The Business of Butterfly Wings

Posted by Peter Cochrane on November 30, 2012

Companies’ decision making tools need to embrace the digital era, argues Peter Cochrane, chairman and chief executive at Cochrane Associates.

The highly interconnected world of the internet has brought an abundance of data at our fingertips, and yet managers still engage in practices that originated in a Victorian age. Business acumen, experience, intuition, and knee-jerk reactions remain the premier decision making tools in most companies despite the digital wisdom and computing power readily to hand. Such crudity may have worked in a far slower and relatively disconnected world, but it is now dangerous.

The simple linear models of the past presented us with two, three or four significant variables but making decisions based on a limited set of financial considerations alone is always irresponsible.  Modern managers are confronted with situations involving tens or hundreds of important factors and making sound decisions demands modelling and war game ahead of time. 

Whilst we struggle to simultaneously cope with three to seven factors or decision loops, machines suffer no such limitation, and this is the era of complexity, big data, and butterfly wings. The business environment is now as much an ecology as the natural world. In both cases seemingly small changes are capable of creating unexpectedly large outcomes. Needless to say these can be categorised as disruptive, dangerous or even fatal. Many promising business deals, relationships, mergers and product launches have fallen foul of this and the result is never pretty.

So what should be done?  Disintegrated information systems are common and managers often suffer an overload of the irrelevant, and an inability to access vital data..In effect they are flying blind in a highly competitive global market and this needs correcting quickly if their companies are to survive and prosper.

 How should this be achieved? There are basically three approaches: outsource to a specialist service provider; employ specialised contractors; or delegate to the existing workforce. The first two are straightforward with due diligence, availability and cost being the only real barriers. The third option presents significant challenges but it is often the case that the capability already exists within the bounds of the company.

Here is the magic formula: outsource the IT Dept and stop wasting the lives of bright people supervising the workforce, providing ineffective firewalls and servicing server facilities that you shouldn't own anyway. Turn them around with the challenges of big data, business modelling, decision support, and the provision of a real time dashboard for the chairman and C-Level management. Promote the CIO to a board member so he can see all the problems and difficulties facing the company and help the key people make the right decisions. It really is time to put the dice away and start worrying about butterfly wings.

This leaves one final issue, the veracity of the data. Any model, no matter how refined or perfect, is only as good as the data and conditions fed in at the front end. This should be a primary concern to anyone engaged, and especially the newly empowered CIO.