Guest Column: September 2019
DOES DATA DRIVE YOUR BUSINESS DECISIONS?
If not, you’re falling behind without even knowing it
Charles D. Morgan,
THERE’S A WELL-KNOWN quote that perfectly captures the impact of data on corporate decision-making. Jim Barksdale, Internet pioneer and former CEO of Netscape, famously told his executive staff, “If we have data, let’s look at data. If all we have are opinions, let’s go with mine.”
I wish I had said that, since it expresses my philosophy exactly—except I would change it to, “Let’s get the data before we decide.” In the old days, however—before companies had vast amounts of data at their disposal—corporate decisions were generally made according to the “HiPPO syndrome.” An acronym for "highest paid person's opinion," HiPPO codifies the tendency, throughout much of corporate history, for lower-paid employees to defer to higher-paid people whenever an important decision had to be made.
How reliable are HiPPO decisions? Sometimes good, sometimes not so good. Take, for a searing example, the way former J.C. Penney CEO Ron Johnson bulled ahead with his sweeping, from-the-gut plan to remake the retailer before he was fired after only 17 months on the job. “Mr. Johnson, 54, favored bold actions, and put the plans on pricing, marketing, and merchandise into place without doing any small-scale tests….” wrote the New York Times in April 2013. “During Mr. Johnson’s tenure, the company’s shares have fallen more than 50 percent…In late February, Mr. Johnson admitted he had made ‘big mistakes’ in his turnaround effort as the company reported a $552 million loss for the last quarter, along with more than $4 billion in revenue that evaporated in all of 2012. Last week, the board slashed his pay by 97 percent.”
Today, and especially for big corporations, there’s no excuse for running the company into the ground by winging it—there’s just too much data available to help executives make solid decisions based on predictive analyses. And yet I have a nagging sense that many big companies, here in Arkansas and elsewhere, still aren’t making strategic use of data in their decision-making.
My suspicion is backed up by data, according to TechCrunch, the online site for tech and startup news. “We have been hearing about big data and data-driven decision making for so long, you would think it has become hardened into our largest organizations by now,” writes Ron Miller. “As it turns out, new research by NewVantage Partners finds that most large companies are having problems implementing an organization-wide, data-driven strategy... the data suggests that it’s not a technology problem, it’s a people problem.”
I’ll admit that for legacy companies struggling to transform themselves for the 21st century, the sheer volume of information and the ever-changing new technology to make sense of that data can be overwhelming. I’m CEO of First Orion, a tech company, and even for me, when I talk with the guys in the office they’re constantly wanting to shift to this brand new tool or that brand new tool, to the point that it makes my head spin. There are so many new things coming on the scene every day that even the people in the profession have a hard time keeping up with it.
People react in different ways when they’re overwhelmed, but one of the most dangerous reactions—especially for CEOs—is to throw up their hands and say, “Well, maybe there’s something in it for me, but it’s too hard, I don’t understand it, I can’t figure it out, and besides, I’m too busy doing what I do every day.” So they keep doing things the same old way “because it’s worked so far.” Well, I can tell you that’s not the attitude in Silicon Valley, nor is it the attitude in exploding economies in and around tech centers. In those places it’s all about the new and the exciting and the previously unfathomable opportunities that data and technology present to us every single day.
At the Arkansas Center for Data Sciences, we’re working really hard to educate the people of Arkansas on the crucial importance of a data-driven society, which we’re clearly in now. Business owners or CEOs ride on autopilot at their peril. The key to sustained success is to constantly think critically about your business: What are we not doing well enough? How can we do better?
And you don’t need a 21st-century example of how data can give a company an edge; just look back at our own Sam Walton, one of the first leaders ever to disrupt his entire industry. He did it by pulling together data—which in his case was in the cash register and his sales reports—and analyzing that data, and then building a new retail model based on it.
Sam knew that most retailers carried too much inventory, had too many markdowns, were overstaffed, and frequently suffered out-of-stock loss of sales. He set out to counter all that. Part of Sam’s plan was to have super-low overhead. He paid people the absolute minimum, which is typical of retail. And he managed his store labor with an iron hand—he did not want his stores full of clerks tripping over themselves. He was also incredibly hardnosed when dealing with vendors. He may have had to pay a bit more than he wanted at first, but once he got the first store going, he was now buying for two stores, then five, then 10. In the early days, he was also buying brands that most people didn’t know. So he would go to a lawnmower manufacturer who couldn’t get into Sears and he would say, “When I start up a new store I want to get good terms on my original stock—maybe sixty days to pay for it.” Sam negotiated deals to acquire inventory without shelling out for it up front. It was brilliant—he didn’t pay a dime for his merchandise until he’d already sold it.
The bigger he got, the more clout he had. And the key to Sam Walton’s continuing success was that he knew every morning exactly what had been sold in every one of his stores the day before. So he knew what to order and what not to order. He didn’t take on too much inventory. Ultimately, it was accurate, up-to-the-minute information that became his secret weapon for defeating his competitors. And I can claim a tiny footnote in Sam Walton’s success: When I was at IBM, I helped sell him his company’s very first computer. (Of course he wanted IBM to sell it to him at a discount.)
We talk today about businesses that are “data-driven,” but that’s a bit of a misnomer. Data without analysis is useless; it’s the data analytics that make today’s tech world so robust. Sam Walton’s data analytics were crude by comparison to what we have today. We have so many tools at our disposal, to analyze, predict, and forecast. And remember, even if you’re not using those tools, your competitor may be. To stay ahead in today’s business world, you have to think big and bold. You have to focus not just on what your company is, but on what it could be. And the key to what a business could be often lies in the data, if people will just use it.
Certainly the need—and the reward—for companies to transform themselves via technology applies more to big companies than to small ones. Dillard’s department store chain benefits much more from sophisticated data analytics than does a boutique clothing store on any Main Street in Arkansas. But I believe it’s all relative. What I’m saying is that even small businesses can profit from participating—appropriately—in the data-driven economy. If you own a craft brewery, data can help predict which brews will be most successful. If you’re in the restaurant business, data can help you cut down on waste, boosting your bottom line. And if you run one of those boutique clothing stores on Main Street, sales data can help you sharpen your inventory to styles your customers will love.
TechCrunch again: “Every organization, regardless of its size, is generating vast amounts of data, simply as part of being a digital business in the 21st century. They need to find a way to control this data to make better decisions and understand their customers better. It’s essential.”