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 #316: Use Your Gut

THE STORY
Back in 1983, Howard Schultz traveled to Italy. While there, he took part in the local culture of the Italian coffee bar. While spending time just sitting at the coffee bars and soaking up the cultural experience, Howard had an inspiration. Howard believed that Americans would become just as captivated with this Italian coffee experience as he was.

The idea was to design a “third place” for Americans, somewhere between home and work. It would be a place for conversation and a sense of community. And, yes, a place to buy quality coffee at premium prices.

When Howard got back to the US, he started a coffeehouse, called Il Giornale. In 1987, he purchased Starbucks to further his vision.

Apparently, Howard’s gut instinct was pretty good. There are now more than 15,000 Starbucks in 50 countries. Annual sales are in the $10 billion range. That’s a lot of coffee.

THE ANALOGY
If Howard Schultz had done a lot of research into coffee facts back in the early 1980s, I don’t think he would have gotten much support for his vision. Price was one of the main drivers of coffee purchases, with a constant price war going on in the supermarkets between the top brands. Premium-priced quality coffees in the US hardly existed, and there was not a strong clamoring for it, either.

Nobody was really clamoring for a “third space,” either. Convenience was the driving force, as people were looking for ways to do things faster and easier. The idea of going out of your way to get a slow coffee experience would have sounded insane to most people at the time.

Seeking community? The 1980s were a key time of people moving out into the suburbs to escape interaction and hide in the comfort of their suburban home.

Young adults, a key Starbucks segment, at that time were into drinking colas, not coffee. Coffee was seen as that boring drink that old people consumed. And the last thing the youth wanted was to behave like old people.

If you were to have added up all the facts, the Starbucks vision would have looked like a real loser. Yet it was just the opposite.

Howard Schultz’s intuition, however, could envision something beyond the facts. This intuition was more valuable than the facts.

In the business world, strategic decisions are being made all the time. Usually, these decisions are made based on a blend of facts and intuition. Most of the current business literature praises fact-based decision-making and downplays the role of intuition. However, as we can see in this story, transformational strategic decisions like Starbucks often need to rely more on intuition, because the facts of the day are all pre-transformation.

It is like trying to measure the wingspan of a butterfly while it is still a caterpillar. The caterpillar has a wingspan of 0, because it is still in the pre-transformation stage. The wings do not come until after the metamorphosis—when the caterpillar turns into a butterfly. Rejecting a caterpillar’s eventual flying ability based on pre-transformation factual measurements will lead to the wrong conclusion—that this animal will never fly.

Intuition is needed in the pre-transformation stage, in order to envision a post-transformational world (because you won’t see it in the pre-transformation facts). Like the pre-transformation caterpillar, “facts” would have lead people to believe that Starbucks wouldn’t fly, either. And they would have been wrong.

THE PRINCIPLE
A recent article in the McKinsey Quarterly was titled “Strategic decisions: When can you trust your gut?” The article was in interview with Nobel laureate Daniel Kahneman and psychologist Gary Klein.

This article tended to downplay the importance of gut intuition. It was considered to be a tool fraught with many perils—one to be used very minimally, because it was not very reliable. In fact, it was downplayed so much that the interviewer had to ask if there were ever situations when intuition could be trusted in the business world.

Gary Klein responded that intuition is best suited for situations with high predictability. He continued to say that in very turbulent situations there is no basis for intuition.

At first, this sounded very logical to me. But then I started thinking about examples like Starbucks. Eventually, I came to the conclusion that often the principle should be the exact opposite of what Gary Klein said, especially when it comes to major strategic decisions.

During times of high stability and high predictability, facts are probably at their highest level of relevance. You know exactly how to interpret the facts, because the future environment is virtually identical to the environment in which the facts are collected. You can trust the “facts” of customer behavior and customer research more than at any other time, because behavior is relatively stable and there is no turbulence to befuddle the consumer opinions. And because the management has already successfully acted in this environment, they will know exactly what the facts imply for their business. Therefore, stability is the best time to rely on the facts.

It is during times of turbulence when facts are the least reliable. Conflicting reports may be coming in. The “facts” may predate the latest turbulence and be obsolete or irrelevant. Customer opinions may be worthless because they applied to an older context. Customers may have no idea how the turbulence will affect their long-term future behavior, so they cannot give you accurate insight. Today’s “facts” cannot tell you where the environment will end up when the turbulence finally reaches a new level of stability (like trying to measure butterfly wings on a caterpillar). Therefore, since facts are at their lowest level of reliability during turbulence, one needs to rely even more on intuition in order to make sense about what is going on.

