same trap - it knows where we are today, it has a good idea of where it would like to be, but it's going to face real problems forming up the wagon train because of its tried-and-trusted procurement processes. When they eventually get there, will there be anyone around to greet them?

In the UK there is debate forming about how best to target benefits on the most deserving cases without building a dependency culture. For some time the UK Government has been using 'means tests' to ascertain whether a claimant needs State support, or whether they have independent resources that they should really rely on first. To further reinforce the 'best form of welfare is work' message many cash benefits have been replaced with 'Tax Credits' that allow those on lower incomes to keep more of the money they earn.

Whilst there is no doubt that this approach has led to significant realignment of State support to some, it has come at the cost; in the UK billions of pounds of benefits remain unclaimed each year (£4.2 billion (US$8.3 billion) by the elderly alone). There are potentially many reasons for this, but chief amongst them are;

• Some people are simply not aware of what they are entitled to
• Others are put off claiming because they are proud and would have to reveal their financial circumstances
• Some are concerned that they might inadvertently over claim and be accused of fraud.
• And some have a little savings and incorrectly assume that this precludes them from State support

Add to this the annual outcry about huge errors in the payments of benefits through the Tax Credit system (typically because of a change of the Claimant's circumstances and infrequency of calculation of entitlement) and it's clear that something has to change.

As has already been proven we can use analytics to identify socio-economic groups, predict likely future needs and even detect fraud, why do we not use analytics more to anticipate individual needs? Or put it another way, why doesn't the State, that knows far more about the benefits system and has access to huge amounts of data about citizens, take up the responsibility for calculating a claimant's likely entitlements and then present this portfolio to the claimant under the banner of "this is what we believe you are entitled to and this is why..."? If administered well, it could even reduce fraud and error currently made easier by a complex system of benefits calculations often undertaken in isolation.

On the 15th March 2007 the UK Government (through the Attorney General) gave its response (pdf) to the Fraud Review Final Report, which represents the first comprehensive and holistic review of fraud and anti fraud efforts in England and Wales.

In short, the Government has accepted all the major recommendations of the final report which include the following areas that are of interest:

1. The formation of a National Fraud Strategic Authority (NFSA) which will develop and disseminate best practice as part of a national strategy (which will include the Commercial Sector).
2. Establishing a programme to measure the national extent of fraud.
3. The (early) formation of a National Fraud Reporting Centre (NFRC) to identify emerging trends and act as a data 'clearing house'.
4. Increased levels of data sharing - both within Government and with external agencies.
5. An increased role for Government Audit bodies to develop anti-fraud measures.
6. Changing the criminal justice system to make the detection, investigation and prosecution of fraud cases more effective.

Of interest to SAS is that the strategy models described in the report are clearly based on the strategies of the National Health Service (NHS) Counter Fraud & Security Management Service (CFSMS), to which SAS is a strategic partner. It is not difficult to see the dependence on Business Intelligence that is going to be at the heart of the implementation of the strategy. Neither is it difficult to imagine this strategy being evaluated as a model beyond the UK's borders.

The majority of governments around the world are parties in a 'social contract'; simply put, citizens give them permission to raise funds through taxation etc, decide on policy (what to spend the money on) and then invest or disperse funds on their behalf.

However, many governments are faced with increasing degrees of citizen dissatisfaction with levels of taxation; how the decisions are made on what to spend this money on; and certainly on the perceived inefficiency of governments when it comes to actually spending the money (many of us will have noticed the increased level of attention on levels of fraud and waste in the Public Sector).

Business intelligence, as it's understood by SAS, presents opportunities for delivering improved performance in government.

Firstly; in policy-making, a greater insight into current and future demands on the Public Sector can support 'evidence-based decision-making'. Socio-geodemographic analysis, macro-economics, etc. can all inform the political process, focusing limited resources on issues that have the greatest perceived benefit on the citizenry.

Secondly, the raising of funds, for example through taxation, can be a burden more fairly distributed by targeting those who don't pay (or don't pay enough) tax and in improving debt collection processes, This touches on such issues as fraud, avoidance schemes, etc.

Finally, as a result of better policy and through programmes of social inclusion, governments can then focus funding on meeting the priorities of the day (for example in 'raising from poverty', 'doing more with less', etc.).

In a truly integrated public sector, the vast resources of data that are routinely harvested and available to governments can be exploited to delivering a fairer, more just society that benefits all and not just the 'standard' majority. There are undoubtedly challenges ahead (e.g. data sharing, coherent policy, etc.) but these can be overcome, provided the political will exists.