The Downfalls of Data

Our future successes will rely less on data and more on decisive action.

by JULIAN BIRKINSHAW and JONAS RIDDERSTRȦLE

 

We live in the information age—a period in human history in which data is the gospel and information is touted as the preeminent source of competitive advantage—for individuals and companies alike. In today’s business landscape many observers say the power to harness information is the key to future success. The McKinsey Global Institute has called big data the “next frontier for innovation, competition, and productivity,” while technophiles like Google’s Ray Kurzweil say the basis of advantage in the years ahead is simple: more data, more information, more knowledge.

But, where some see a world of accelerating change, we see the seeds of creative destruction taking hold. To be clear, technological innovation is a big part of our future, and harnessing information will continue to be an important part of every firm’s strategy—but we believe the case for big data and advanced analytics is overstated. Information overload at the individual level leads to distractedness and poor decision-making. At a corporate level, we end up with a bias toward rational, scientific evidence at the expense of intuition or gut feel. These pathologies have a deleterious effect, lessening the quality and speed of decision-making. What’s more, as data becomes ever more ubiquitous and search costs trend to zero, the capacity of information to provide any leading edge declines.

To be clear, technological innovation is a big part of our future, and harnessing information will continue to be an important part of every firm’s strategy—but we believe the case for big data and advanced analytics is overstated.

So, if the future doesn’t depend on data, what’s the factor on which to focus? Or, rather, what is the scarcest and most coveted resource in the world? Polymath and Nobel Laureate, Herbert Simon, may have intuited the answer some forty odd years ago: it is our attention, he argued, that we need to worry about:

In an information-rich world, the wealth of information means a dearth of something else: a scarcity of whatever it is that information consumes. What information consumes is rather obvious: it consumes the attention of its recipients. Hence a wealth of information creates a poverty of attention.

Simon’s insight is even more relevant today than it was back in 1971. We often claim that we don’t have enough time when, in truth, our biggest problem is lack of focus and attention. Studies have shown that if you are focusing on a difficult task—writing a report or thinking through a complex issue—a single distraction (such as an email) takes up to twenty minutes to recover from. As individuals, we can’t make more time, but we can use the time we have in a more structured, productive, and focused way.

The same principle applies on the company level. Most companies have a process for bringing new products to market, and as they mature such processes become lengthier and more sophisticated. To avoid making costly mistakes, managers ask for more and more information, and they insist on careful market testing. The result it typically an over-engineered, slow-to-market product. There’s a pattern to which many big firms have fallen prey; they pour money and energy into the research and development stage only to find themselves beaten to market by nimbler or more savvy competitors.

The upshot is that the more we obsess over the power of information, the more we believe that the answer is in the data, and the more blinkered we become. We lose the capacity to bring an intuitive point of view forward and move fast. We become victims of analysis paralysis.

So what is the alternative to Slow-Motion, Inc.? It’s what we call a fast/forward mindset.

So what is the alternative to Slow-Motion, Inc.? It’s what we call a fast/forward mindset, which emphasizes decisive action ahead of detailed analysis and requires us to be comfortable relying on emotional conviction alongside rational judgments.

An oft-cited example, Amazon’s phenomenal growth defies conventional wisdom. Its success is built on deep insight into the needs of its customers and an assumption that if you create value for customers, growth and profits will follow. Jeff Bezos is a great believer in systematic analysis, but at the same time he is known for his “harrowing leaps of faith.” His most important decisions are not based on spreadsheets; they are “nervy gambles on ideas that are just too big to try out reliably in small-scale tests.”

If you think about who is at the front of the pack in business today, it is rarely the firms with the greatest processing power, the smartest data scientists, or the fastest connectivity. Instead, it is the ones that move forward faster than the others by developing the capacity for decisive action—the ability to address opportunities as they emerge, to experiment with new offerings, and to make big bets when they’re called for. To channel this capacity for action in an effective way, firms—like people—need to develop emotional conviction. They must listen to their own intuitive reasoning, and create meaning for their employees and customers. As in sports or ballet, so it goes in business: to be effective, action needs adrenaline.

Fast/Forward » makes the case that we are entering a new era in which firms that understand the limits of data will take the lead.

To translate these imperatives into practice a different approach to organizing and managing is called for. The now-standard management model is one of meritocracy—in which activities are coordinated through the mutual adjustment of self-interested parties whose knowledge and expertise counts most. Rather, we’d prescribe adhocracy. In this emerging model, activities are coordinated around external opportunities and an individual’s actions are what matters, particularly when they are backed by emotional conviction.

This way of working requires leaders and managers to behave in different ways as well—to be more empowering of others, tapping into that which employees and customers sense, and putting more emphasis on trial-and-error. To guide them, there are plenty of isolated examples of adhocracy in business; many start-ups have this type of action orientation and large firms will often have skunkworks or venturing units that operate in this fashion. But, we need more! To make companies fit for the future, firms that fit the adhocratic mold should be our guide, as should focused, agile leaders who bring flexibility, decisiveness, and commitment to the fore.

This post was adapted from Chapter 1 of Fast/Forward: Make Your Company Fit for the Future. Read the full chapter here.

Julian Birkinshaw is Professor and Chair of Strategy and Entrepreneurship and Deputy Dean at the London Business School. An acclaimed expert on innovation, entrepreneurship, and renewal in large corporations, he is the author of twelve books including, most recently, Fast/Forward: Make Your Company Fit for the Future.

Jonas Ridderstrȧle is a renowned business thinker and speaker, a Visiting Professor at Ashbridge Business School, and the author of six books, including, most recently, Fast/Forward: Make Your Company Fit for the Future.

Comments

[Weronika Slowinska]

Great piece of work and quite interesting take on that matter. I would say your conclusion about leaders and managers being more empowering to others, tapping into employees and customers senses, but more importantly - putting more emphasis on trial-and-error, that is the essence of open innovation. Although easier for start-ups, implementing that trial-and-error strategy in the banks, for instance, could be extremely difficult. Wouldn't it mean that whether the new management model will work or not, depends on the industry?