Being “Data-Driven” Isn’t Compatible with Being Innovative

Data is a drug for the decision makers of the 21st century.

“We’re a data-driven company”, they tell you proudly.

But a company, which seeks change and wants to make a difference by challenging the status quo, doesn’t make strategic decisions that are driven by data.

A long-term, game-changing strategy can’t be based on reports and predictive data. They won’t tell you what to do next and how to do it.

Worse, when data is a click-away, your competitors are likely to make similar decisions, since they look at the same data sets.

Data is reassuring. But it has a short-term use.

Data drives optimisation, and only informs strategy. And so, at some point in the decision-making process, opening the door to a game-changing strategy requires a leap of faith.

900,000 Mobile Phones in 2000?

“900,000 subscribers”. This is the prediction McKinsey made in 1980 when AT&T asked the consulting firm to forecast mobile phone penetration in the U.S. by 2000.

The report predicted less than 1% of the actual number of mobile phone users in 2000, 109 million. Based on this report, AT&T decided there was not much future to these “toys”.

Three elements explain the big fail:

1. The technology. It is difficult to predict the pace at which technology is going to evolve. As The Economist highlighted in 1999:

“The most obvious reason why mobile phones are becoming so popular is that quality is going up at the same time as prices are coming down.”

Lower price and better quality are two evident drivers that increase demand. But predicting with confidence how both will evolve on the long-term is nearly impossible. Most technologies improve exponentially. And they rely on tipping points that are unpredictable.

2. The users. Reports lack empathy. It is difficult to uncover unmet needs in numbers. Mobile phones have become part of users’ lives. No report could have shown that. But getting in touch with users could have.

3. A non-linear adoption. Another reason is the development of mobile phones in countries that didn’t have landlines. Instead of waiting for their countries to build expensive infrastructures, people simply started using mobile phones. Such a change from the traditional model of “fixed-lines then mobile” is also hard to capture in numbers. But once you visit one of these countries, it just makes so much sense.

Being data-driven and only relying on this report cost a lot to AT&T. According to Professor Angel Lozano:

“A decade later, to rejoin the cellular market, AT&T had to acquire McCaw Cellular for $12.6 billion. By 2011, the number of subscribers worldwide had surpassed 5 billion and cellular communication had become an unprecedented technological revolution.”

The executive team of AT&T wasn’t brave enough to make a leap of faith. They preferred to hide behind the data, even though in 1980, it wasn’t possible to predict with confidence how mobile phones would impact the market 20 years later.

Being data-driven and depending on reports aren’t compatible with real innovation. Being innovative requires audacity and curiosity—two qualities that give an experimentation mindset.

Leading Innovation in the Clouds

Let’s take another good example:

Amazon.

For the last 22 years, the company has never stopped being innovative. Even though it’s also the archetype of a company that uses a lot of data, Amazon never fell into the analysis paralysis trap.

How did the company become the leader in cloud services? In 2016, Amazon Web Services (AWS) is by far the biggest cloud services platform. [1] But back in 2003, when the idea emerged, Amazon was still mostly focusing on selling books.

As AWS CEO, Andy Jassy, told TechCrunch:

“In retrospect it seems fairly obvious, but at the time I don’t think we had ever really internalized that.”

Developing a cloud services platform when you’re an online retailer is not an obvious strategy.

In 2003, Jeff Bezos and his executive team couldn’t make a decision driven by data—nobody had built a cloud services platform before. No data, no report could tell them how this new business model would go.

Instead of hiding behind data, the team made the brave choice of embracing a game-changing strategy. They started experimenting with a business model that was unheard of—providing third-parties with computer power/storage.

What led to the innovative AWS wasn’t a data-driven strategy. AWS was the result of a brave, long-term, and data-informed strategy. [2] They’re not afraid to take leaps of faith.

 

Notes about Being Data-Driven, Data-Informed, and Innovation

[1] AWS’s job is to make the life of developers easier and cheaper. It helps people and businesses from individual developers to companies like Airbnb run and scale their digital services, without having to bear the burden of fixed cost. Amazon owns and maintains the physical servers and sells the computer power/storage.

In 2016, Amazon has a bigger market share than Microsoft, IBM, and Google combined.

Market Share of Amazon Web Services

[2] Amazon understands that predictive data is useful. Data helps Amazon make relevant recommendations to its customers, and therefore, sell more things to them.

But the company also understands that data has limited value. It cannot drive strategic decisions. For that, Jeff Bezos and his team relied on a simple formula:

“We’ve had three big ideas that we’ve stuck with for 18 years, and they’re the reason we’re successful: Put the customer first. Invent. And be patient.”

London Business School professor, Julian Birkinshaw, explains:

“The pace of innovation at Amazon is made possible by Bezos’ belief that most problems can be solved through invention, through bringing smart people together to find a better way. The old-fashioned view of strategy – that you figure out what your core competencies are and build everything around those – is turned on its head. Here, you’ve got the exact opposite: ‘We can always learn to do new stuff – if there’s a customer need we can buy and find the skills to do it.”‘

The Amazon team isn’t stuck in a river of thinking, focusing on existing capabilities. They’re willing to reinvent themselves, hire the right people, and build new capabilities, if this can help them serve their customers better.