Decisions Don’t Start with Data. This was a post found on the Harvard Business Review Blog. This is another attempt to explain how marketers are the kings of the world telling us what we should buy and we are too stupid to know otherwise.
We buy goods and services because we believe the stories marketers build around them: “A diamond is forever” (De Beers), “Real Beauty” (Dove), “Think different” (Apple), “Just do it” (Nike).
That was my favorite excerpt from the post. Thanks marketers, because I wasn’t sure what running shoe I wanted but “Just Do It” has now made up my mind.
The point I got from the post was that people don’t make decisions based on data, it is based on emotions.
To influence human decision making, you have to get to the place where decisions are really made — in the unconscious mind, where emotions rule, and data is mostly absent. Yes, even the most savvy executives begin to make choices this way. They get an intent, or a desire, or a want in their unconscious minds, then decide to pursue it and act on that decision. Only after that do they become consciously aware of what they’ve decided and start to justify it with rational argument.
While I do believe this is true. It does not mean it is right. Just because executives do this does not mean we should succumb to their ridiculous decisions and not present the data.
I do believe we make decisions on data, whether it is consciously or subconsciously.
Apple may say “Think Different”, but if their product is crap and is breaking all the time a person wouldn’t buy it.
“A diamond is forever” doesn’t make me buy from DeBeers. It is there customer service and quality.
There was some form of information that is driving the decision.
I do agree with the author that when presenting a group with a new and possible radical idea that a person should approach his audience in a way that will get their attention.
For some that may mean presenting straight data. For others, presenting a story or a “what’s in it for me?” point of view and weaving the data in.
This isn’t about data and decision making. It is about knowing your audience and adjusting your approach to help meet the audience see your point of view.
During some recent blog reading, I was spurred to think about a past situation when a company I worked for was buying new equipment and how WRONG this decision was.
I had been with the company for about four weeks when I heard about a capital expenditure my director had just approved to buy nine more of a patented machine. My company owned the patent. That would give us a total of 99 of these machines.
First question I asked, “Why are we buying more of these machines?”
The response was a typical one, “We they need more capacity because we are meeting the demand.”
I didn’t ask anymore questions at that point. I decided to go and see for myself. This was easy because the corporate offices we were in was part of the main manufacturing building. I had to walk about 100 yards.
During my observations I found two things:
- The overall OEE of the 90 machines was around 35-40% when it was running.
- At anytime I never saw more than 50 of the 90 machines running. This was because we never had enough people to run all the machines.
After a few hours of direct observation, it was clear there was no understanding of what was really going on.
First, attack changeovers and downtime to get the OEE of the machine up to the 75% range.
Second, why buy more machines if we can’t staff them?!
By my calculations, if the OEE was raised to the 75% range, not only would we not have to buy more machines we could get ride of about 20-25 machines we already had. That would mean our current staffing would be pretty close to what we needed.
I presented this to my new boss and the director, but by this time it was too late. The money had been cut and were pretty much crated and on the road to our facility.
This is why companies should question any new capital expenditures. Companies should be maintaining and using what they have first. The OEE should be at least 70% if not higher before considering adding more capacity through spending.
Do not make any decisions about capital expenditures until the current state is thoroughly understood. The best way to do that is to go and see for yourself.
It amazes me how companies will setup an accounting system this is designed to drive bad decisions.
Recently, I have been working with a client on improving an internal process to the team. During the direct observation with the order writer something very interesting surfaced.
The order writer can write orders to be processed one of two ways. The order writer said that method A costs $400 and only takes 1.5 hours to write the order. While method B costs $30 and takes 2 days to write the order.
I asked where the costs came from because the orders are processed by another internal group. The order writer said it is the cost of systems and labor time for that group and they charge back the order writing team the cost of each order.
The internal order processing group is managed as a Profit and Loss center. They are treated like a company.
Sadly, I have seen this accounting set up quite a bit. Even the support groups like IT, HR, etc… are setup as P&L centers.
This drives decisions to be made that are not in the best interest of the company.
In this case, the order writer is considered value added because they are changing the order to get product to customers. They help generate revenue. Half of order processing is non-value added (entering all the information they get from the order writers) while half is value added (executing the order).
Because the business gets charged back over 10 times more the cost per order for the more automated order, the value added order writers are asked to take 2 days write an order which then adds actual hard dollar cost because it takes more order writers to get the orders written and submitted.
