To get a complete understanding of your business, you need to re-think what is considered data inside your company. Most companies think only about operational data, which typically captures the financial outcomes of your strategy such as revenue, costs, or other data captured inside your enterprise systems (e.g., your ERP system). To make the right strategic decisions, however, you need to consider a broader variety of data sources that capture not just the outcomes (lagging data) but also the cause (leading data) of them. For example, revenue is just the final financial data point that is caused by customer experience, competitor behavior or the scalability of a company’s sales channels. And this data point remain uncovered most of the time, creating blind spots in executive decision-making. Because, as Rita McGrath puts it, “snow melts at the edges”.
For augmented strategic decision-making, information from four sources of data is required to reduce uncertainty and get a complete picture of your possible options — operational data, ecosystem data, expert knowledge and customer experience data.
Take for example the decision to launch a new, innovative product with a new business model. To take the right strategic options, you need to take into account much more than the projected point estimate of the ROI of the strategic initiative visualized on a set of slides. You need the complete picture.
The first source you should consider is your operational data. That's, for example, the financials inside your ERP system. They will tell you the growth rates of revenue of your other products, the marketing spending you need to make for growth, the re-investment in technology to stay on top or the lifetime value of a single customer. This data is historic (that's why we call it lagging data) and measures the outcome of your actions. Moreover, it is just capturing information that resides within your company. Still, it provides you with a lot of value by allowing you to monitor the financial performance of your decisions. It also gives you a feeling of the business mechanics that you could achieve in the past, setting the stage for realistic assumptions of the future.
There is a cause for every financial outcome — customer experience. This type of data is forward-looking (leading data). This data is all about customer needs, satisfaction, or their emotions about your solutions. Past data on customer experience is resulting in today's financial performance, while you can assume that a decrease in customer satisfaction today will most likely negatively impact your business in the future. This data comes from outside your business and needs to be actively collected to make it part of your decision-making. It will empower you to understand how your financial future will look like giving the experience your customers have with your product. Take Apple, which products delighted millions of customers, creating billions in revenue later in a market, which didn't even exist before.
Customer experience, however, is not the only external cause for business outcomes. The other crucial one is your ecosystem. Your suppliers, competition, new technologies or changing macroeconomic conditions will influence the performance of your strategic actions. Take, for example, a new technology that allows you to drastically reduce production costs and make a previously uninteresting margin a huge opportunity. Or upcoming competitors that are threatening your position in the market — maybe even despite you having an amazing solution that your customers love. Another example is your supplier and partner ecosystem that can heavily influence your strategic actions.
Finally, a crucial and frequently undervalued source of information is the expert knowledge inside your organization. Many times we see high-stake decisions about launching new products, transforming business models or acquiring a company happening in isolation. Based on analysis from renowned consulting firms and armies of analysts — without considering the expertise that reside in your business units. That information, however, are extremely valuable for answering many strategic questions. Do we have the competencies in our R&D team to deal with this new technology?. Are our sales channels capable of achieving the projected growth rates? What's the amount and likelihood of synergies we can achieve to cross-sell our new product to our existing customer base. This highly contextual information enriches your foundation to make more informed decisions and completes your strategic picture. And this expert knowledge was traditionally hard to capture in data. Until now.
Connecting those types of data, insights, and decisions across the organization enables you to create a strategic asset for your business to compete on strategic decision-making and being able to leverage uncertainty to your benefit. The ultimate advantage in the era of uncertainty.