August is back to school month. I went to school for so long, 23 of my first 28 years, that I still get a nervous twinge when I first hear someone talk about Labor Day. But I loved, and still love learning. I guess I am a student for life.
As a physicist, I’ve always been driven to understand how things work. I judge the value of each day by how much I learned. Joining Tamarack and the world of equipment finance has been particularly rewarding for me because there is so much I do not understand about an industry that is so impactful to every part of the economy.
I have always valued curiosity. A 2018 Harvard Business Journal article by Francesca Gino made the “Business Case for Curiosity.” Gino’s research found, among other things, that when employees are curious, they view tough situations more creatively. Others have shown that curious business leaders and curious company cultures have higher performance. But actions do not always follow words, says Gino, and often companies focused on operational efficiency lose their curiosity and innovation.
At Tamarack, we find that curiosity comes up often when helping companies take advantage of digital technology. One company that had embraced the need for change and purchased a software service to help them improve operations with data was focused on automation of existing reports and analysis. Progress for the “transformation” was measured by how many reports were now coming faster with the new system. The return on the investment was going to be limited because you can’t save more than you spend - cost saving ROIs are always asymptotic.
When I asked the IT team “What do you want to ask the data?” there was a perplexed silence. I pushed further: “What don’t we understand well about the business? What would help grow faster?” I didn’t know the business, but these were questions that could teach and empower action. Another customer is thinking about buying a new data stream in operations. I was excited that they were looking outside their normal systems for a new type of data. When I asked, “What problem are you going to solve with this new data?” they were not sure yet, but they had read that this data was important.
“The only sustainable competitive advantage is an organization's ability to learn faster than the competition.”
– Peter Senge The Fifth Discipline
Digitization is just the latest example of how critical it is to be curious in business. Peter Senge’s quote above has never been truer because access to data and the speed of compute are almost unlimited and free by historical comparison. Learning has never been easier or faster. The only limitation to success in digital transformation is the curiosity of the organization. If a company does not have questions about customers, markets, operations, and competitors, more data and new IT systems will just be additional expense in the denominator undermining the ROI calculation.
For some curiosity is natural and instinctive. But others must learn how to learn - just as children do in their early years when they are encouraged to ask questions. The complexity of modern day business and pressures to conform to operational tenets can diffuse the clarity that comes from questions and learning.
Gino describes five ways leaders can foster curious cultures. Culture is a key to transformational success that requires both time and discipline. Time is something that we don’t always have in a digital world, so let’s look at three ways to jump start a culture of curiosity and learning in a digital transformation.
Listen to the organization
Listen for operational forums filled with questions and even confrontation on how things are working. Pay particular attention to questions that come up at every meeting or quarterly review. These will likely be important questions about operational efficiency, waste, and expense that go unresolved because there isn’t data to support a call to action. Listen for the silence of confirmation bias. Teams that routinely and efficiently review existing reports probably have already automated their reports to save time and money and in doing so automated processes that do not increase competitiveness. A curious mind asks, “Are these the right reports to help us get better?” Active discussions are likely asking important questions that need help getting and analyzing new data streams. Quiet forums likely need an injection of skepticism and curiosity to uncover ways new data can support new solutions to long standing problems.
Root-cause analyze the risks to the business
Identify business risks and break each down to root cause. Ask why 5 times. If you end up with a root cause that says, “We don’t know enough” then find out what data or analysis you need to understand and take action. Another common root cause outcome is “uncertainty.” Indeed, risk is often defined as “an uncertainty with negative outcomes.” Famous economist Frank Knight defined uncertainty as “a lack of knowledge which is immeasurable and impossible to calculate.” But today, with the combination of historical and real-time data in digital systems, innovative thinkers can train digital models and then predict the probabilities of outcomes. Artificial Intelligence is added to learn and improve understanding with each event continuously improving prediction accuracy. Uncertainty will often be a root cause of risk so find the data that informs you how make that uncertainty a probability. The advantage of a probability is that it can be hedged to an economic advantage. Knight said that those who embrace uncertainty are the ones who profit.
Focus on outcomes
One of the most powerful tools in digital modeling is outcomes. Outcomes can be defined and measured in unambiguous terms. Once defined, modern data analysis tools enable the training of mathematical models to predict that outcome - both good and bad. Outcomes are everywhere in a business’s data. Proposals delivered is an important step, but proposals accepted is an outcome that drives growth. Credit is an intrinsic characteristic of an applicant, but payment and delinquency are outcomes that drive profit. Be curious about the outcomes in your operations. You will likely find that your digital systems have documented each giving the opportunity to accelerate or suppress for better business performance. Think of outcomes as the hidden treasure in your past data and then use operational data to unlock the value.
If we were in a Marvel comic someone would be saying “digital transformation is inevitable.” True, but the outcome of the transformation is not going to be equal for all. Success will come to those who are curious about what the data can teach them and how they can adapt to take competitive advantage. Jump start curiosity and accelerate your digital transformation by listening to your organization, analyzing the root causes of risk, and focusing on outcomes to drive performance improving adaptations with data.
The curious believe that there is treasure in their digital being and will search until they find it. Everyone else shouldn’t bother with data.