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Why Big Data Won’t Improve Business Strategy

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Over the years, I’ve heard a lot of people talk about algorithmic business and how big data will improve business strategy. For most, I strongly suspect it won’t. To explain why, I’m going to have say certain things that many will find uncomfortable. To begin with, I’m going to have to expand on my Chess in Business analogy.
I want you to imagine you live in a world where everyone plays Chess against everyone else. How good you are at Chess really matters, it determines your status and your wealth. Everyone plays everyone through a large computer grid. Ranks of Chess players are created and those that win are celebrated. Competition is rife.
The oddest part of this however is that no-one in this world has actually seen a Chessboard.
When you play Chess in this world, you do so through a control panel and it looks like this …
Each player takes it in turn to press a piece. Each player is aware of what piece the other player pressed.
And so the game continues until someone wins or it is a draw. Unbeknownst to either player, there is actually a board and when they press a piece then a piece of that type is randomly selected. That piece is then moved on the board to a randomly selected position from all the legal moves that exist. White’s opening move might be to select ‘Pawn’, one of White’s eight pawns would then be moved one or two spaces forward. But all of this is hidden from the players, they don’t know any of this exists, they have no concept there is a board … all they see is the control panel and the sequence of presses.
However, within that sequence people will find ‘favourable’ patterns e.g. the best players seem to press the Queen as often as possible! People will come up with their own favourite combinations and try to learn the combinations of other winners!
“When your opponent moves the Knight, you should counter with Queen, Queen, Rook” etc. 
People in this world would write books on secret knowledge such as “The art of the Bishop” or “The ten most popular sequences of Successful Winners”. The more you aggregate data from different games, the more patterns will be proclaimed. Some through experience might even gain a vague notion of a landscape. Let us suppose one of those people – by luck, by accident or by whatever means – twigs that a landscape does exist and somehow finds a way to interact with it.
Imagine one day, you play that individual but they can see something quite remarkable … the board. You start off planning to use your favourite opening combination of Pawn, Pawn, Knight, Bishop but before you know it, you’ve lost.

Obviously, this was just luck! But every time you play this player, you lose and you lose fast. You keep recording their sequences. They beat you in two moves – Pawn (b) and Queen (b) (known as Fool’s Mate) or they beat you in four moves – Pawn (b), Queen(b), Bishop(b), Queen(b) (known as Scholar’s mate) but you can’t replicate their success even though you copy their sequences, it never works and you keep on losing.

 

People will start to seek all different forms of answers to explain what is happening. Maybe it’s not just the sequence but the way that the player presses the button? Maybe it’s timing? Maybe it’s what they had for lunch? Maybe it’s their attitude? They seem to be happy (because they’re winning). Is happiness the secret to winning? All sorts of correlations and speculations will be jumped upon.

However there is no luck to this or special way of pressing buttons. The player controlling Black simply has far greater situational awareness. The problem for the player controlling White is they have no real understanding of the context of the game they are playing. White’s control panel is just a shadow of the landscape and the sequence of moves lacks any positional information. When faced with a player who does understand the environment then no amount of large scale data analysis on combinations of sequences of presses through the control panel is going to help you.
I need to emphasise this point of understanding the landscape and the importance of situational awareness and so we’ll now turn our attention to Themistocles.
The battle of Thermopylae (the tale of the three hundred) and the clash between the Greeks and the mighty army of Xerxes has echoed throughout history as a lesson in the force multiplier effect of landscape. Themistocles devised a strategy whereby the Athenian navy would block the straits of Artemision forcing the Persians along the coastal road into the narrow pass of Thermopylae where a smaller force could be used to hold back the vastly greater Persian numbers. I’ve provided a map of this below.
Now, Themistocles had options. He could defend around Athens or defend around Thebes but he chose to block the straits and exploit the landscape. Each of Themistocles’ options represents a different WHERE on the map. In the same way that our enlightened Chess player has many WHEREs to move pieces on the board. By understanding the landscape you can make a choice based upon WHY one move is better than another. This is a key point to understand.
 
WHY is a relative statement i.e. WHY here over there. However, to answer the question of WHYyou need to first understand WHERE and that requires situational awareness.
Now imagine that Themistocles had turned up on the eve of battle and said – “I don’t know WHEREwe need to defend because I don’t understand the landscape but don’t worry, I’ve produced a SWOT diagram”
How confident would you feel?

