Tuesday, September 25, 2007

The Illusion of Precision

Way back when I was getting my MBA, we were placed on various teams for doing a project with an outside client. As part of our presentation, we were referencing some of the consumer research done by the client.

One of the women on my team kept wanting to present the consumer research results out to four decimal points. She wanted to put in our presentation statements like “32.1432% of the consumers” believe such-and-such. I kept telling her that I thought it was silly to go out to four decimal places, since the statistical significance of the results were + or – 3%. In other words, that 32.1432% could just as easily be 29.2% or 35%.

But she kept insisting that if we used more decimal points, we would look more precise and our conclusions would be more convincing. I replied that it would make us look stupid, as if we didn’t understand statistical significance.

We finally reached a compromise. I got her to come down to only three decimal points. (Okay, so it was only a small victory—but I claim it anyway)

Strategic planning lives in a world of imprecision. Nobody knows exactly how the future is going to turn out—and certainly not out to four decimal points. Yet, for some reason, we feel more comfortable if we give the illusion that there is more precision our strategy than what is called for.

That is what happened on my MBA project. One of my teammates believed that if she used more decimal points, it would make the data appear more believable and the conclusions more convincing.

In reality, adding those extra decimal points did not make the data any more precise. It was still only accurate to + or – 3%. And in the vast majority of the cases, one would come to the same strategic conclusion had the number had been 30% or 34%. So why sweat the extra digits?

As I like to say, “You only need enough accuracy to get to the point where you make the right decision. Any additional accuracy beyond that is a waste of effort.” For more on this, see my blog “What’s a Few Seconds Among Friends.”

In the world of strategic planning we can create an illusion of precision by burying our vague notions about the future under a pile of numbers and/or words. Just because you can build a gigantic and highly detailed excel spreadsheets with thousands of numbers in them does not mean that it is any more precise than a small handful of “big picture” numbers. Breaking numeric imprecision into smaller pieces does not make the overall notion any more precise.

Similarly, taking a notion of where to go and filling a giant notebook full of detailed steps on how to get there does not make the notion any more precise. If your compass direction is off by 5 degrees on a 100 mile journey, breaking up that 100 miles into 528,000 individual instructions on how to move for each foot of the way on that imprecise path will not get you any closer to your destination. In the end, you will still be 5 degrees off.

So here is today’s question: Is having the illusion of precision a just useless indulgence, or can it actually damage your strategic planning process?

The principle here is that the creation of the illusion of precision can actually be very damaging to your strategy. In fact, you are probably better off if you work with less precision. The reasons are as follows:

1) It can unnecessarily limit your inputs
2) It can unnecessarily limit your outputs

These are explained below.

1) The Illusion of Precision can Unnecessarily Limit Your Inputs
If you start believing that your conclusions are far more precise than they really are, then you will start believing that you have all the information you need. The thought process becomes, “Why look for additional inputs when you know exactly what is going on and exactly where you are going?”

As a result of this illusion, one stops gathering data. This can be very dangerous. The future is full of unknowns. As you move down the path, you will have the opportunity to learn more. This additional knowledge can help you make modifications to your strategy to put it on a better course. However, if you are no longer looking for data inputs, then you will miss out on that opportunity.

Usually, the initial strategy has more of a top-down orientation. In other words, the initial strategic design is developed primarily by top level executives, who then communicate the direction down to the lower level troops. If too much of an illusion of precision is given in that communication, then it tends to stifle any feedback from the troops.

The troops are your eyes and ears to the world where you business is operation. To miss out on the input your troops could give to the process is a great waste of talent and insight. However, if the precision in the assumptions appears too great and the strategy is presented as a precise manner that looks fully completed, then it is harder for the troops to feel like it is worth their while to try to add their point of view.

Conversely, if the strategy is presented in general terms and then the call is put out to the troops for input, you will get a better response. In addition, because they had a greater hand in developing the strategy, the troops are more likely to be enthusiastic about making sure the strategy gets accomplished.

2) The Illusion of Precision can Unnecessarily Limit Your Outputs (Actions)
If too much precision is given as to how the strategy is to become accomplished, then it becomes harder to improvise the action outputs. The strategy becomes like a cookbook recipe. There are precise measurements of everything that is to be done—a cup and three quarters of this, a half teaspoon of that, an oven temperature of 350 degrees for exactly 28 minutes, and so on. If your strategy reads like a recipe, then the people will act like they are using a recipe and will follow all of the directions as closely as possible.

Unfortunately, when it comes to building a strategy for the future, we’re not exactly sure what the ideal recipe is when we start. If people believe they have to follow each step exactly as outlined, then we miss out on opportunities to improve our actions as we learn more.

It would be like me having a goal to get a number of people from Minneapolis to Dallas rather inexpensively. My initial conclusion could be that the best approach would be to get everyone on a bus and drive down Interstate 35, the expressway which connects the two cities.

It is one thing to suggest the bus trip down I-35 as a possible means to accomplish the strategy of getting many people to Dallas inexpensively. It is something quite different to say that the bus trip down I-35 is the strategy.

Things can happen. For example, part of I-35 in Minneapolis was the bridge which recently collapsed. It will take over a year to replace it. If you think the strategy is to precisely use I-35, then you will be waiting over a year to start your journey.

Second, what if there is a change in airline fees, and one of your people has special connections so that you can charter an airplane for less than you could charter a bus? If you are forced to “stick to the recipe” and do not ask for input from the troops, you would miss out on this desirable alternative.

Therefore, the best approach is to make sure everyone understands the ultimate goal (get a bunch of people from Minneapolis to Dallas), but provide for some flexibility in how it gets accomplished. That way, the troops can adjust to the unforeseen (like a bridge collapse) and seek out improved alternatives which come up (like connections to get low airline fares to Dallas).

Now we don’t want to get so imprecise that they troops decide instead to go to Istanbul rather than Dallas. Randomness is not an option. But, by the same token, you don’t want to be so precise that you lock into a sub-optimizing recipe of actions which cannot be changed.

Due to the very imprecise nature of the future, one should not presume to have all of the strategic answers to high precision at the beginning of the journey. By doing so, one is at risk of ignoring additional information as one moves down the path (and thereby missing out on the benefits of mid-course correction and the insights of the troops out in the field). In addition, one is at risk of locking into a “follow the recipe exactly” approach to implementation which eliminates the flexibility of adapting to a better course as situations change and new opportunities emerge.

Flexibility needs to be a part of your strategic implementation, and too much of an illusion of precision can hamper that flexibility.

When I was in Boy Scouts, they taught us that if you got lost in the woods and are looking for a way out, look for a directional marker as far out in the distance as possible and walk in that general direction. Otherwise, if you focus too close to where you are standing, you will tend to walk in circles and never get out of the woods. Similarly, to keep your strategy from moving in circles, look in the broad general direction rather than deceptive detailed precision right in front of you.

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