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.