Big Data, Advanced Analytics and Black Swans

black swanCan advanced analytics be as much a threat as an opportunity? It seems quite plausible: it’s complicated.  The near wipe-out of a leading Wall Street brokerage in just two hours demonstrated how complexity can be financially catastrophic, to take just one example.

McKinsey’s latest advice to organizations investing in advanced analytics highlights the value of simplicity, which enables the business stakeholders to be engaged:

“Two guiding principles can help. First, business users should be involved in the model-building process; they must understand the analytics and ensure that the model yields actionable results. Second, the modeling approach should aim for the least complex model that will deliver the needed insights.”

McKinsey quotes a case where the complexity of a model prevented the business users from spotting its flaws, and so correcting its grossly misleading conclusions. It took the creation of a new simplified model by different authors to realise the mistakes that were being made. I suspect that many of us know of similar instances.

Looking at how companies can turn valid data-driven insights into effective action on the front line, McKinsey notes how user engagement becomes crucial:

“Companies must define new processes in a way that managers and frontline workers can readily understand and adopt.”

I’m not a big data and analytics skeptic.  When data-and-analytics is done well, it has huge potential, especially perhaps for consumer-facing organizations.  But it seems to me that there’s an essential enabling infrastructure that’s required to ensure that fast-paced data-driven agility is managed safely and sustainably.

It’s an infrastructure characterized in three ways:

it’s process-based and leverages the power of visualization and personalization to simplify and engage

it provides 360 degree visibility; joined-up and comprehensive perspectives where roles and responsibilities, linkages and dependencies are always readily apparent

it enables a rich and effective collaboration across silos, within a unified and robust governance framework.

It adds up to an enterprise process management platform.  And it’s an approach that was reinforced, looking at this from a different angle, by a Deloitte webinar this week on the new COSO 2013 Enterprise Risk Management Framework.  Deloitte’s key messages to senior stakeholders included the need to adopt holistic perspectives, to ensure traceable connectivity between policies and everyday practice, and to ensure ongoing engagement with control owners across the enterprise.

Related Posts

02 Apr 2013   A Simplification Bandwagon Begins To Roll

26 Mar 2013   A Litmus Test For Process Craft  

Cloud Without Risk: Pie In The Sky

We know that systems failures are surprisingly common, hugely wasteful and can bring a company to its knees.

Best example last year must be Knight Capital, a market-maker responsible for 10% of US equity trading volumes. In two hours of trading on the afternoon of 1st August, a ‘software glitch’ lost the firm $460m. The subsequent rescue package cost the owners 70% of their equity.

Arguably though there’s no such thing as an IT failure. If all work is ultimately process, then ultimately it’s always a process failure.

At one level, Knight Capital went down because of a flawed implementation of a software upgrade. But it’s probably more true to say that, somewhere along the line (and maybe we’ll find out once the legal battles are done), there was a flawed process, or a good enough process that was poorly executed.

Probably both. And almost certainly – because this is the continual theme – the root cause was ineffective collaboration.  Vital stakeholders were missed out from the consultation. People thought that they had a common understanding of an end-to-end process and missed the gaps. There was no governance framework to ensure that people used the latest document. No-one realised that there were two different versions of the same process…

So McKinsey is right when it warned last week of the new risks in the migration to cloud services, making it clear that this is not simply a technical IT challenge:

“IT organizations must now adopt a business-focused risk-management approach that engages business leaders in making trade-offs between the economic gains that cloud solutions promise and the risks they entail.”

In cloud migrations, as in every other business transformation program, it’s effective collaboration that underpins innovation and sustainable improvement – and ensures that risks are properly managed.

It’s extraordinary therefore that so many organizations flirt with disaster, blithely assuming that they don’t need an enterprise-wide process management platform equipped to enable effective collaboration.

They may say otherwise but in practice they rely on definitions of their business based on process fragments, in multiple formats and tools, often in arcane technical languages, of unclear provenance, scattered across multiple repositories, only tenuously linked with operational realities, and ‘managed’ with the flimsiest of governance.

Amazingly, Gartner’s dramatic prediction, announced two years ago this month, that: “Between now and year-end 2014, overlooked but easily detectable business process defects will topple 10 Global 2000 companies” still looks a safe bet.

Related Posts

11 Dec 2012    Process Management and Google Maps

19 Nov 2012    No Other Corporate Asset Is Wasted So Spectacularly

© Text Michael Gammage 2013