Does Your Data Drive You Nuts?
Our days are increasingly filled by all kinds of data and information. How do you interpret it all correctly and present it in a useful, efficient manner? How do we steer clear of errors that may lead our organizations to make poor strategic decisions or promote the wrong products or services?
In a recent issue, the Harvard Business Review had two very interesting articles on this topic, which we recommend that you read to better understand the processes involved in interpreting and communicating data using indicators.
Article 1: The Dangers of Categorical Thinking
In the first article, authors Bart de Langhe and Philip Fernbach explain that human beings are built for analyzing and interpreting the voluminous amounts of information that come at us. We actually have “codes” ingrained in our brains for performing these complicated tasks which help facilitate and speed up decision-making in a wide range of situations. One of these “codes” is categorical thinking: the mental process of sorting and grouping similar types of information for faster analysis.
In an organizational environment, we use these same “codes” to analyze sales, markets, risks and profitability. How does categorical thinking work? How can it help and hurt us? This article answers some of these questions.
Once you better understand this process of sorting and analyzing information, you will be able to improve the way you group information and analyze it.
Article 2: Don’t Let Metrics Undermine Your Business
Scorecards and their key performance indicators (KPIs) are everyday tools that organizations have used for decades. They are essential for measuring performance and executing strategies. Try to imagine the Olympic Games without performance metrics. How would we be able to determine the winners of events such as downhill skiing without them?
In their article, Michael Harris and Bill Tayler show that performance management is often linked to strategic management and that this may have unwanted consequences. The problem is that taken individually, metrics are inherently imperfect and some are used to quantify intangible goals.
For instance, when an organization decides that its strategic objective is to "delight customers," it will probably track progress toward this goal by surveying them. Yet, if the organization’s employees involved in the process start thinking that the best strategy is to maximize the survey scores, they might use all kinds of tactics to achieve this. In that case, the performance metrics can actually have an adverse effect. The authors discuss this particular effect and the way in which it can harm our organizations.
A good knowledge of the two effects presented in these articles will help you perform more effective analyses and establish less risky performance metrics.
About the author
André Bélanger, CPA, CMA, is President of Optima Management and a strategic cost and performance management consultant. He is also an author and trainer for the Order, the Mouvement québécois de la qualité and the Ministère des Finances du Québec. He holds Lean Master – Bronze and Six Sigma – Green Belt certifications, which demonstrate his expertise in improving the efficiency of processes and value chains. Recognized as an expert by his peers, he is the chief assessor for the Prix Performance Québec.