Now in terms of combat, I’d hope you’d agree that a strategy based upon an understanding of the landscape is going to be vastly superior than a strategy that is derived from a SWOT. The question you need to ask yourself however is …

… what do we most commonly use in business? SWOT or MAP?

The problem that exists in most businesses is that they have little or no situational awareness. Most executives are even unaware they can gain greater situational awareness. They are usually like the Chess Players using the Control Panel and oblivious to the existence of the board. I say oblivious because these people aren’t daft, they just don’t know it exists.
But how can we be sure this is happening?
Language and behaviour is often our biggest clue.  If you take our two Chess players (White with little or no situational awareness, Black with high levels) then you often see a marked difference in behaviour and language.
Those with high levels of situational awareness often talk about positioning and movement. Their strategy is derived from WHERE and so they can clearly articulate WHY they are making a specific choice. They tend to use visual representation (the board, the map) to articulate encounters both present and past. They learn from those visualisations. They learn to anticipate others moves and prepare counters. Those around them can clearly articulate the strategy from the map. Those with situational awareness talk about the importance of WHERE – “we need to drive them into the pass”, “we need to own this part of the market”. They describe how strategy is derived from understanding the context, the environment and exploiting it to your favour. The strategy always adapt to that context.
Those with low levels of situational awareness often talk about the HOW, WHAT and WHEN of action (e.g. the combination of presses). They tend to focus on execution as the key. They poorly articulate the WHY having little or no understanding of potential WHEREs. They have little or no concept of positioning and they often look to ‘copy’ the moves of others – “Company X gained these benefits from implementing a digital first strategy, we should do the same”. Any strategy they have is often gut feel, story telling, alchemy, copying, magic numbers and bereft of any means of visualising the playing field. Those around them often exhibit confusion when asked to describe the strategy in any precision beyond vague platitudes. Those who lack situational awareness often talk about the importance of WHY? They describe how strategy should be derived from your vision (i.e. general aspirations). They often look at you agog when you ask them “Can you show me a map of your competitive environment?”
Back in 2012, I interviewed 160 different high tech companies in Silicon Valley looking at their level of strategic play (specifically their situational awareness) versus their use of open (whether source, hardware, process, APIs or data) as a way of manipulating their environment. These companies were the most competitive of the competitive.
What the study showed was there was significant difference in the levels of strategic play and situational awareness between companies. When you add in market cap changes over the last seven years then those with high levels of strategic play had performed vastly better than those with low levels.
Now this was Silicon Valley and a select few. I’ve conducted various interviews since then and I’ve come to conclusion that less than 1% of companies have any mechanism of improving or visualising their environment. The vast majority suffer from little to no situational awareness but then they are competing in a world against others who also lack situational awareness.
This is probably why the majority of strategy documents contain a tyranny of action and why most companies seem to duplicate strategy memes and rely on backward causality. We should be digital first, cloud first, we need a strategy for big data, social media, cloud, insight from data, IoT … yada yada. It’s also undoubtably why companies get disrupted by predictable changes and are unable to overcome their inertia to the change.
At the same time, I’ve seen a select group of companies and parts of different Governments use mapping to remarkable effects and discovered others who have equivalent mental models and use this to devastate opponents. Now, don’t believe we’re anywhere near the pinnacle of situational awareness in business – far better methods, techniques and models will be discovered than those that exist today.
Which brings me back to the title. In the game of Chess above, yes you can use large scale data analytics to discover new patterns in the sequences of presses but this won’t help you against the player with better situational awareness. The key is first to understand the board.
Now certainly in many organisations the use of analytics will help you improve your supply chain or understand user behaviour or marketing or loyalty programmes or operational performance or any number of areas in which we have some understanding of the environment. But business strategy itself operates usually in a near vacuum of situational awareness. For the vast majority then I’ve yet to see any real evidence to suggest that big data is going to improve “business strategy”. There are a few and rare exceptions.
For most, it will become hunting for that magic sequence … Pawn, Pawn … what? I’ve lost again?
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About the Author
This article was written by Simon Wardley. Simon is a  researcher for the  Leading Edge Forum, a global research community focused on identifying and adopting  next business practices. He writes constantly at his personal blog, see more.

Callum Connects

Andrew Schorr, Founder of Grata

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Taking a different route throughout his life, Andrew Schorr ended up in China and started several businesses.

What’s your story?
I moved to China after I graduated from college in 2004. English teaching was the easiest way to get there, so I looked on a map and picked a small town in Hubei, because it looked to be more or less in the middle of China. I was the only foreigner there.

