Gut Feel vs Hard Data

Some time ago, I read research by the Economist Intelligence Unit which revealed that almost 60% of executives use gut instinct to make big decisions. One of the key reasons for this is that many executives lack the skills or expertise to use the data available to them.

Having talked about business intelligence (BI) to literally hundreds of companies of all shapes and sizes over many years, I am not at all surprised by this research.

I was reminded of the Economist Intelligence Unit research when I recently watched the movie “The Big Short". For those who may not have seen this movie, it was a very engaging and in my view a largely successful attempt to explain the root causes of the global financial crisis (GFC) in a manner that could be understood by just about anyone, including those with no real interest in economics.

In the context of data and business analytics, one thing that was very apparent in the movie was that to a small number of people, the GFC came as no surprise. These people were the analysts who had made the effort to look at the raw data. To them it was not a question of if but when. Put simply, the data told them that with relatively incremental interest rate rises, mortgage default rates would rise as sure as night follows day. As a result, it would lead to ever increasing defaults – leading to the crash in the housing market.

These analysts made no attempt to hide their findings. In fact, they shared their views and data with many senior bankers who, had they had chosen to look more closely at the data, might have been in a position to make changes that would have averted or alleviated the GFC.

Unfortunately, many were all too ready to dismiss their work. The reasons are complex but boiled down to a human reluctance to believe that the market (eg everybody else) could be so wrong. The thinking was that the housing market was “as safe as houses” if you will excuse the pun.

So while there was a tendency on the part of those who should have known better to bury their heads in the sand, I believe a major issue here was the inability of senior finance executives to get to grips with the complex financial instruments (derivatives) designed by financial architects – but understood by the few.

If those executives had access to analytics tools that allowed them to break down the data and see it for themselves (without having to rely on back room mathematical geniuses), well maybe things might have turned out differently.

Of course, finance is a lot more complex than the distribution, manufacturing and retail sectors where Phocas is most prominent. However, there are strong parallels here.

In this day and age, senior management are inundated with reports and data from a variety of systems (such as ERP systems). The problem is they generally are faced with large amounts of data that they have no way of analysing or breaking down. Just knowing that sales of a particular product or rep have gone up (or down) is not enough. You need to be able to go behind that data and get the real story. Are margins being maintained, are we selling one product at the expense of another. What impact are our promotions having? We covered some of these and more in recent on-demand webinars.

Management today need to have access to data anytime, anywhere at any level of detail – and without having to rely on others to do this for them. It could be the difference between success and calamity!