This is especially true when you are trying to create a transformational strategy, like Starbucks. In essence, transformation strategies are trying to take a stable environment and intentionally inject turbulence into it. The idea is to intentionally upset the status quo in order to create a new environment more favorable to your company.

Great strategic moves often try to re-write the rules of the game. Starbucks re-wrote the rules of how we view the role of coffee in our life. Apple re-wrote the rules on how we interact with people, information and entertainment. Linked-in has re-written the rules of how people find jobs. Social networking sites have changed the rules on how people think about their privacy.

I enjoy watching old movies made before the digital revolution. It is funny to see people driving around town looking for a pay phone, because cell phones weren’t invented. Housewives slave for hours to make dinner, because there are no microwaves or fast food restaurants. People have to wait until they get tomorrow’s newspaper in order to know what is going on in the world. It is difficult today to even imagine living like that anymore. Similarly, it would be difficult for people of that time to imagine the lifestyles we have today. Mere facts are not very useful in transformational situations like this. Instead, you need the intuition of visionaries—people like Howard Schultz.

Peter Drucker used to say that the best way to predict the future is to create the future. In other words, the more you take control of your destiny and proactively work to write the rules of the future, the more likely you will know what the future will be. Howard Schultz did not wait for the coffee revolution to occur before jumping in. Instead, he proactively created the coffee revolution. He created demand that did not before exist through his strategic actions. He made the old facts obsolete by creating a new world.

Similarly Steve Jobs did not wait for the digital music revolution to reach stability before jumping in. Through the iPod and iTunes, he invented the new reality that people flocked to. Through intuition, he envisioned a future and made it happen. Steve Jobs didn’t look at the facts to see what the future was evolving into. Instead, he envisioned a better world and made it happen, regardless of the facts.

SUMMARY
Contrary to popular opinion, turbulent times may be the best time to ignore the facts and rely on creative intuition. This is even more true when you are intentionally trying to upset the status quo and proactively re-write the rules of the future in your favor.

FINAL THOUGHTS
Here’s the real shocker. If it weren’t for intuitive visionaries like Schultz and Jobs, the world would have evolved differently. There might not have ever been a coffee revolution or an app store for smart phones without them. The facts at the time would have been identical. Yet the outcomes would have been different. The intuition of visionaries had more to do with how these markets developed than the facts of the moment. Think about that next time people are telling you to reject intuition and stick to fact-based decision-making.

Bad Decisions

Introduction
Recent articles from the McKinsey Quarterly have been looking at poor strategic decision-making. They are articles worth reading. Some of the articles look at how our biases can distort our thinking process. Others look at the problems which occur when we rely on our intuition rather than facts when making decisions. They claim these two issues can keep us from making the right strategic decisions.

After reading the articles, I thought I’d make my own comments on the subject.

WHY DO WE MAKE SO MANY BAD STRATEGIC DECISIONS?
The key question here is “Why do so many companies make so many poor strategic decisions?” We’ve all seen lots of poor decisions in the business world. To simplify the discussion, I’ve boiled poor strategic decision-making down to three causes:

1) The Main Goal Has Not Been To Make Good Strategic Decisions
If you want good strategic decisions, it helps to have good strategic decision-making as your primary goal. That may sound obvious, but unfortunately, many of the decision-makers on strategic issues do not have “making a good corporate strategic decision” as their main goal.

Instead, many of the leaders have different primary objectives. They tend to fall into the following two categories:

A. Avoiding Pain- Pain of Going Through Change
- Pain of Arguments/Discord in the Organization
- Pain of Taking a Risk
- Pain of Admitting Failure/Mistake
- Pain of Drawing Negative Attention to One’s Self as a Naysayer (hammers hit the nail that is sticking up)
- Pain of Going Against Wishes of Powerful Stakeholders (Shareholders, Key Customers, Bosses, etc.)

B. Increasing Personal Gain
- Career Advancement
- Benefits to One’s Silo in the Business
- Maximizing Bonus/Rewards

Often times, the right strategic decision involves pain and/or reductions in personal gain. If people are more concerned about pain and personal gain then they are about making the right decision, then they will, by nature, make the wrong strategic decision. Don’t assume that people automatically give good strategic decisions a priority when making a choice.

2) Wrong Amount of Facts
Facts provide the information which leads to knowledge. This knowledge helps us make better strategic decisions. If you eliminate fact gathering and analysis from your decision-making process, you increase the risk of making a wrong decision.

