Strategic Planning Analogy #523: Why Let Facts Get in the Way?

THE STORY
A retailer once asked me to look at the data to see how much sales increased after his stores were remodeled. After examining the data, I concluded that for most of the remodeled stores, sales did not change at all as a result of the remodel.

The response by the CEO of the retailer? “I don’t believe the data.” He went on to spend a bunch of money on further remodels.

Another retailer asked me to study their idea to add a new product category to their stores. I wrote a memo—with lots of facts and numbers—showing that adding this product line would be an incredibly stupid idea.

The response of the retailer. “We had no intention of ever not adding this category. We already signed the deal and are going to do it anyway. We just wanted some paperwork in the files to help justify the deal we already intended to do. If your paperwork won’t support the project, then we’ll just do it without support documents on file.”

I’m reminded of the Mark Twain quote, “Never let facts get in the way of a good story.” Or in this case, it should read “Never let facts get in the way of a pre-conceived notion.”

THE ANALOGY
Business leaders have to make a lot of decisions. Most claim they want their decisions to be based on facts. The problem occurs when those “facts” contradict the pre-conceived notions of the business leader.

Do you ignore the facts and go with your gut (as they did in my stories)? Or do you ignore your gut and go with the facts?

As we will see in this blog, there is no automatic answer that works in all cases, but there is a process to figure out what to do in every case.

THE PRINCIPLE
The principle here is that there is a difference between facts and insight. A fact is an isolated nugget of truth. Insight is having sufficient understanding of the situation in order to make the proper decision.

Not all facts lead to insight. For example, I might have a fact that my grass is tall. From that fact, I might conclude that it is time to cut the grass. But true insight would have also known that at that very moment my grass was wet, the ground was soft & mushy, and that it was a pitch-black night outside. Under those conditions, it was not a good time to cut the grass.

Was my fact on grass length incorrect? No, but that fact did not give enough insight to make the right decision.

My gut intuition can also be insufficient for insight, particularly if my experience is not very relevant for the current decision.

So how do I gain insight when facts and intuition disagree? Here are three suggestions.

1) Question the Fact-Giver

There’s a Samuel Butler quote which says “Figures never lie, but liars often figure.” In other words, a person with a personal agenda can selectively use facts to promote their agenda rather than true insight. They present a false insight, distorted by what they choose to disclose and what they choose not to disclose.

It has been said that you can prove just about anything with the Bible if you are willing to take the words out of context. And that’s what these “liars” (people with an agenda) do. They start with their preconceived agenda and let that bias dictate how they present the facts. Their goal is to sell their position rather than provide true insight into what is going on.

You see this all the time in politics, where each extreme position uses facts to “prove” their agenda is true. How can the use of so-called “true facts” come to such different conclusions? It’s all in the packaging.

Several decades ago, U.S. News and World Report Magazine looked at some of the political hot-buttons of that time, like abortion and gun control. They showed that, depending upon how a survey question is worded, you can get a majority of the people to agree with either extreme.

Therefore, when the facts contradict your gut, one can start by questioning the motives of the one presenting the facts. Do they have a hidden agenda? Is their objective unbiased insight or something else?

Ask yourself these questions:

1. Are ALL the facts clearly moving in only one direction? (Rarely is the world that neat and tidy—there are probably relevant facts not being shown)
2. What does this individual gain or lose personally depending on how the decision goes?

Actions you can take:

1. Ask for all the data collected (not just what is in the Powerpoint deck).
2. Have an independent third party (with no agenda) look at the data.
3. Spend less time discussing the conclusions in the deck and more time discussing the assumptions behind those conclusions.

2. Question the Fact Receiver

The feelings of your gut are based on a lifetime of experience. This experience has exposed you to a lot more facts than just what is in front of you with today’s Powerpoint deck. This experience can help expand your insight and provide a better context for making decisions than just dealing with facts presented at the moment. The gut may indeed be more insightful than the facts.

But, then again, your gut may be way off base. You may have your own hidden biases, which impact your gut (even if you are not aware of them). Perhaps your experiences are irrelevant to the question at hand. Perhaps you’ve spent so much time living detached from the real world and surrounded by “yes-men” that you are out-of-touch with how your customer really lives (I spoke more about that here).

Often times, situations when facts and intuition are add odds with each other occur when a company is going through a crisis. Things are going badly. The old approaches aren’t working any more. Is this really a good time to rely on past-based intuition when the successes and tricks of the past don’t appear to be working?

Therefore, before going with your gut, ask yourself these questions?

1. Is my past experience really relevant for today’s decision?
2. Have things changed enough that the rules of the past no longer apply?
3. Do I have a hidden bias? Does my personal situation change depending upon how I decide?
4. Is my gut based on true insight or desperation and panic?