What is wrong with being a support center, knowing it and accounting for it? Why does everything have to be a P&L center to “prove” it’s value?
The places who treat support areas like support areas and don’t worry about P&L centers for everything don’t typically make decisions like the one above. They understand how a supporting area adds value and don’t feel the need to quantify it in a P&L statement.
Have you encountered this in your work?
How is the culture in your organization when it comes to confronting upper management about decisions or direction that may hurt the company? Does your culture allow employees to push back on upper management about a decision? Or does your culture shy away from pushing back afraid the manager will get angry or upset and hold it against them for bringing it up?
We can’t allow our cultures to be afraid to bring up decisions that may be costing the company money. We have to have the fortitude to raise the question and challenge it appropriately. I’m not suggesting to confront leadership with every decision or to do it in an emotional way because you have passion about the decision.
There is a proper way to raise an issue.
- Understand the Current State – Understand what the decision was and how it is understood to help the organization (grow revenue, cut cost,etc…). List the ways the decision is affecting the organization in a negative manner (Causing cost in another area).
- Gather the Facts – Once you have the list of the benefits and negative impacts you need to quantify them. How much revenue is the decision actually generating? How much cost are we saving? What is the cost in the area being impacted negatively? How much rework is the decision causing?
- Make a Recommendation – If you believe a decision is not what is best for the organization then that suggests you have an idea of what would be better. What is the recommendation you have? Quantify what you believe the results would be? Why do you believe that?
- Get Your Ducks in a Row – Think of different angles upper management could take. What are the facts around those options? Would they say, “Become more efficient in the other are.”? If so, how would you become more efficient? What would it cost to implement the efficient way? What would be the savings? When would it pay back?
- Present Your Case – Set up a meeting with necessary people and present your findings. Do it in a business-like manner and stick to the facts. Don’t let emotion control the discussion.
I have found over the years that approaching situations in this manner usually brings out a great discussion and upper management respects the way you handled the situation.
Nobody likes to be lectured about how the decision they made was wrong. It can be disrespectful. Show them it isn’t emotional. It is factual. A lot of times they may not have known what their decision was doing to another area or that it was actually costing the company money looking end-to-end.
I have approached different leaders in this manner several times over the years and all but one case the leader changed their decision once they saw the facts. The other time they still stuck with their decision which was their choice since they were the leader and the decision maker but at least the facts were presented.
How does your organization handle situations like this?
An often overlooked aspect of designing a process is defining the who the decision maker is for directional decisions. When it is not clearly defined as to who has the final say then a lot of waste occurs. Decisions are made by the wrong people that can cause rework later in process. Confusion can occur as to who someone should go to for a decision causing delays or decision not to even be made.
A common tool I have been using for the last couple of years is RACI. Catchy isn’t it.
R – Responsible – This is the person who does the work. Responsible for taking action.
A – Accountable – This is the final decision maker. The “buck stops here” with this person. They own the work or project and have power of the veto.
C – Consult – This is someone who is asked to give input to the action/decision.
I – Inform – These are the people that are notified of what is being decision has been made or action will be taken.
An example would be product development.
R – Designers are Responsible for creating the product.
A – Product VP would be Accountable for deciding the product will meet the consumer needs.
C – Finance and Manufacturing Consult on what is cost and manufacturing feasible for the new product design.
I – Distribution and Sales are Informed of the new product and when it will be ready.
It is amazing at the efficiency a process can gain by defining and documenting the RACI for decisions and actions that are executed in a process.
Have you clearly defined your RACI?
There seems to be a big problem with organizations having a lot of data, but not good data. Data that can help them make good decisions for the business.
This lack of good data can cause organizations to be concentrating on the wrong opportunities to improve or grow. Imagine working on the last issue of a Pareto chart and not the biggest issue because of poor data. You would spend effort that could have been directed towards a bigger issue for the area.
Lack of good data can cause you to start looking for a countermeasure to a problem in an area that is not really where the problem is.
Organizations need to become better at getting useful data and information, not just any data and information. Computers and automation has made it easier to collect and store data on anything and everything. This is a form of waste. Organizations should strive for collecting only useful data and information that can help to make good informed decisions.
The best way to overcome this is by directly observing the work and issues. When directly observing, you will get a better picture of what is actually happening. Usually, the data that you need to have in order to make a good decision becomes clearer.
As leaders we need to push to get people to go out and directly observe in order to drive more useful data and information for decision making.