Why good Spreadsheets Make Bad Strategies

Blog post by Roger Martin, January

In a provocative post, Martin, the dean of the Rotman School, challenged business’s reliance on quantitative analysis. “We have a deep-seated desire to quantify the world around us so that we can understand it and control it. But the world isn’t behaving,” he wrote. “We must...consider the possibility that if we can’t measure something, it might be the very most important aspect of the problem.”

The notion that “if you can’t measure it, it doesn’t count” is flatly false. You can manage through fear and intimidation, role modeling, love, random eccentricities, or mantras. None of those require measurement.

We’re so in love with quantitative ideology that we’ve quite forgotten what it was supposed to measure in the first place. “Loyalty,” formerly a concept of the highest emotional order, has been supplanted by a mishmash of nitty-gritty behavioral observations about repeat business. We now talk about “human capital,” reversing the proper roles of adjective and noun, largely so we can measure the impact of behavioral change.

Education, especially in business schools, has gotten itself tied up in metrics knots. We have lost sight of the language of emotion, motivation, and meaning. What we’ve gotten in return is a Skinnerian model of humans as rats chasing cheese in a maze, all in the name of measurability

Keep on writing, Roger, we need it. Posted by Charles H. Green, CEO, Trusted Advisor Associates

I recall David Hume’s explanation of the difference between deductive and inductive reasoning. His work showed that whilst we all have an unswerving belief in conclusions drawn from the latter, we were being irrational, particularly when

conclusions about natural phenomena were drawn.

It is compellingly seductive to try to predict the future as though it were a quantifiable extrapolation of the past. Doing otherwise lays us open to critique and ridicule. People are far more likely to subscribe to our view of the future (next quarter’s sales) if we can quantify what we are saying. Hence the need for more data and information. But this can be an addictive toxin: More information merely creates the demand for more information.

As Hume’s irrational actors, we are predisposed to want the surety of spreadsheets, even if history regularly and disastrously proves them wrong. Posted by Les Gregory, Strategy Director, BAE Systems Insyte.

There’s no doubt that qualitative factors are important and overreliance on mathematical models can be dangerous. However, in my opinion, in most cases the world is suffering from insufficient or incorrect use of data, not overreliance on data. The science of decision making with data is still in its infancy and, yes, is flawed. (We don’t measure qualitative factors well enough.) In selling data-driven decision making, I see huge resistance from people who refuse to use mathematical models simply because those models cannot replace their gut feelings and experience. The fact is, human beings are poor judges

HBR article by Michael G. Jacobides, January—February Strategy Tools for a Shifting Landscape Enough with maps, graphs, and numbers, Jacobides argues. In this age, strategy should be defined by narrative—plots, subplots, and characters.

Michael Jacobides is correct to emphasize the importance of narrative in guiding strategic change, because organizational development unfolds over time. But Jacobides misses the mark when he asserts that words are universally more understandable, powerful, and dynamic than numbers and images are. When it comes to comprehensibility and impact, a picture may indeed be worth a thousand words. Saatchi &

Interact with Us MAIL: 60 Harvard Way, Boston, MA 02163 E-MAIL: hbr_Lettershbr.org FACEBOOK: facebook.com/HBR Correspondence may be edited for space and style.

Of situations that involve more than a few numbers. (Our prefrontal cortex struggles to handle more than seven items at a time.) We’re easily biased by extraneous information (credit officers, for example, can be swayed by how loan applicants look, dress, and talk), and fraudsters make use of such things. Posted by Srikanth Velamakanni,CEO, Fractal Analytics

Business ain’t science! Posted by Ed Kless, Senior Director, Sage North America I think lots of people understand that quantities and qualities need to be balanced. What I’m still looking for are some guiding maxims about when to trust one versus the other. Hope to see more... Posted by Michael Roller, Senior Industrial Designer, Kaleidoscope

The beauty of financial modeling and spreadsheets is that they give the users flexibility, allowing them to strain or relax specific assumptions. When economists get it wrong, it is a function of the assumptions used. The problem is not really the financial systems; it’s oversight. Posted by Kareem AL Zorkani, Business Controller, Fayrouz International

Saatchi’s “Lovemarks” strategy, which Jacobides touts as a modelof revised narrative, was born on a napkin in Auckland Airport—as chairman Bob Seelert converted CEO Kevin Roberts’s respect/love continuum into a best-of-bothworlds two-by-two grid, with “Lovemarks” representing the northeastern (high respect/high love) quadrant. CONTINUED QN NEXT PAGE

The first one gets the oyster, the second one

gets the shell.

We help you find the pearlChallenging economic times present extraordinary opportunities and incentives tor companies to innovate. New markets and new business models are taking shape, and those companies who respond effectively wiII come out stronger than ever. At the MIT Sloan School of Management, we provide organizations and individuals with the Iatest insights, strategies, and tools to Iaunch disruptive ideas, reach emerging markets, and develop new sources of revenue. From product

development to technology strategy to managing change, our programs help you stay ahead of the competition.

Upcoming programs include:

Jun 1—2 Dynamics of Globalization

Jun 3—4 Understanding Global Markets: Macroeconomics for Executives Jun 6—11 Leading Change in Complex Organizations Jun 7—11 Business Dynamics: MIT’s Approach to Diagnosing and Solving Complex Business Problems Jun 15—16 Intelligent Organizations: Collaboration and the Future of Work Jun 17—18 Implementing Improvement Strategies: Achieving Breakthrough Performance Throughout Your Business Jun 27—Jul 2 Product Design, Development, and Management Jul 12—13 Strategic Cost Analysis for Program and Project Management

Executive Education http://mitsloan.mit.edu/hbr Phone: +1 617.253.7166 1 Email: sloanexeced@mit.edu

Harvard Business Review Notice of Use Restrictions, May 2009 Harvard Business Review and Harvard Business Publishing Newsletter content on EBSCOhost is licensed for the private individual use of authorized EBSCOhost users. It is not intended for use as assigned course material in academic institutions nor as corporate learning or training materials in businesses. Academic licensees may not use this content in electronic reserves, electronic course packs, persistent linking from syllabi or by any other means of incorporating the content into course resources. Business licensees may not host this content on learning management systems or use persistent linking or other means to incorporate the content into learning management systems. Harvard Business Publishing will be pleased to grant permission to make this content available through such means. For rates and permission, contact permissions@harvardbusiness.org.