Using Data as a Vehicle for Insight, Not Just Validation

By Jacques Gauthier

Quarterly financial reports are a universal barometer for evaluating how well operational plans are being executed. But what should you do when you’re not on plan?

When performance takes a downturn, some business leaders raise the gavel, sound the alarm, or stop the wheels-in-motion. But somewhat surprisingly, others have a tendency to do quite the opposite. Rather than overreacting, some leaders under-react.

When faced with troubling reports, leaders might become entangled in justifications, reasons for the shortfall, and unwarranted optimism about future outcomes. This can lead to a common oversight, where leaders fail to reassess the situation with the necessary objectivity, a phenomenon that can significantly impact decision-making processes. It's the classic case of not seeing the forest for the trees. 

Look Again

Business leaders are often adept at navigating the inevitable ebbs and flows of progress, and they understand that operational improvement initiatives often encounter phases where momentum slows and old habits creep in. Temporary downturns in financial performance can, in fact, precede a significant upswing.

At times, the data does not tell the whole story. A flourishing quarter can mask operational shortcomings, or a dip in performance can veil burgeoning innovation. But most of the time, the data is trying to tell you something.

Interrogate the Data

Seeing beyond the numbers to the trends and activities they represent requires a disciplined approach and a holistic interpretation of both leading and lagging indicators. Regularly engaging with data and taking a fresh perspective each time can provide a critical "gut check" that ensures leaders are not merely seeing what they expect to see but are truly understanding the story the data is telling.

Recalibrating our interpretations of data means not just looking at the figures but understanding the story behind them. This requires a routine interrogation of our datasets and the underlying assumptions. It means continuing to ask for both the "what" and "why" behind the reports, even if you think you already know. This reflective practice can help leaders to 'zoom out' and view the data through a new lens, free from cognitive biases.

Understanding Cognitive Bias

The concept of cognitive bias has been around since the 1970s, and over 150 different types have been identified to date. In business, leaders don’t typically set out to undermine their decisions by inserting bias; it happens because of information overload, clarity deficits, compromised recall, urgency of action, or other factors that impact decision-making.

Research shows that overconfidence, sometimes referred to as confidence bias, is the most common of the cognitive biases among professionals and executives. And because CEOs account for up to 15% of the variance in an organization's financial outcomes, a large proportion of leadership research is devoted to understanding effective leadership behavior and mitigating the impact of cognitive biases.

Confidence Bias in Action

In the early 2000s, Blockbuster was the leading video rental company. Despite clear data indicating a shift towards digital streaming and on-demand services, Blockbuster's executives were confident that their physical rental model would continue to dominate. They ignored market data showing the rise of Netflix and other digital competitors. This overconfidence prevented Blockbuster from adapting to changing consumer preferences, ultimately leading to its bankruptcy in 2010.

Nokia was a global leader in mobile phones until 2012. Despite data showing the increasing popularity of smartphones, Nokia's leadership was confident that their existing product lines and operating system would maintain market dominance. They ignored trends and data indicating a need for innovation in smartphone technology. This overconfidence and lack of innovation led to a rapid decline in their market share, and by 2014, Nokia sold its mobile phone division to Microsoft.

In 2011, J.C. Penney initiated a major rebranding effort led by a former Apple executive. The new strategy aimed to eliminate sales and coupons in favor of everyday low prices, despite data showing that J.C. Penney's customers were highly responsive to promotions. Ignoring market research and customer behavior data, the plan was implemented. The result was a drastic drop in sales and a loss of customer loyalty, leading to the executive's departure in 2013 and a significant financial setback for the company.

These examples highlight how confidence bias can cause decision-makers to disregard critical data and insights, leading to strategic missteps and long-term negative impacts on their businesses.

Be Mindful of Tunnel Vision

The backbone of informed decision-making lies in the adept handling and interpretation of data. In addition to confidence bias, many business leaders have a predisposition to unduly value the data and opinions of those closest to us and our processes. This type of cognitive bias can impair a leader’s strategic vision.

"Cognitive tunneling" describes the phenomenon where closeness to a problem makes it harder to see the way out. The narrowing of an individual's focus causes them to miss important, broader context or alternative solutions. Zooming out and viewing data as if for the first time fosters an environment of continual questioning and discovery.

Consultants are trained to take on this mindset with each project, and being an “outsider” can be advantageous. They become accustomed to not having all the answers, yet still persist in their pursuit of solutions. It's a practice that challenges assumptions and pushes boundaries, leading to deeper insights and more effective strategies. The perspective shift that comes from objective analysis and the willingness to ask uncomfortable questions can be a catalyst for improvement.

Embrace Discomfort

The essence of leadership is the practice of living outside of your comfort zone. Leaders must regularly challenge familiar narratives and never stop asking “Why?”.

Being comfortable with the uncomfortable means fostering an environment where all levels of the organization, from the C-suite to the intern, are encouraged to ask the hard questions. This is possible when data is used for insight, not justification.

Advocate for an evidence-based narrative and nurture a continuous improvement culture by pioneering an environment that rewards transparency and data-driven decision-making over subjective or speculative explanations.

Prioritize the Goal, Adapt the Path

Ultimately, the success of any strategy or initiative is not about doggedly sticking to a plan regardless of feedback or circumstances. It's about a relentless commitment to improvement, fostered by a culture that thrives on challenge and dynamic adaptation.

Although data can be used for validation, it is more powerful when it is used as a vehicle for insight.  

Objective measurement, coupled with a readiness to undertake course correction, requires a commitment to self-examination and to look beyond surface-level data, challenge inherent biases, and be willing to make difficult decisions.