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Session 1

Information is Power
Business Research Why?
• The key to business success is making the
correct decisions
• Correct decisions are becoming more
difficult to make
• The costs of making the wrong decision
are increasing
• Decision makers use all methods to
reduce risk.
But why do you need to make
decisions?
• “If you do nothing you will die”
• Decisions are a reaction to a changed
scenario
• Business aims to achieve objectives which
require decisions to be taken to give
direction to the business
• A business cannot function without
decisions being taken!
So what are decisions trying to do?
• Business Decision Making seeks to achieve two
outcomes:
Attain objectives efficiently

and

Cope with change


(Change in corporate objectives/targets)
(Changes in the environment)
(Changes in consumers/segments)
CHANGE
• Change has TWO dimensions:

• IMPACT

• PREDICTABILITY
Impact
• Impact is the perceptually weighted
aggregate of four dimensions:
• Magnitude
• Direction
• Speed
• Ubiquity
Predictability
• Predictability is a collective perceptual
measure of how accurate managers can
be in determining the likelihood that an
event or series of events will or will not
occur.
• It ranges from total predictability (seasons,
ageing, time and mortality) to total
unpredictability (natural disasters, artistic
success, conflicts)
Why is Predictability important?
Predictability is the degree to which one can
accurately forecast the future.
Probability is the likelihood of an event occurring
in the future.
“I know that over the next year 1 in 100,000
airline flights will end in disaster, but I
cannot predict which one it will be”

Predictability=Planning=Manipulation=Control
Impact. Predictability and Strategy
Predictability
High Low

Proactive Emergency
contingency Planning
High

planning (Major
(Hurricane Incidents)
Katrina)
Impact
Policy Reactivity
Development (when event
Low

(Returns policy occurs)


at M&S)
Decision Making
“Business strategy is ultimately based
on a series of informed decisions,
chosen from a range of alternatives ”

Any decision (D) has a series of alternatives


(A1…..An) which have outcomes
(O1…..On), each of which have benefits
(B1…..Bn) and risks (R1….Rn). The
objective is to maximise B and minimise R.
Anatomy of a decision
• It is based on information available at the time
the decision is taken
• It is based on an individual or group perception
of that information
• It is based on the quantity and accuracy of that
information
• The actualisation of the decision may be a long
time removed from the decision
• Future decisions based on past historical data
are hard to react against (extrapolation)
• May be individualistic or group based
Individual vs Group Decisions
• Individual: Based on one person’s view of
the world. May be inspired, may be very
wrong! Tend to be more risk taking.

• Group: Based on a collective view of the


world. Tend toward the average, and also
risk averse
The role of information in decision
making
• Information reduces risk, improves the
quality of decision making
• The more information available at the time
the decision is taken the better
• Information quality is key
• Information may be time dependent or an
immutable truth
• Information has a value (but only if it can
be capitalised upon)
Information: Desirable and
Obtainable
• Most decisions are made under conditions
of sub optimal information acquisition
• The information you might like to have
may not be available due to time limits,
cost limits, or simple inability to acquire it.
• The information you have may be limited
by methodology, cost, time, or simple
availability
Analysis versus Creativity
• Analysis is the “logical” interpretation of
collected data. There is one “correct”
analytical answer to a data matrix. It is the
“HBS answer” to a problem. There can
normally only be only one logical
interpretation of a data matrix. Analysis is
based on objectivity – a single perceptual
way of viewing data
Immutable and changing truths
• An immutable truth is one which has been
established over time to be true. It is a
FACT
• Facts may have caveats (except when….,
assuming that……, given that………)
• Changing truths are “facts” which are
correct only at the time of their creation.
They will constantly change – therefore
are not facts over time (patterns of voting)
Creativity
• This is the interpretation of data which is
objectively “incorrect”.
• Normally creativity is associated with
actions which are post analysis, and are
based on a different perceptions of the
assembled data.
• An “objective” perceptual analysis might
lead to several alternative creative
interpretations and subsequent strategies.
Credibility, Perception &
Experience
• Information has two components: content (what
it says) and credibility (how far we believe what it
says)
• Perception is how we interpret the information,
and is based in part on our experience and
training
• Experience is how often we have been exposed
to identical or similar situations and the lessons
we have learnt from these past exposures
Transposition of experience
• By training (across the age / experience
barriers)

• Through individual learning (via mistakes!)

