Thursday, 29 May 2014

Data denial and the downfall



Mid-sized organisations are looking to business intelligence in order to build resilience amidst the uncertain and complex business climate. It’s about having the capacity to change before the case for change becomes desperately obvious, but building resilience rarely happens in isolation. 

Having to reform an entrenched business model is a daunting task, particularly for the giant corporations among us. To build resilience is to develop the capacity to respond intelligently to changing circumstances. When we, as executives, notice a reason to change strategy, but choose to avoid what the data reveals, we're in data denial, and that could make the difference between a mid-sized organisation taking market share and the downfall of a behemoth.

Neither rock, nor sand

Building resilience is defensive, yes, but it is also a competitive growth strategy. The lesson of resilience can be found in the Biblical passage about the wise man who builds his house upon the rock, while conversely, a foolish man maintains his house on the sand. Although in this day and age, it's not so simple. What once was a rock solid business model is prone to turn to sand. The forces of globalisation could turn a supplier into a competitor, or a black swan event could turn on-premises information technology into dust.

The essence of resilience

Management expert Gary Hamel and professor of innovation management, Liisa Välikangas, co-authored an HBR article in 2003, The Quest for Resilience, in which they describe the essence of resilience as the capacity for an organisation to "make sense of its environment, generate strategic options, and realign its resources faster than its rivals", adding that it is the organisations that build resilience that "will enjoy a decisive advantage." They refer to this as "strategic resilience":
Strategic resilience is not about responding to a one-time crisis. It’s not about rebounding from a setback. It’s about continuously anticipating and adjusting to deep, secular trends that can permanently impair the earning power of a core business. It’s about having the capacity to change before the case for change becomes desperately obvious.

From a "fixed" to a "growth" model 

When we fail to recognise the impermanent aspects of our business environment, we operate in denial, or what Carol Dweck, professor at Stanford Department of Psychology, more broadly refers to as a "fixed mindset". Her research into two types of mindsets, the preferable one being the "growth mindset", could very well be applied to our organisations to build resilience:

  1. The fixed mindset is when a person believes their abilities, or lack thereof, has become a permanent state that cannot be changed. For an organisation, we can use "mindset" as an analogy for "business model" of which we end up maintaining despite the evidence that it's failing.
  2. The growth mindset is when a person believes their abilities are developed, so can continue to grow by learning. They seek challenges and persist effectively in the face of obstacles. For an organisation that harnesses available data to build resilience, the capacity to change the business model is increased, despite the rising uncertainty of a complex environment.
Building resilience requires a conscious choice to become aware of unforeseeable and high-impact events. As analysts learn to anticipate change in the business environment by using increasingly predictive analytics, we can explore future scenarios that may minimise the fragility of our organisations and embolden us as executives to act upon emerging opportunities. Our organisations gain the capacity to undertake trial-and-error in our sales and purchasing strategies. We learn to improve production and human resource performance by experimenting with new ways of working based on the insights discovered from data.

A decisive shift

Leadership expert and Harvard Business School professor, Rosabeth Moss Kanter, wrote Transforming giants for HBR in 2008, in which she argued that even profit-seeking behemoths can become agile while having a positive local impact upon their communities. Her research team spent two years visiting the operations of companies such as IBM, Procter & Gamble, Omron, CEMEX, Cisco and Banco Real. After conducting three hundred and fifty interviews with the leaders of these companies, her team identified that giant size organisations were "rapidly and creatively taking on social and environmental challenges of a scale only large entities could attempt, bringing small and midsize businesses with them on the journey." She notes what she calls a "decisive shift":
Employees once acted mainly according to rules and decisions handed down to them, but they now draw heavily on their shared understanding of mission and on a set of tools available everywhere at once. They more readily think about the meaning of what they do in terms of the wider world and include external partners in the extended family. Authority is still exercised and activities are still coordinated—but thanks to common platforms, standardized processes, and, above all, widely shared values and standards, coherence now arises more spontaneously. This shift is often heralded, and in most of these companies it has been a long time coming. But now it is happening with dramatic effects.

Partnerships to thrive amidst complexity

While collaboration can happen internally in an effort to build resilience, it can also happen externally through partnerships between corporates - with access to market, capital and political clout - and startups with data analytics and business intelligence capabilities. Many midsized organisations are ideally situated to experiment in these these new business ecosystems to generate evidence of what works that can allow them to leapfrog the corporate giants which have far less capacity to adapt their momentum or complexity of their internal systems. What larger organisations do have, however, is an abundance of data that their smaller partners can leverage to create collaborative scenarios that fit the unified purpose behind their shared objectives and values.

Building resilience rarely happens in isolation. It's a mutual endeavour that can shape the market toward a dynamic in which both partners not only survive, but thrive together in a better world. Understanding how a cloud-based business intelligence service can make it happen is a great next step.

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