Actions you can take:

1. Have some confidants outside the industry that you can bounce ideas off of.
2. Spend more time out in the field talking to customers and seeing how the world works out on the front lines where your business interacts with the marketplace.

3. Look for the Story Behind the Facts

An individual fact is like an individual word. It can only tell you so much by itself. However, if you can string a bunch of words together into a story, then you really have something—insight.

All of that intuition you have has been strung together into a wondrous story of how the world works. The problem occurs when the new facts don’t fit into your story of how things work.

The problem may be that the facts have been distorted (as mentioned earlier). In that case, it may make sense to stick with the story in your gut.

However, times may have changed and your story may no longer fit how the world of today (or tomorrow) works. It may be time for a new story of how the world works.

So, when looking at facts which don’t conform with your story, ask yourself these questions:

1. Is there sufficient proof that times have changed enough to make old assumptions irrelevant?
2. Do the new facts string together to make a coherent and believable alternate story more in tune with the times? (or is there no story found within the facts).

Actions you can take:

1. Try to build an alternative story that holds the new facts together and compare that story to your old story.
2. Spend more time discussing what has changed in the environment and WHY.

I knew a company who held a story that the disgruntled customers who complain a lot are at high risk to leave because they are the ones most frustrated. They ran their business based on that story. However, facts showed that it was more often the quiet customers who left. This puzzled them until further analysis came up with a new story. They discovered that the noisy customers really wanted the relationship to work and were actively making noise in order to make the relationship better. The quiet ones had given up on the company and were ready to move on to the competition. Since the new story better fit the facts, they adopted the new story and ran their business accordingly.

SUMMARY
Many times, decision makers are faced with facts that disagree with their gut. Rather than always going with the gut or always going with the facts, do some further investigation. Check to see if the fact-presenter has a biased agenda. Check to see if your intuition is relevant to the situation at hand. Check to see if the facts tell a better story than the story you already cling to. Based on this further analysis you can determine when to go with the guts and when to go with the facts.

FINAL THOUGHTS
In the case of the store remodel research mentioned earlier, the CEO had a story in his head that if you make a store better, customers will like you more and reward you with more sales. In most cases this is true. And that is why he stuck with his gut and ignored the facts. But times had changed and this store concept was becoming irrelevant. This created the need for a new story: When you make an irrelevant store nicer, you don’t make it relevant. You just have a prettier irrelevant store. This new story fit the facts. Today, this retailer no longer exists because of its irrelevance.

Strategic Planning Analogy #442: Taking Vs. Receiving

THE STORY
During the 1920s and 1930s, Willie Sutton was one of the most prolific bank robbers in US history. During his lifetime, Willie Sutton robbed over 100 banks and made off with more than $2 million (which would be equivalent to about $30 to $60 million in today’s dollar).

Legend has it that when a reporter asked him why he robbed banks, Sutton replied, “Because that’s where the money is.”

THE ANALOGY
The reporter’s question could be interpreted two ways—Why do you steal or Why do you steal from banks. The reporter meant the first, but Willie Sutton answered the second.

In a sense, the reporter was trying to figure out why Sutton chose a life profession (stealing) which most people found undesirable. Since Sutton had no problems with the profession of stealing, he focused on the most efficient way to do so (go to where the most money is).

This is similar to a strategic question businesses should ask themselves: Why did you choose this path to profitability?

And just as the way Willie Sutton answered his question said a lot about his character, the way you answer this second question may say a lot about the character of your business and its culture.

If your answer focuses primarily on the “path” part of the question, then your culture most likely tends to be focused on building business models that add value to the marketplace. And because you add value to the marketplace, you can extract a profit (a portion of the value added).

However, if your answer focuses primarily on the “profitability” part of the question (saying “because that’s where the money is”), then the character of greed may be starting to overtake your thinking. Rather than thinking about adding value, one is more focused on grabbing as much as possible from where the piles of cash already are. Rather than looking at where to add, you look at where to subtract (what piles to take money away from). It’s starting to slip towards the Willie Sutton mindset.

This is not to say that making a lot of money or profits is bad. But if the money is made in a way that does not add value to the marketplace, then the model is unsustainable over the long run. Just as banks don’t like to be robbed, customers don’t like to be taken advantage of. Willie Sutton spent about half of his adult life in prison and did not get to fully enjoy the fruit of his stealings. Similarly, businesses which do not focus on adding value are punished—taken out of the marketplace so that they can profit no longer.

THE PRINCIPLE
The principle here has to do with the difference between a taking versus a receiving mindset. A “taking” mindset is focused on grabbing money by whatever means possible. A “receiving” mindset is focused on doing something so valuable that customers willingly shower them with money (no need to grab). In the long run, a receiving mindset leads to more enduring strategies.