• Through peer learning (watching others)


Risk
Risk is compounded of THREE quantities:

R = f (N,C,I)
Where:
N = Need to take a decision
C = Level and type of commitment
I = Indeterminacy (Uncertainty)

The objective is to reduce one or all of the above components in order


that the aggregate risk falls to an “acceptable” level.

What is an “acceptable” level of risk will vary dependent on personal,


industrial and cultural variables. It will vary between “risk takers” and
“risk avoiders”
Risk Taking and Risk Avoidance
• All decisions carry an element of risk – the
“inherent” risk component, which you can
never remove
• Total risk is made up of the inherent
component and an uncertainty element.
• Risk takers make decisions under higher
levels of uncertainty than do risk avoiders.
• Risk takers may be more successful if they
make the correct decisions earlier
Risk taker or Risk Avoider
• Culturally: Certain cultures (Chinese,
Jewish, American) are far more risk taking
than others (British)
• Industrially: Certain industries /
professions are more risk taking (traders,
clothing, restaurants) than risk averse
(banking, medicine, airline pilots)
• Personally: Your individual make up and
related risk taking
To Summarise
• Business Research provides Information
• Information reduces Uncertainty
• Uncertainty reduction reduces Risk
• Reducing risk improves Decision Making
• Better decision making leads to Increased
Profitability
• Increased profitability leads to Growth and
Survival!
Research is Information
• Research information is a tool to assist in
decision making
• Business research is NOT about making
strategic decisions based on the research.
• Research should not be held accountable
for bad decisions unless it can be shown
the research was flawed, and the decision
was made on incorrect information
The value of information
• Immutable truths (facts which are constant
over time) have little value
• Information which is constantly changing is
potentially of high value
• Its value is related to the consequences of
making an incorrect decision
• The costs of information acquisition should
never exceed the cost of the
consequences of an incorrect decision
Pure or Applied Research
• PURE RESEARCH (also known as “blue
sky” research). It is research to “discover”
information which may not have an
immediate usefulness.

• APPLIED RESEARCH (also known as


“problem based” research) seeks to
answer specific questions as an aid to
decision making
Principles of the Scientific Method
• Systematic Analysis and Logical
Interpretation
• Empiricism (facts from observation and
experimentation)
• Confirmation / disproving of prior
conceptions or hypotheses
• Establishment of general laws for future
reference
The Alternatives to Undertaking
Research
No decisions! (Therefore no need for research)
(Go forth blindly with a belief in constancy)
Anything can happen
(It is impossible to make decisions)
Decision Making based on our Glorious past
(We have prospered so far without research!)
Decision Making by Extrapolation
(Everything can only get better, faster, higher or bigger)
Crisis Management
(Be reactive, and only plan after a significant change has occurred)
Genius decision making
(Rely on the words of an expert as to what is to occur)
Common errors in using business
research
Conservatism
(Failure to personally adapt to new information / evidence)
Recentcy
(Lack of perspective in which more recent events are over emphasised)
Cyclicality
(A belief that all form variations re-appear as a modification over time)
Optimism / Wishful thinking
(The “rose tinted glasses” syndrome, where there is a vested interest in the
outcome)
Illusory correlations
(A belief that correlation = causation)
Underestimating Uncertainty
(Belief in the “will occur” not “might occur”)
Multiplication of “guesstimates”
(Over optimism in research responses and scaling up of results)
Methods of Business Research
• The choice of method used depends on a trade off
between FIVE criteria:
Accuracy required
Resources available / Decision Value
Time constraints
Data availability
Nature of the decision
Methods available can be defined along TWO dimensions:
Subjective / Objective
Analytic / Experiential