Wednesday, January 7, 2015

Data-driven management by Davenport (& a generic capability maturity model!)

During the Christmas break I read "Competing on Analytics" by Davenport & Harris. It is a really engaging and well-written book on the long-standing trend towards greater use of data in driving operations and decision making in organisations. In terms of the blog's theme, there is a shift from intuitive and narrative ways of reasoning towards more mathematically and statistically oriented data-based forms of reasoning. This is co-incidentally a topic I have recently started exploring on two externally funded projects, with three PhD students involved.

Among their key arguments is the idea that firms evolve from intuitive towards analytical ways of operating and even competing as they grow top management commitment, technological assets and organizational capabilities. This is summarised in a figure presented here:


This graph is representative of typical tools offered for managerial reasoning by management scholars and consultants. Its benefits are clear: it helps the management "see where they are" and figure out "where they want to go". It is significantly better than most models offered by academic articles. So should we learn from it?


Well it is a bit Generic...

The model is actually so good that you can replace analytics and analytics capability with almost anything and it still works! Try, for example, quality and quality management capability. Or social media and social media capability. Works, eh? In Stage 4, top management considers social media capabilities as a corporate priority, whereas in Stage 5 social media capability has become a major competitive strength.

Replacing analytics with quality seems to work pretty well...

 

In academia people tend to get all worried about things like falsifiability, the idea that ideas that cannot be proven wrong are not actually very good ideas to base your decisions on. This generality is perhaps not a flaw, but certainly getting a framework that is so generic that it could be about almost any capability would be a difficult sell in peer-review.

No Solid Empirical or Logical Grounding

Given this is a management book rather than a scientific article it is hardly a surprise that no methods are explicated nor data described. However, the model as it is elaborated in various tables implies relationships between human capital, top management commitment, available data, and competitive advantage that are plausible but not proven. Implicit in such stage model is that human capital,  technology, and available data evolve in tandem with (and in part driven by) top management commitment. There is no reason to believe this, nor is it clear that most companies could get world-class talent even if that was the number one priority of the top managers.

The obvious response to this critique is to suggest that stages are just idealised heuristics. It is quite possible, in other words, that an organisation's data is on "Level 4", while its human capital is on "Level 2" and top management commitment on "Level 3". If the model is merely a heuristic, then the model says really nothing but merely provides a vocabulary for managers to think of analytics. It not just generic but completely unfalsifiable. It is not a theory but an enumeration of potential things.

From the academic perspective, a heuristic feels like a cop-out,  but from the perspective of a good and useful business book that is not necessarily the case. What if it is just a vocabulary for managers to think of their firms and competitors now and in the future? Isn't that useful?


Conclusion & Bonus

In conclusion I liked reading Davenport & Harris book. It is already a bit old, but certainly includes many interesting stories and portrays a shift in management thinking (& organizational reasoning more broadly!) that is just reaching some industries (like education and manufacturing). It is non-technical to the extent that if you have any knowledge of engineering you will not learn much besides novel business applications of pretty rudimentary mathematical tools. There the book delivers what it promises.

Bonus!: I prepared an Excel sheet which allows you to replace analytics with social media, quality, customer service, human resource management, internationalization, or whatever capability development or maturity in an organization you may want to advance. With a change of a single Excel cell you can produce a figure like the one above! It's here: http://goo.gl/uL48ia (note: you have to click the download icon on the top to download the Excel file to your computer).

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