The widely spread traditional strategy approach as we know it relies strongly on gathering and analyzing data. With the help of frameworks like Porter’s Five Forces Framework and the DESTEP analysis, we are supposed to gather extensive data about the opportunities and threats in our market. Along those same lines we are supposed to gather information about the internal strengths and weaknesses of our organization. And based on these analyses we then create a SWOT matrix, leading to the generation of strategic options between which we can choose.
With the growing popularity of big data, data analytics and artificial intelligence, we see a revival of data-driven approaches to strategy today. Many of the big consulting firms, for example, talk about things like big data strategy and data-driven strategy. With the technological advancements of today, so the idea goes, we can gather and analyze more data and thereby make better and more accurate strategies than ever before.
Why It Is Wrong
Of course, data is important. Without data, any strategy would be pure fantasy. Fun perhaps, but not necessarily useful for real organizations. However, there are at least five reasons why I think data is less important to strategy than often assumed.
- Strategy is about the future, data about the past. By definition, data is about the past. Based on trend analysis and extrapolation we might be able to project developments into the future. But the data itself is about the past. This means that data can be useful in stable and predictable industries and when your strategy is doing more of the same. But as soon as you want to make any significant change or create a new industry, the relevance of data quickly evaporates. After all, what data to use if you are entering unexplored territory?
- Strategy requires judgment and interpretation. Two people facing the same piece of data can draw diametrically opposed conclusions. Facing the fact that everyone wears sandals in the desert, I might conclude there is no market for shoes because no one wears shoes. You, on the other hand, might conclude there is a huge market for shoes, because no one wears shoes. This simple example shows that, next to the data, it is at least as important what you and I see in this data, how we interpret and judge it. Opportunity—as well as threat—lies in the eye of the beholder, not in the data.
- Strategy is created, not found. The idea that strategy can be derived from data and analysis suggests that strategy is already present, laying there and waiting to be found by discovering the right patterns. But that is not where strategy comes from. Sure, it might be informed by data, but an actual strategy is created, designed by people. In the process of generating strategy, people add their imagination and creativity. The more innovative a strategy is, the more it will be based on imagination and creativity and the less it can rely on data.
- Strategy is about what should be. Strategy isn’t just a summation of trends or a deductive analytical exercise. There is no way of objectively preferring one strategy above the other. There are always our own normative frameworks at play that make us prefer one strategy over the other. This means that, at its heart, formulating strategy is a very normative thing to do because it involves describing a desired future state based on our own ideas about what is preferred and what not. Data cannot provide us that.
- Strategy is social, data not. Strategy making is an inherently social process. Organizations need strategy that people are willing to execute. This means that people need to feel it is their strategy, a strategy to which they want to commit. Even when data analysis would lead to a perfect strategy in theory, a less perfect strategy that reflects how your people think is preferred because the chances of successful execution will be significantly higher. After all, a great strategy is one that people can and will execute, not one that is just great on paper.
Ignoring relevant data is foolish. But over-depending on data is foolish too—even if the data is relevant. As the five points above show, strategy is not just a cold, deductive, rational process. It involves people, their imagination and creativity, their norms and values, and their ability and willingness to execute. This makes data far less important than oftentimes assumed.
The approach to strategy that follows from these points is a participative one in which there is a substantial role for people’s subjective, intuitive and creative contributions as well as their thoughts about what is right and wrong. Collaborative sensemaking plays a crucial role in such approach. It means that people together create an understanding of what the current strategy is, what it could be, and what it should be. Can you picture an approach like that?
This post was published earlier here on my forbes.com page.
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