Sunday, June 21, 2009

Foresight, not hindsight, is of value

As an analytics consultant, time and again my clients have asked me why they should rely on analytics and not on the "gut feel" that they have developed through years of experience (sometime, running in to decades) of running their business. Now, that’s a tricky question which does not only challenge the existence of analytics as a profession-which incidentally is my bread and butter-but also demands an explanation on why one should shy away from the traditional (& time tested, if you will) way of running the business.

Traditionally, successful businesses have relied heavily on sound gut feel which more often than not is based on past experiences of the business owners. These are beliefs formed over a period of time and are generally static in nature. This works well in a monopolistic situation but in a rapidly changing competitive environment these beliefs can not remain static. Competitiveness favors those who spot new trends and act on them expeditiously. So, how does one spot a new trend? Past experiences or gut feel seize to play any role here. Spotting new trends requires complete understanding of consumer expectations & behaviors which can only be derived by mining a wide variety of up-to-date information lying either internally or in the market place. The new competitive landscape further demands that this exercise can not remain a sporadic event but to keep pace with the market dynamics one needs to continuously hunt for emerging trends. C K Prahlad, a noted management thinker, adds that “…delay in recognizing, interpreting & acting on the trends are emerging as critical impediments to competitiveness”.

Sometimes a small change in business dynamics can trigger a chain reaction which can potentially be fatal but is generally overlooked because our brain is not programmed in a way to account for simultaneous interplay of several correlated factors. The impact of such seemingly insignificant changes can only be better understood by quantifying them with help from some analytical model. There may not be any similar historical leanings to fuel our intuition but pressing decisions are still to be made in an informed way

Gut feel or intuition is and will always remain an important part of businesses but in a fast changing competitive environment, experience of the past is less and less valuable. Foresight, and not hindsight, is of value. This is not to take away the role that intuition plays in making business decisions but to emphasize the point that completely relying on this would amount to gifting away the market share to analytics savvy competitor(s).