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Corporate strategy and development

Decisive action: Should data or emotional conviction rule?

The leading companies of the past 20 years have all harnessed the power of information to stay competitive.

But, as access to big data becomes ubiquitous, what else do firms need to do to thrive? David Craig, president of Financial & Risk, Thomson Reuters, talks to Dr. Julian Birkinshaw, professor of Strategy and Entrepreneurship and deputy dean at the London Business School, about his new book: Fast/Forward, where he sets out his view that the key to the future is combining decisive action with emotional  conviction.

DAVID CRAIG: In the book, you talk about how the case for big data and advanced analytics is overstated and can no longer be seen as a competitive differentiator. I obviously have some views on this, but can you elaborate?

JULIAN BIRKINSHAW: We are living in a world where there is a data deluge, where information is ubiquitous and we have access to far more information than we can actually use.

One way of approaching that challenge is to say we have to get much better at analysing and making sense of this data. That’s not completely wrong – advanced analytical techniques help us to do that. But there is also the grave risk of  thinking  the information will automatically give us answers on how to make our business successful.

The danger of this reliance is analysis paralysis, the risk of fake information or the fact your competitors may  be doing exactly the same thing.

We get the paradox that in a world where there is too much information, it is actually our capacity to make decisions more rapidly on the basis of less information and to make sure we bring our full emotional and cognitive self to bear on these problems that might be most useful. One of the paradoxes that we are seeing is “The more we know the less we understand” – in a world where there is so much information and we don’t know what to trust, we fall back on belief even more than we did in the past, which is why we’re seeing companies and politicians trying to influence by emotion, rather than facts.

CRAIG: I think gut strength and conviction in leadership counts for a lot. People who intuitively know what to do in tough situations are great leaders. I’ve heard people say, “I’ll tell you the story I want and you can give me the data to prove it.” The danger of manipulation – misinterpretation by accident – of information is higher than ever before.

You need to have trusted data that is used in the right way. I absolutely agree with you that information overload is an issue. But I would argue that the companies that can get the right data, in the right way, with the right tools, will  be winners.

BIRKINSHAW: Yes, you’re right. We have to both push our analytical capabilities as far as we can, collecting new data that brings to bear insight on important issues whilst also being aware that there are whole categories of decisions that we make where we simply cannot get the data that we’d like. Jeff Bezos at Amazon® is very explicit about this. Amazon is both exhaustive in doing testing and getting data, whilst simultaneously taking these enormous leaps of faith into business areas that haven’t existed before. You just have to be very smart about separating the two types of decisions: the ones that can be data driven and the ones where data is going to paralyse you.

CRAIG: One of the problems I recognise is that people think data gives them insight whereas often they are creating a rearview mirror rather than predicting the future.

BIRKINSHAW: People often say “let the data speak for itself,” when that is a terrible idea because the only way data speaks for itself is if you’re using it in the tried and tested ways you’ve used it in the past. What you need to do is get smarter about asking questions of the data around hypotheses based on intuition.

CRAIG: This idea of intuition is obviously key to the premise of the book, as is the idea of “decisive action coupled with emotional  conviction.” In  financial  services,  success  was often based on gut – for example, if you think about 1980s traders. However, post financial crisis  and  with  the rise of electronic trading, has the ability to make gut decisions in the financial services world been reduced?

BIRKINSHAW: Yes, a good  trader is always going  to be successful because of decisive action and emotional conviction. So much trading is automated now that the only way to really make a big killing is to act on hunch and insight that is not part of those algorithms. But of course, any regulated industry is built around trying to limit the capacity of individuals to move beyond the parameters that are deemed safe and appropriate by the external bodies. Because their job is to avoid downside risk, they are also making it harder for people to get the upside by defining those boundaries so explicitly. That’s all well and good as long as they have defined those boundaries to all possible future scenarios as well as current scenarios. There could be the case that regulation could reduce our ability to use those  very tools that will help us to be successful.

So much trading is automated now that the only way to really make a big killing is to act on hunch and insight that is not part of those algorithms.

CRAIG I see  this  in  investing  and  trading  floors;  everyone has to come up with their model of why they are making decisions. The model is only as good as the exact science you can determine around a market. And there needs to be an audit trail of every decision, so making a decision on gut is difficult.

What we’re seeing is that in periods of high volatility, which is now more than ever, the machines are shutting off and voice trading – human decision making – is taking over. Some of our customers are talking about how voice is so important. When everything else is a machine, in periods of high volatility creating liquidity is quite hard.