Back then, everything was about the upcoming Olympics in Beijing, so I moved to the capital after my year of teaching. Pretty soon after arriving, I met the co-founder for all three of my companies. We decided to start a company together the first day we met. He has now moved back to the US and builds flight software at SpaceX.

Our first company, an online city guide, was re-purposed into our second company, GuestOps, a web concierge platform. We sold GuestOps to most of the major international hotel brands in China and still operate it. The genesis of our latest company, Grata came from looking at the intersection of hotels and WeChat in 2012, when WeChat was just starting to blow up. Grata expanded from hotels into a live-agent customer service console.

What excites you most about your industry?
Our thesis with Grata has always been that what is happening with WeChat in China is the future of messaging platforms globally, and as an international team building on WeChat, we would be well-placed to capitalize on that trend. It’s taken longer than we expected for the industry (and us, for that matter) to get there, but finally, we’re starting to see messaging as a platform to get better traction in other markets.

What’s your connection to Asia?
I’ve always been a bit of a contrarian. I grew up in Texas, where all my friends studied Spanish in school. I studied German for no reason in particular. I took a similar path in college: Chinese and Japanese seemed like languages that not a lot of people who look like me studied. I was one of only two students in my third-year Chinese class.

Concur conference in San Francisco, Calif., Wednesday, Oct. 2, 2013. (Photo by Paul Sakuma, Paul Sakuma Photography) www.paulsakuma.com

Favourite city in Asia for business and why?
Shanghai. I should live there, but Beijing has been home for so long. I take the night train down to Shanghai every two-three weeks to meet with clients. Domestic flights are way too unreliable here.

What’s the best piece of advice you ever received?
Don’t plan too far ahead; otherwise, you plan yourself out of good opportunities.

Who inspires you?
Has anyone said “Elon Musk” yet? Barack Obama would be another.

What have you just learnt recently that blew you away?
The gravitational waves recently detected from neutron stars colliding, were so subtle as to only affect the distance from earth to our closest star, Alpha Centauri (4.24 light years away) by the width of a human hair. Perhaps in another life or in the future, I’ll be an astronomer, but a telescope doesn’t do me much good in Beijing.

If you had your time again, what would you do differently?
When I give advice to students looking to get into entrepreneurship, I advise them to work for a post-Series A startup first and learn from a company that’s already doing things well. I learnt everything on my own, which is slower and you pay for your own education. If you work for a startup that’s small in the beginning, you risk learning bad habits.

How do you unwind?
I Hash! The Hash is a drinking club with a running problem. The Hash attracts good people from all walks of life and doesn’t take itself too seriously. It’s a great way to meet fun-loving people all over the world. It’s also how I met my co-founder, our first lawyer, and my girlfriend.

Favourite Asian destination for relaxation? Why?
Pulau Perhentian, Malaysia. A fantastic beach and where I first learned to scuba dive.

Everyone in business should read this book:
For business in China, Tim Clissold’s, Mr. China.

Shameless plug for your business:
Grata does WeChat contact centers for many top-tier brands in luxury retail, travel, financial services and hospitality. We started developing on WeChat before they even had an open platform. Grata provides the most value for large enterprises with complex routing and content demands for their contact centers.

How can people connect with you?
Check out www.grata.co or email me: [email protected]

Twitter handle?
My personal handle is @andrew_schorr and we tweet about messaging from the company handle @grata_co.

This interview is part of the ‘Callum Connect’ series of more than 500 interviews

Callum Laing is an entrepreneur and investor based in Singapore. He has previously started, built and sold half a dozen businesses and is now a Partner at Unity-Group Private Equity and Co-Founder of The Marketing Group PLC. He is the author two best selling books ‘Progressive Partnerships’ and ‘Agglomerate’.

Connect with Callum here:
twitter.com/laingcallum
linkedin.com/in/callumlaing
Download free copies of his books here: www.callumlaing.com

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Benjamin Kwan, Co-Founder of TravelClef

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Making music to create a life for his family, Benjamin Kwan, started an online tuition portal and his music business grew from there.

What’s your story?
I am Benjamin and I’m the Co-Founder of TravelClef Group Pte Ltd, a travelling music school that conducts music classes in companies as well as team building with music programmes. We also run an online educational platform which matches private students to freelance music teachers. We also manufacture our own instruments. I started this company in 2011 when I was still a freshman at NUS, majoring in Mechanical Engineering.

