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Posted: May 08, 2013

The bad data boondoggle

Don't get sidetracked measuring the wrong things

Todd Ordal

You could draw numerous lessons from the recent Twitter escapade where a false report about bombs in the White House caused the stock market to temporarily destroy $200 billion in value. (See WSJ article.) Before Twitter, it used to take a gaggle of incompetent managers to do that!

The “sophisticated” programs that trade in nanoseconds were using bad data. These rapid trades, by the way, aren’t really investing; they’re just a rich man’s answer to how to trump card counting in Vegas. But I digress. …

The problem with “big data” — the new, hip phrase bandied about by everyone from the CEO to the janitor — is getting your arms around it. The problem with “bad data” is that you got your arms around it, but it wasn’t a prince or princess — it was a frog.

I’ve seen too many organizations get sidetracked by measuring the wrong thing to their detriment and even demise. For example:

  • Focusing on labor costs at the expense of service levels. You see this frequently in retail environments when you encounter understaffed stores with frazzled employees.
  • Concentrating on gross margin and forgetting about net. Sometimes the overhead costs of dealing with a particular customer group or product line get “buried,” and what looks like a profitable customer or product is actually a stinker.
  • Homing in on efficiency (for example, call time, response time, pizza delivery time) to the detriment of quality. Ever been disconnected when talking to a call center? They were probably measured on length of call.
  • Focusing on profit and running out of cash (yup, it can be done). Showing profit while receivables and perishable inventory pile up won’t help. Being profitable but growing rapidly can also cause you to go broke.
  • Concentrating on problems and not exploiting strengths. All organizations have problems; some need fixing. But if you do so at the expense of leveraging your strengths — whether people, products or markets — you’ll miss out.
  • Using the wrong benchmark (for example, the number of new products introduced without regard for great products). Remember when Steve Jobs came back to Apple and killed many of its products to work on only a few “insanely” great ones?

What is measured can be managed, and not identifying the critical few things to gauge in your business is foolish. But there’s no point in counting how many cigarettes you smoke or Twinkies you eat if what you should focus on is the number of feet between you and the brick wall you’re about to hit.

Todd Ordal is President of Applied Strategy LLC. Todd helps CEOs achieve better financial results, become more effective leaders and sleep easier at night. He speaks, writes, consults and advises on issues of strategy and leadership. Todd is a former CEO and has led teams as large as 7,000. Follow Todd on Twitter here. You can also find Todd at http://www.appliedstrategy.info,  303-527-0417 or todd@appliedstrategy.info

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