Welcome to the White Wine Papers! Please Enjoy Gregory’s Most Aromatic (Or Intoxicating) Thoughts About Business Analysis.
When the Outhouse Stinks Less Than Inhouse
The outhouse, or zero-flush facility as I call it, works wonders for your water bill but not for your nose. Most North American and European households prefer the indoor flush toilets for closer proximity and cleaner fragrance. Not surprisingly, most firms also prefer in-house business analysts for similar reasons (including taking crap).
Although external analysts or consultants have already been frequently contracted for their special skills (or for employers to avoid paying fringe benefits), I believe that as Big Data continues its avalanching growth, a conflict of interest will wedge a gaping rift between the in-house analyst and the manager.
Leading IT firm CSC forecasts, “Data production will be 44 times greater in 2020 than it was in 2009,” (csc.com) and states, “Enterprises [currently] store 80 percent” of all data (ibid).
Managers have great incentive to exploit that 80%, but their direct reports face a dilemma that is all too familiar in my experience:
“What if the data reveal that everything my boss believes is completely wrong?!” [*yes, the word “data” is plural; “datum” is singular]
It is only natural that the boss, an expert of common sense and experience, would be opposed by largely counterintuitive data (if the data were usually consistent with common sense, then investing in Big Data would frankly be a redundant waste of money).
Although more savvy managers are apt to keep an open mind, the stereotypical manager is still the victim (or rather, the perpetrator) of escalated commitment: the desire to stay on the original path in spite of overwhelmingly conflicting data. Yes, I know that doughnut is bad for my health – now let me eat it in peace!
Every in-house analyst faces at least 3 possible problems:
- “I’m not sure I conducted the analysis at a professional/research/conscious level.” Most linear regression reports I read do not account for control variables, which is heretical.
- “I’m sure I’m 100% right and thought of every possible outcome.” Not only is this arrogant and ridiculous, but most analysts with this attitude were not even in the top 20% of their class.
- “My boss believes our company will profit the most from an aggressive price-cut, but the data indicate we would profit the most from a 20% price increase while risking a 10% drop in sales volume. However, his bonus is based on volume production, and his pay will be cut if he heeds my advice.” Is there really any analyst so altruistic as to risk his/her job for the sake of the company? [Can count them on fingers…]
No matter how skillful an in-house analyst becomes, there will always be the human element, the meat that comes with the machine. The ability to either confront or persuade a manager with an opposing opinion is not necessarily innate with the position (it is a mix of immutable, inborn personality and behavioral training). Naturally, the possibility of being fired is an ever-present smother for the analysts’ fire.
External analysts will be in greater demand because they are more resistant to this dilemma. Although an irate client can cancel the fee, good consultants possess more candor because they can easily find work elsewhere (and great consultants get paid ahead of time, which quashes the client’s incentive to get mad).
Are external analysts just better people? Of course not. Their different financial situations create the difference. Many in-house analysts are jumping on the trend to go independent to give more independent advice. MBO Partners “projects that 1 in 2 American workers will either move to independent work or spend at least part of their working hours as self-employed professionals by 2020” (The Future of Work: Preparing for Independence, a Survey, MBO Partners, April 2014).
If you are a manager seeking the most unbiased input to get the best results, you might find that the outhouse will ironically contain a lot less…waste…than the in-house. Salut!