Do you trust your gut, not your data?
Most of us do. Over the years I’ve observed how organisations invest huge amounts in systems, then use their gut to make decisions. Sounds stupid to ignore all the management information, but most of the time this is what happens and ironically, I can see why.
Have you really thought about how you make all the management decisions that dictate your profitability?
Our brains are better than computers (well most of them!) so when Senior Managers make ‘gut’ decisions their brains are assessing so many variables, which to be frank most systems don’t account for.
For example, when assessing how to renew a customer contract, the business needs to know all the standard stuff like how much the servicing of the contract has cost; how many visits, cost of engineer at a flat rate, parts used and you can work out the cost and profitability to understand if you are making or losing money and what price point to discuss with the customer.
The problem arises though when you compare this to the real situation, in a service business particularly, you will need different engineer levels for more complex jobs, these people cost more, there will be failed visits which sometimes are the fault of the service provider, but also sometimes the customer, never mind accounting for both travel cost and time as our roads are certainly busier. Then there’s parts, sometimes there might be failed visits because parts aren’t available in addition to the procurement costs associated with getting parts to the engineer and customer locations in tight timeframes. Another way to think about it is that only 25% of engineer time is ‘on the job’, so simply applying a flat rate and not accounting for things like wasted visits doesn’t make sense. Our gut knows this, so we naturally don’t trust the data in our systems – why would we?
Pause for a moment though – we bought the system we’re using, our guts said it was right, maybe we spotted something we thought would be ‘nice to have’, but did we check how it fits our workflow and if it captures everything we really need? Most people answer no to this – not a good gut decision then!
When we make gut decisions our brains try to weigh up all this information, service managers believe they know which customers ask for more visits, or don’t provide accurate information leading to failed visits but they can also misinterpret this data and simply consider these as busy contracts with lots of activity. Take the sales team for example, they look at the headline numbers (and their commission – higher amounts are better) without understanding the profitability, throw in the emotional side – if they get on with the customer, then you have decisions being made something like this:
“It’s a big account, they are nice people, we’ve done lots of visits (“they need us”) at the flat rate (no travel, admin, finance, accurate labour and parts purchasing cost) we’re making money, we need to go in keen to retain the business.”
When you’re using a system that doesn’t weigh up the same elements as you can in your head (excluding the emotional stuff) you can’t provide a true profit and loss figure. It’s starts when reports are generated that don’t capture, include or analyse all the important data and the Managers quickly see through this and stop using the information. The reports may be automatically generated and sent to them, but they stop using the incomplete data to make decisions. Conflicts can arise because of this distrust of data; how many times have you seen disagreements between sales and service/operations?
What normally happens is a strange status quo arises where businesses start to make difficult decisions on their gut instincts because they can’t see a way to do this differently, and after all we’re programmed to trust our gut instinct; which is really to protect us from danger, not to consider 100’s of variables appropriately!!!
If you are using your gut instinct do you realise you are doing so?
How confident are you that you get it right every time?
Do you ever look back and realise when you got it wrong?
Most people answer, “Yes I use my gut, but I don’t really think about it and No I don’t get it right every time as we’ve definitely lost money on some contracts”.
I know asking yourself these questions can help you see how there are opportunities to improve profitability without growing the business, to make management meetings and decisions easier for everyone and to have more meaningful discussions with customers so you can work with them to improve productivity whilst protecting your margin.
So when you next invest in a system that’s going to provide Management Information, taking time to really think about how you make the most important business decisions and how / if your system can really help you is the best decision you can make! You’ll know if you’re working with a good provider if they start this conversation about meaningful management information with you.
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