I was born to a lower income family, my father drove a taxi and was the sole breadwinner to a family of 7. I have always dreamed of becoming rich so that I could lessen the burden placed on my father and give my family a good life.

After working really hard in my first semester at NUS, my results didn’t reflect the hard work and effort I put in. At the same time, I was left with just $42 in my bank account and it suddenly dawned on me that if I were to graduate with mediocre results, I would probably end up with a mediocre salary as well. I knew I had to do something to gain control of my future.

During that summer break, I read a book “Internet Riches” by Scott Fox and I knew that the only way I could ever start my own business with my last $42 would be to start an online business. That was how our online tuition portal started and after taking 4 days to learn Photoshop and website building on my own, I started the business.

What excites you most about your industry?
Music itself is a constant form of excitement to me as I have always been an avid lover of music. As one of the world’s first travelling music schools, we are always very eager and excited to find innovative ways to a very traditional business model of a music teaching.

What’s your connection to Asia?
I was born and raised in Singapore and I love the fact that despite our diversity in culture, there’s always a common language that we share, music.

Favourite city in Asia for business and why?
Hands down, SINGAPORE! Although we are currently in talks to expand to other regions within Asia, Singapore is the best place for business. I have had friends asking me if they should consider venturing into entrepreneurship in Singapore, my answer is always a big fat YES! There’s a low barrier of entry, and most importantly, the government is very supportive of entrepreneurship.

What’s the best piece of advice you ever received?
I have been blessed by many people and mentors who constantly give me great advice but right now, I would say the best piece of advice that I received would be from Dr Patrick Liew who said, “Work on the business, not in it.” This advice is constantly ringing in my head as I work towards scaling the business.

Who inspires you?
My dad. My dad has always been my inspiration in life, for the amount of sacrifices that he has made for the family and the love he has for us. He was the umbrella for all the storms that my family faced and we were always safe in his shelter. Although my dad passed away after a brief fight with colorectal cancer, the lessons that he imparted to me were very valuable as I build my own family and business.

What have you just learnt recently that blew you away?
You can not buy time, but you can spend money to save time! With this realisation, I was willing to allow myself to spend some money, in order to save more time. Like taking Grab/Uber to shuttle around instead of spending time travelling on public transport. While I spend more money on travelling, I save a lot more time! This doesn’t mean that I spend lavishly and extravagantly, I am still generally prudent with my money.

If you had your time again, what would you do differently?
I would have taken more time to spend with my family and especially my father. While it is important to focus our time to build our businesses, we should always try our best to allocate family time. Because as an entrepreneur, there is no such thing as “after I finish my work,” because our work is never finished. If our work finishes, the business is also finished. But our time with our family is always limited and no matter how much money and how many successes we achieve, we can never use it to trade back the time we have with our family.

How do you unwind?
I am a very simple man. I enjoy TV time with my wife and a simple dinner with my family and friends.

Favourite Asian destination for relaxation? Why?
Batam, it’s close to Singapore and there’s really nothing much to do except for massages and a relaxing resort life. If I travel to other countries for shopping or sightseeing, I am constantly thinking of business and how I can possibly expand to the country I am visiting. But while relaxing at the beach or at a massage, I tend to allow myself to drift into emptiness and just clear my mind of any thoughts.

Everyone in business should read this book:
Work The System, by Sam Carpenter. This book teaches entrepreneurs the importance of creating systems and how to leverage on systems to improve productivity and create more time.

Shameless plug for your business:
If you are looking for a team building programme that your colleagues will enjoy and your bosses will be happy with, you have to consider our programmes at TravelClef! While our programmes are guaranteed fun and engaging, it is also equipped with many team building deliverables and organizational skills.

How can people connect with you?
My email is [email protected] and I am very active on Facebook as well!
https://www.facebook.com/benjamin.christian.kwan

This interview is part of the ‘Callum Connect’ series of more than 500 interviews

Callum Laing is an entrepreneur and investor based in Singapore. He has previously started, built and sold half a dozen businesses and is now a Partner at Unity-Group Private Equity and Co-Founder of The Marketing Group PLC. He is the author two best selling books ‘Progressive Partnerships’ and ‘Agglomerate’.

Connect with Callum here:
twitter.com/laingcallum
linkedin.com/in/callumlaing
Download free copies of his books here: www.callumlaing.com

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