BIRKINSHAW: In the past, competitive advantage was about “owning” something, but now competitive advantages are shrinking and you have to think about it in a new way, not as your ability to own or control something but as your ability to create a series of innovations over time, the speed with which you can act. If knowledge is shared and I’m collaborating with others in my ecosystem, my advantage is the ability to run faster than them.

CRAIG: Your point about speed is interesting. The days where you can invent something and then profit off that invention for 20 years are long gone. This comes back to our earlier discussion: Don’t let data slow you down, because you won’t be fast enough to win. I wonder whether we are going back to a world where culture is the differentiator.

BIRKINSHAW: Yes, exactly. If we go back to Amazon with 350,000 employees, they still manage a start-up-like culture, where anyone is encouraged to push their idea. Jeff Bezos encourages leaders to “disagree and commit” – to publicly support someone’s proposal even though they aren’t convinced of its merits. It’s a much more powerful approach than getting things done by grinding down the opposition.

CRAIG: Yes, in the book you talk not only about how a leader needs to think and act differently but also how a company needs to operate differently. In your view, what does that new organisation look like?

BIRKINSHAW: The problem we’re trying to solve is that large organisations become slow, both because they defer to rules and procedures and they get stuck in the quagmire of discussion and committee-based decision making. Bureaucracy is deference to rules and meritocracy is deference to knowledge and conversation and trying to understand an issue. We have to put action ahead of rules and knowledge, something which we call an “adhocracy.” One way of thinking about this is almost a state of mind that an individual, when uncertain about the way forward, should actually do something, experiment, solve a problem rather than check with their boss or debate it endlessly. Adhocracy as a structural solution can manifest itself in things like cross-functional working teams, agile working, creating separate units off to the side like you did with the creation of the Governance, Risk & Compliance business at Thomson Reuters, that can operate outside of the formal boundaries and structures of the organisation.

CRAIG: Yes, we have experiences of smaller parts of our business operating in a different way to have that start-up mentality.

BIRKINSHAW: Adhocracy also involves some sort of procedural processes designed to help individuals to act differently. For example, General Electric (GE) was famous for many years for Six Sigma, which was all about driving costs down and driving efficiency. Today they are playing with a concept called GE FastWorks, which is a methodology around lean start-ups focused on accelerating the cycle of innovation.

CRAIG: But is there a danger when encouraging people to take action and initiative, that people aren’t going in the same direction? Is this where purpose-driven strategy comes into play?

BIRKINSHAW: Yes, I’m advocating for speedier decision making and experimentation. There is a risk that if you take that seriously, you could end up with chaos. You have to have something to hold the organisation together and that’s where purpose comes in. It creates a sense of direction; of all the possible things we could do, here are the ones that are appropriate to us. But it’s more than that. It creates a moral, spiritual call to action. It’s not just a direction, it’s a direction we care about. When this is done well, it gets people running in the same direction, but it also gets them running faster because they actually value what it is that the organisation is trying to do. And this is not just at a company-wide level, you can work this logic through at multiple levels – so managers of 20 people can take the notions of “purpose” and “starting with why” to impact how the team works.

CRAIG: So what skills do you see leaders needing in this new world of adhocracy, decisive action and emotional conviction?

BIRKINSHAW: We need faster-moving organisations where people are taking the initiative and experimenting more. The job of a leader in such an organisation is as much about helping people to do their jobs well as it is about doing anything themselves; it’s about creating the right conditions to stimulate people to actually want to do things differently. It’s about figuring out when to provide support and when not to. It’s about being a leader who can state a really clear sense of direction in which everyone can find and create their own purpose.

Meet the interviewees

David Craig, Thomson ReutersDavid Craig is the president of Thomson Reuters Financial & Risk business. He joined the company in 2007, serving as chief strategy officer and then president and founder of  the Governance, Risk & Compliance business. Previously, Craig worked at McKinsey & Company as a partner in the Global Business Technology Office. He is actively involved in many FinTech advisory boards and has authored several articles on data and regulation, FinTech and global technology. 
 

Dr. Julian Birkinshaw London Business School deanJulian Birkinshaw is professor of Strategy and Entrepreneurship, deputy dean for Programs and director of  the Deloitte Institute at the London Business School. He is a fellow of the British Academy, a fellow of the Advanced Institute of Management Research (UK) and a fellow of the Academy of International Business. Birkinshaw is cofounder, along with best-selling author Gary Hamel, of the Management Innovation Lab (MLab).

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