This principle was brought to mind by the March 14, 2012 editorial in the New York Times by Greg Smith. Smith, an executive in the London office at Goldman Sachs, used the editorial as his resignation letter. In the article, he said he was leaving Goldman Sachs because, to use my terminology, the Goldman Sachs culture had become like Willie Sutton—all about taking rather than receiving. Rather than focusing on adding value to its clients, Smith claimed that Sachs was focused on doing whatever it takes to grab the clients’ money, even if it is not in the best interest of the client.

To quote from the editorial:

“I attend derivatives sales meetings where not one single minute is spent asking questions about how we can help clients. It’s purely about how we can make the most possible money off of them...”

“What are three quick ways to become a leader [at Goldman Sachs]? a) Execute on the firm’s ‘axes,’ which is Goldman-speak for persuading your clients to invest in the stocks or other products that we are trying to get rid of because they are not seen as having a lot of potential profit. b) ‘Hunt Elephants.’ In English: get your clients—some of whom are sophisticated, and some of whom aren’t—to trade whatever will bring the biggest profit to Goldman. Call me old-fashioned, but I don’t like selling my clients a product that is wrong for them. c) Find yourself sitting in a seat where your job is to trade any illiquid, opaque product with a three-letter acronym…

“These days, the most common question I get from junior analysts about derivatives is, ‘How much money did we make off the client?’ It bothers me every time I hear it, because it is a clear reflection of what they are observing from their leaders about the way they should behave.”

Smith also claimed that many leaders at Goldman Sachs referred to their clients as “muppets” in their emails. And I’m pretty sure that was not a term of endearment.

So what happens when this culture takes over? Smith got it right when he said “If clients don’t trust you they will eventually stop doing business with you. It doesn’t matter how smart you are.”

A “taking” mindset may work for awhile, but eventually the people being taken figure it out. And they will stop letting you take from them any longer.

So what should you do to keep a Goldman Sachs type of situation from occurring at your business?

1) Be Careful how You Lead
Employees watch how the leaders operate. If the leaders show a “taking” mindset and refer to customers as muppets in emails, then the followers will see this as desirable behavior. The old phrase “do as I say and not as I do” doesn’t cut it. With today’s technology, leaders have nowhere to hide. They will be imitated. So set the right example.

2) Manage the Agenda
How much of your meeting time is spent on the taking agenda versus the receiving agenda? How much time is spent talking about adding value for customers versus taking their money? You have the power to control the agenda. Make sure the receiving agenda gets the proper amount of focus, especially at the point when actual decisions are being made. Make sure it is part of the decision-making equation.

When I was at Supervalu, a wholesaler to independent grocers, we had a saying that our job was to "make the independent grocer as wealthy as possible." This was a true value-added receiver approach, since it assumed we would only be a profitable wholesaler if we first made sure we had profitable retail customers. The problem was that I didn't always hear that phrase at the time when decisions were being made. There was room to improve in getting the phrase onto the agenda.

3) Measure the Pulse of the Organization
Don’t assume that everything is alright. You may have a situation like Goldman Sachs had in London, where the perception of right behavior had gotten out of control. Monitor the mood and culture in your organization on a regular basis. Learn about a drift in the wrong direction early, while there is still the opportunity to rectify the situation.

4) Treat Strategic Planning Seriously
Strategic planning helps focus a company on the bigger, longer term issues. And in the long term, a receiving mindset is almost always the best path. Use strategic planning as an excuse to find ways to add more value to your customers. Use it to build a business where customers want to shower you with money because it is worth it to them in what they get in return. Strategic planning is one of the rare times when you can get people out of their daily rhythm and get them properly focused on the larger goal. Don’t waste that opportunity.

SUMMARY
There are two different mindsets one can bring to the goal of profitability. The “taking” mindset looks for ways to grab money out of people’s hands. The “receiving” mindset realizes that if you focus on building a superior business model for adding value to clients, they will voluntarily give you their money to obtain of that value. In the long run, the receiving approach is preferred, so make a point of proactively enforcing that mindset within the organization.

FINAL THOUGHTS
In the movie “It’s a Wonderful Life,” the George Bailey character runs his savings and loan business with a value-added mindset. His customers are all better off because of doing business with him. In fact, as the movie points out, if George Bailey hadn’t been alive to run that business with a receiver mindset, a lot of those people would have been in a terrible situation. As a result, when George Bailey gets into financial trouble, all his customers come and shower him with money (now that’s being a true receiver). Of course, it doesn’t always work out so dramatically in real life, but I think the title holds true. With a receiver mindset, it is a more wonderful life.