We all know the investment manager’s credo of “past performance is no guarantee of future results”.
How do we approach this when we think about strategy? Can we use our historic data based on past performance to inform our strategy to drive positive future results? What is our reliance on data when we formulate a strategy?
In this paper, we aim to provide a high-level view on how to use data in crafting your strategy.
The map doesn’t show you the route
This metaphor might be helpful.
We view data as a map – it draws the contour lines, the valleys and peaks, the rivers, and water points.
However, having a map doesn’t progress you towards your endpoint. You have to assess where you are, and then plot the route to where you want to go.
We then see strategy as the route. Strategy, in an oversimplified definition, is the development of an understanding of where you are and where you need to get to, with a plan to get there.
Now the question emerges: Which comes first, the map or the route? How much detail is required on the map, before you can start planning the route? Or, how much data do you need, before planning your strategy?
How much is enough?
We believe business and data are both emergents. Business is iterative, it’s changing constantly. What’s more, data is changing constantly. The data we have now is outdated tomorrow.
Therefore, there’s no generic process that will work across the board – it will evolve as you go. But here are a few pointers.
Collect the data
When collecting data, there are two fundamentals to consider: timelines and timeboxes.
Firstly, agree on a timeline. The map I need to travel across the country by car looks very different to the map I need to summit a peak in the mountains on foot.
Are we talking about a five-ten year strategy? Then you need enough data to start seeing five-ten year trends – which are often more anecdotal and less precise. This is different to data required to craft a strategy for enabling employees to work from home over the next six months – you need something more precise and less anecdotal.
Then agree on a timebox. How long do we have to make the decision? Is it a “left or right” decision when I hit the end of the road, or can I sit down with a glass of wine and plan the route tonight?
We found the timebox principle very helpful to avoid rabbit holes and spurious accuracy. Set aside a specified amount of time to gather and analyse data. Just a note – it takes experience to balance realistic expectations with accurate data, there’s no easy way around this. Perfect data, however, is elusive – it’s like “becoming future proof”, it’s never going to happen because it’s always in the future.
Make the decision
You know how far you’re going; you know what the environment is like; now start drawing your route.
In his book Farsighted, Steven Johnson details a “Map, Predict, Decide” process to assist with decision making. Here’s a short outline of the process:
- Map: Life is not binary. There’s a myriad of options on the table. Johnson outlines examples of where binary decisions were made – should we close the pond or not, should we attack or not? And then he outlines situations where lateral thinking was applied and alternative scenarios were brainstormed – what else could we do with this railway? What could this business pivot into? Invariably, where alternative scenarios were considered, better solutions were found.
- Predict: Once you have a map of possible scenarios, try to think what this could look like. He uses exercises such as premortems and others to sidestep biases. We’ve used other exercises such as backcasting with some of our clients.
- Decide: The last step is the simplest, but the hardest. It’s a simple step forward, but it’s a hard and courageous step. It’s where you need to step out of the boat, you need to start the journey. Our philosophy here is that “you don’t have to be great to start, but you have to start to be great”.
Look at the scenery
When you’re on your way, remember to stop and look up often. Look at your map and your route again – are we still on track? Do we need to change the route?
When you’re travelling down an unknown path, things are not always as they seem. You’re inevitably going to run into some challenges.
Your conditions might change, your map might be outdated or your data is just plain wrong.
The way to counter these cases is through regular reflections. Strategy is no longer an annual process or a once-off event – it’s a continuous cycle of iteration and adjustment. Collect the data, make the decision, start the journey. And then adjust as you learn more about your circumstances.
So – should the strategy be data-driven or data confirmed? Our view is that relevant and timely data should be used to inform your strategy, without delaying it. Once your strategy is in execution, constant feedback loops should be introduced to ensure new data is informing any relevant strategic decisions that are being made.