Relying just on experience and personal intuition can be dangerous. Your “golden gut” may not be as golden as you think. It needs to be tempered with facts. Therefore, too little attention to facts can cause poor decisions.

At the same time, too much attention to facts can also lead to poor decisions. When blazing new strategic trails, there may not be many facts at all to gather. If you wait until all the facts are in, it can be too late to act. First-mover advantage is over and the game is already won by someone else. Trying to gather consumer insights in an area where consumers have no prior experience can lead to bad and misleading data—sure the customers will tell you something, but it will usually be wrong, since they do not know how they will react under unknown circumstances.

Paralysis of Analysis (from too much data) is just as damaging as only relying on your golden gut (no data). A balance is needed.

3) Wrong Interpretation of the Facts
Just because you have the facts does not mean that you will interpret them properly. Three factors tend to cause improper interpretation:

A. Backward Lens
We often interpret facts based upon our knowledge and experience in the past. However, times can change. The “truths” of the past may no longer apply. Our worldview may no longer be in sync with the new truths of today. Sometimes we need to update our rules-of-thumb or risk having an obsolete point of view.

B. Preference Lens
Sometimes we see the world through the lens of our own personal desires and feelings. Our personal desires and feelings may be quite a bit different from those of our customers. Often times, our customers can be less knowledgeable and less wealthy than us. Their hopes and fears may be quite different from our own due to these differences.

C. Static Isolationism
The world is ever-changing, ever moving. Wayne Gretzky credits his hockey success to skating to where the puck will be rather than to where it has been. Similarly, if we only focus on interpreting facts as to what they say about “now,” we will never catch up to them. By the time we get to where that factual puck was, the puck will be somewhere else. Static analysis (assuming the facts we gather are not moving) will always put us in the wrong strategic place.

Not only are things moving, but their movement is altered based upon how others act. If I plan to take market share away from someone, I should expect them to retaliate. If I am a retailer, my success may have more to do with the decisions made by Wal-Mart in that category than my own decisions (because they are so powerful). Just because I choose not to cannibalize my business does not mean that others won’t choose to cannibalize my business. As a result, we cannot think in isolation (as if we are the only players in the game). We must consider the moves of others and how that will change the nature of our “facts.”

HOW DO WE MINIMIZE THESE THREATS TO GOOD DECISIONS?
1) Get Decision-Makers to Have a Goal of Making Good Decisions
If “Avoiding Pain” and “Increasing Personal Gain” are contrary to good strategic decisions, then we have to fix this. Take away some of the pain in making right decisions by fostering a culture where risk-taking, dissention, and failure are acceptable—even praiseworthy. Use tools to make differences of opinion constructive rather than destructive.

Create a reward system where people are penalized for being too selfish. Bonuses should have a corporate component, so that you maximize your selfish financial interests only by looking out for the long-term good of the entire corporation

2) If People Cannot Decide In the Strategic Interests of the Corporation, Don’t Let them Make Strategic Decisions.
It is often important to get input from across the organization. Hearing diverse opinions from all the key sectors is good. But that doesn’t mean that all the contributors of information should get a final vote in the decision. If the people are too biased or cannot see the big picture, then thank them for their input and make the decision without their vote.

3) Get the Right Amount of Facts
As we saw earlier, too much or too little data can cause problems. One of the questions I ask myself is this: What is the likelihood that additional data would cause me to come to a different conclusion? If the likelihood is high, get more data. If the likelihood is low, stop gathering data.

4) Get Biases Out in the Open
You cannot deal with biases unless they are out in the open. When someone states an opinion, keep asking them why they hold that opinion until you get to the root of the issue.

5) Think Dynamically
Assume that the world is dynamic and that your actions (and the actions of others) will change the way the world evolves. Look at various scenarios. Anticipate responses rather than reacting to them. Do role playing, where you have people take on the role of your competition—to see how they will react.

SUMMARY
Bad strategic decisions come from wrong goals, wrong amounts of data, and wrong interpretation of data. Unless we fix these issues, we will be prone to making bad decisions.

FINAL THOUGHTS
Strategic decision-making is not a “once, forever” proposition. If the passage of time lets you see that a prior decision was a mistake (or that a prior correct decision is no longer relevant), it is okay to change your mind. Changing your mind shows that you are strong, not weak. Not that you should change your strategy every week (or even every year). But never changing is a path to disaster, since a changing world will eventually make all strategic decisions obsolete.