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Do You Know How to Fix What’s Slowly Killing Your Company?

March 02, 2021
Author: Matt Elhardt

This post was originally published on Fisher International's Fisher Insights blog.

Robust, competitive markets force participants in those markets to learn how to serve their customers in more efficient, cost effective ways, or else they risk going extinct. In our own experience, however, Fisher has found that companies can sometimes fall victim to “inertia” – a tendency to do things over and over in the same way, which is often driven by biases that we all have as humans. For example:

Confirmation Bias

Managers create reports and analyses that place more importance on data that confirms what they already believe (or what they have previously told their boss and colleagues). In a due diligence study, we were asked to confirm the positive market growth rate for currency paper. In the end, we came to the opposite, yet correct, conclusion. The root cause of this difference was management putting too much emphasis on historical factors that drove demand, and not enough importance on disruptive technologies (cashless systems) that were rapidly gaining popularity.

Experience Bias

Sometimes, we put a disproportionate amount of weight on our own experiences and suppositions. When I started at Fisher, I did not have a single customer during the first year and so I cold called a lot of prospects. During that year, I had three separate mill managers tell me that they did not need cost benchmarking. Why? Because each of them was “sure” they were the lowest cost producer in North America, even though they were all making the same product grade! While at Longview Fiber, I had the opportunity to work for Randy Nebel (now, the CEO of Verso), who is a staunch proponent of benchmarking and utilizing external data and expertise. He often quoted Jack Welch, saying, “If change is occurring on the outside faster than the inside, the end is in sight.” Benchmarking, and sharing the results with all employees (including union), served as a catalyst for transformational change that took place at Longview and helped to revitalize the company.

Screen Shot 2021-02-17 at 11.46.35 AM

Figure 1: As this cost curve of European testliner demonstrates, mill costs can vary dramatically for the same grade in a given region.

Principle-Agent Problems

Many companies use agents, distributors and other intermediates that can have different objectives than they do. We once completed a proprietary study in which we found that a country agent for a company was advising them that the market was half the size it actually was in order to represent the other half for their competitor! The agent was changed, and in doing so, the company doubled their addressable market.

Screen Shot 2021-02-17 at 11.45.52 AM

Figure 2: Illustration of utilizing the mapping feature in FisherSolve Next for territory management of pulp sales agents. Pulp sales optimization is usually a large source of opportunity for most companies.


Recency Bias

Managers will sometimes put more weight on recent or current events than on historical trends.We see this frequently, particularly with customers who withhold capital expansions during downcycles, which can often cause them to miss out on future gains when the market turns up.

What Changes Can You Make?

The remedy for corporate inertia is to root out the biases that lead to incomplete decision making, which takes a cultural embrace of the power of unbiased data. In our own experience (and based on the work of many others), there are some simple things your organization can start doing right away to incorporate this kind of change:

  • Ask for opposing opinions and facts. A simple, but effective technique is to ask “What could happen that would cause our conclusion to be wrong? Have we investigated it enough?” Another effective strategy is to use “red teams,” whose objective is to come up with an alternative idea.
    • Create a culture where it is OK to be wrong sometimes. When a subordinate makes a mistake, do you make a mental note for the HR files (or worse, scold them in public), or do you say, “I’m glad we found it – and corrected it before we included it in our analysis”? Creating a culture where your employees are afraid to admit to their mistakes, point out areas that need improvement, or speak up can lead to disaster.

  • Use (lots of) data supported by an analytical culture. Research has shown that companies that use high-quality data and analytics in their decision making outperform companies that do not. Bain completed a study in 2013 that found that top analytical companies were[1]:
    • Twice as likely to be in the top quartile of financial performance within their industries.
    • Three times more likely to execute decisions as intended.
    • Five times more likely to make decisions faster.

How do you know if your company has the qualities of a winning analytical company? Here is a simple checklist to review:

  1. Do you rely solely on your sales group for forecasting and market sizing? At Fisher, we have thirty years of experience and have yet to find a situation where a client’s intelligence was as complete or comprehensive as our databases.

  2. Do you use third-party data in addition to your own information and judgements to form a more complete picture? When doing so, is third party data integrated with your own to uncover new insights?

  3. Do you run sensitivities and scenarios? Taking it a step forward, are the sensitivities based on data itself? We often find issues with customers using simple “plus or minus” X percent rules. However, this fails to recognize that many data series are not normally distributed. For example, it is far more likely for capital to go over than under, and similarly, prices almost always have a floor and a ceiling which can be defined.

  4. Do senior managers ask for the data and evidence behind an opinion? Or does “just trust me because I’ve been in the business for X years” more likely to prevail?

These common mistakes can be easy to miss when you’ve become comfortable with the routine you’ve set in place for yourself and your company. However, it’s crucial to self-reflect on how some of these habits could be potentially hurting your business strategy in the end, which will allow you to make the necessary changes that are vital to your company’s profitability and position within the market sooner rather than later.

[1] Competing on Analytics, The New Science of Winning, Davenport and Harris, page 74.

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