A Data-driven strategy is the only strategy possible for business. Any plan that arises only from gut and theories has hidden flaws in it. How can you build a data driven strategy? Where can data help your strategy the most? Here are five ways to build a data-driven strategy.
Your goals and aspirations for your business drive your strategy. Vigorous and powerful goals can make your strategy come to life. Such goals can inspire your organization to achieve them. Great goals are often quantified. In fact, if you cannot quantify your goals it is doubtful that you will know how to reach them.
Jack Welch set a quantifiable goal for GE when he took over its reins. Every business had to be number one or number two in its market. Otherwise, the business was of no interest to GE. That is an important quantifiable goal.
To be the best manufacturing company is not a quantifiable goal. Unless you quantify what best means, it will be difficult to achieve. Do you want to be the largest? Or do you want to be the most profitable? It may also mean that you want to be the most respected? Or even, the most dominant? Or the lowest cost? One of these is much easier to achieve than to achieve a nebulous ‘best.’
In short, you can define and get a benefit of quantifiable goals for your strategy. That’s the first place where your strategy can be data driven.
Market Estimation and Opportunities Sizing
The second avenue where your strategy becomes data driven is in market sizing. Your opportunity space determines how easily you will be able to achieve your goals. If your goal is to add 50MM in revenues in your market over the next four years, the opportunity space must support it. The only way to check for it is by estimating the opportunity space.
Which opportunity space to focus on is often the most critical choices in a strategy. This strategic choice includes customer segments, geographies, and price points in the market.
Sometimes I come across companies who don’t use data very often in estimating the market size. They use intuition, hypotheses, old narratives, anecdotal evidence, but not data. Without the right data, you may not be focusing on the best opportunity space.
My first job as a summer intern during my MBA education was a market research project. For over two months, I focused on calculating the size of refrigerator market in Mumbai, India. For that project, I used a rigorous market research method. It involved many steps. First was to create an instrument and a sampling strategy. The second was to administer the survey. And finally, the third was to use statistical inference methods. That was a lot of work to estimate how many refrigerators were being sold in Mumbai.
At times, you don’t have the luxury of time or the resources to conduct such an exercise. In such situations, you need to rely on a practical triangulation method to achieve your goals. Such a practical triangulation method using conceptual models is often ideal. It is better especially when you have to estimate many markets and segments.
The third aspect of your strategy where you can benefit from data is in risk assessment. Although many firms use qualitative risk assessment, they can do better. They can quantify the risks. Your risks boil down to you not achieving your project goals and financial objectives.
You may face many kinds of risks: Business, Operational, Technological, or Geopolitical. All these risks affect your bottom line and top line. They can influence your project goals. Connecting your risks to the estimated impact on financials is an easy way to quantify the risks.
If you like, you can use sophisticated modeling techniques in modeling the risk. You can use simulation modeling applications such as @Risk, to model your risk. I remember using risk modeling in a situation when the future was highly uncertain.
Simulation models help you quantify risk and uncertainty across a range of parameters. Such methods are beneficial when the future is highly uncertain.
Capability Benchmarking is another way your strategy can be more data driven. Capabilities are what deliver your strategy. They allow you to compete with your competition uniquely. They enable you to build a unique position in the market.
For example, you may be the low-cost producer in the market due to your cost leadership capabilities. Or you may have the best distribution network or technology. Your basis of competition is built on the foundation of your capabilities. Thus, you can benefit from capability benchmarking versus competition.
A quantified capability benchmarks can help you understand your own capabilities as well as those of your competition.
Finally, you can enjoy the power of data in your execution dashboards. In fact, without data, you cannot actually control the strategy and make appropriate interventions.
When you drive a car, you use the steering wheel to steer the car. You use a feedback loop that helps you drive the car in its intended direction. Similarly, you guide your strategy project towards their outcome.
The measures in your strategy become the dashboard pieces. When the plans go off track, these measures flash red and allow you to intervene.
A data-driven strategy is a powerful way to drive your business. Which of the above five data avenues are you not using in your business?