The Hidden (negative) Cost of Data-Driven Leadership

The breadth of data at our fingertips is a powerful tool, information has never been so accessible for leaders. We’re able to quantify things that in the past felt gauzy like, employee engagement, productivity, customer perceptions, competitive threats, and even manager perceptions are all now measurable. Almost every employee, from executives to entry-level teammates, now has metrics attached to their jobs.

Yet, when leaders hyper-fixate on these quantitative metrics, they risk of eroding the very thing that makes business thrive: the human spirit. In the coming years, metrics will become more granular, and the access we have to data will only increase. An overemphasis on metrics can have a chilling impact on morale.

The challenge for leadership is- how can we leverage the data we know matters? But also recognize- that data will never tell the full story?

Here are three tips to strike the duality:

Don’t over-indexing on lagging indicators

The metrics we care about most in business are lagging indicators. Datapoints like customer acquisition, revenue, and profitability metrics are the results of beliefs, behaviors, and actions taken months ago. They’re important, but not exactly predictive. The challenge is these lagging indicators are often the easiest to measure. They fit nicely into reports and there’s little room for error.

To assess the business more accurately, organizations must also examine leading indicators. These are the up-stream factors that contribute to the output. For example, we know employee engagement has a direct impact on innovation, which goes onto influence customer acquisition, which ultimately, dramatically impacts profitability.

Measure the qualitative (Even though it’s harder) 
Just because it’s not a numerical output doesn’t mean it can’t be measured. Leading organizations continually find ways to assess the qualitative factors they know impact their business. For example, Google measures ‘googliness’ a quality that Google describes as “a mashup of passion and drive”.

It’s crucial to recognize that qualitative metrics are imperfect (well, arguably all metrics are imperfect). When a leader is assessing something qualitative, like promotability, creativity, pr “googliness,” it’s absolutely crucially to mitigate biases. It helps to define exactly what the qualitative factor looks like when it’s present and when it’s absent.

Remember, gut instinct still counts
Leaning on the data can provide a (sometimes false) sense of confidence in decision making. Afterall, how could all the numbers be…wrong? Gut instinct still counts. There was a fascinating article about this in Harvard Business Review, authored by Laura Huang, who notes

“I observed hundreds of angel investors and venture capitalists as they considered capital allocation decisions, tracking the extent to which they considered economic, financial, “hard” data, and the extent to which they relied on signals and subtle cues that were based on intuitive, “non-codified” information. Based on the objective and quantifiable information such as financial statements and market data, almost all of these entrepreneurial ventures would be considered risky investments that should be avoided. Yet, investors often entered into them, relying on their “gut feel” to do so.”

History is filled with examples of leaders who seemingly defied the balance sheet, entering, investing, or exiting businesses based on a gut intuition. And often, they’re right.

Your gut instinct isn’t perfect. Just like the challenges with qualitative metrics, it’s paramount to dig behind the initial reaction. Yet, for thousands of years, humans have honed our ability to pick up on a feeling when something isn’t quite right. Your subconscious is taking in more information than you realize.

Our interactions and decisions are more quantifiable than ever before. Yet, the boldest thinkers and most breakthrough organizations rarely rise based on a balance sheet alone.