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Data Delusions

We’re all over-loaded with information–even if it’s synthesized to one degree or another. The idea that analysis of data leads to optimal strategic decisions keeps the organizational appetite for new data sources strong. Managers are required to find new data, new methods of capturing it, and make decisions that are steeped in its ultimate analysis. When someone wants to challenge your position on a topic or a decision you may find them asking, “Well what does the data tell us?” It sounds rational, but is it applicable? Can we always back up organizational decisions with numbers, data, and forecasting?

If your organization is anything like mine, they will report out monthly or bi-weekly figures of some kind. New York City has the Mayor’s Management Report, which combines indicators (critical/non-critical) from every division at every City agency. I thought my agency’s section was dense, until I attempted to digest the entire City snapshot for a two-week reporting period. For a taste, visit NYCStat, the City’s portal for performance-related data.

If that perspective is too global for you, take a look at the unread magazines piling up on your windowsill or reading table, or scroll back through all of your unread (partially-read) e-mails and then rate your own data management capabilities.

My examples pale in comparison to information juggernauts like Google and Wal-Mart, but everyone is getting in the game. As the Economist reports, “Companies are collecting more data than ever before. In the past they were kept in different systems that were unable to talk to each other, such as finance, human resources or customer management. Now the systems are being linked, and companies are using data-mining techniques to get a complete picture of their operations—‘a single version of the truth’, as the industry likes to call it. That allows firms to operate more efficiently, pick out trends and improve their forecasting.”

In an Economist special report, aptly titled The Data Deluge, we learn some astounding figures, “According to one estimate, mankind created 150 exabytes (billion gigabytes) of data in 2005. This year, it will create 1,200 exabytes.” What this will mean for managers the Economist says, “Merely keeping up with this flood, and storing the bits that might be useful, is difficult enough. Analyzing it, to spot patterns and extract useful information, is harder still.”

It’s no surprise that the Economist and others are arguing that “business decisions will increasingly be made, or at least corroborated, on the basis of computer algorithms rather than individual hunches. This creates a need for managers who are more comfortable with data, but statistics courses in business schools are not popular.” Could this lead the way to the new scientific management, in which crunched and processed information dictates the decisions that managers make?

What effect will this have on the debates about decision-making and managers’ ability to optimize? Can more data help us move closer to optimal choices? Maybe not, but it can probably help push along convincing studies that demonstrate that fact.

Will the advantages of aggregation help us see more clearly by highlighting smaller distinctions across larger data sets or will reality elude us hidden within a forest of statistics? It has always been the case that the recognition of importance in data (i.e. information) has offered organizations the competitive advantage. The ability to turn data dumps into useful information will give businesses and individuals the competitive advantage as they seek to further their agendas. There seems to be little room left for the non-believer in the unfaultable virtues of figures.

Additionally, what effect will the new manipulations of data have on business models and business structures? Retail giants like Wal-Mart are revolutionizing their relationship with suppliers and customers. As the Economist reports, “The [data decoding] technology enabled Wal-Mart to change the business model of retailing. In some cases it leaves stock management in the hands of its suppliers and does not take ownership of the products until the moment they are sold. This allows it to shed inventory risk and reduce its costs. In essence, the shelves in its shops are a highly efficiently managed depot.”

Which industries will next utilize new technologies like cloud-computing or open-source software to change the way HR supports and interacts with other divisions? Data mining and forecasting doesn’t stop at product analysis. According to the Economist, it can go much further,“As more corporate functions, such as human resources or sales, are managed over a network, companies can see patterns across the whole of the business and share their information more easily.”

Managers will be receiving more and more information and will be asked to make strategic decisions that are demonstrably based in the analysis of the data. Organizational management theories need to help and start getting involved in bigger ways.

And yet what is still the biggest hurdle for organizations? How can we prevent the next financial crisis? How can we foil tomorrow’s terrorist plot? How can we make organizational management more lean and effective?

Better data.

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