Kromann Reumert is a partner of Thinkers50 European Business Forum, which brings together the world's most sought-after business thinkers to a two-day conference. As part of the conference some of the greatest business thinkers have written essays called "Letters to the CEO" containing recommendations to the CEOs around the world based on the latest trends in the business world.
Perspective on Roger L. Martin's letter to the CEO
By partner Lau Normann Jørgensen
In his letter to the CEO
, Roger L. Martin has a clear message: Do not blindly accept advice just because that advice is based on the crunching of massive amounts of (historic) data. This is a view that we at Kromann Reumert from the legal perspective can very much adhere to. The reason for our caution, however, and the questions that we would suggest to ask a data analyst before relying on his or her conclusions are, not surprisingly, somewhat different.
What is "big data" from a legal point of view
Big data has over the last few years become a familiar term to most businesses, and has in that respect also become a thing to be dealt with by the legal industry. Faced with the challenge of analysts and advisers who - as Roger L. Martin puts it - "show unqualified reverence for data analytics", more and more companies approach their legal advisors with various technical setups and large pools of data, asking what they can do with their data and how they can enter into partnerships to exploit it in the best possible way.
From a regulatory point of view, we are met with the difficult task of applying regulation to possibilities for processing which is to a large extent obsolete and lacking the sophistication required to offer clear guidance as to what is permitted in terms of big data and how. This is true even of the new EU General Data Protection Regulation (the "GDPR") which will come into full effect in May 2018. Read more about the GDPR in our Insight The upcoming General Data Protection Regulation.
Data ownership has been fiercely debated in recent years, and discussions have even emerged on whether global personal data protection regulations are now required, mirroring to some extent the way in which banking regulation was globalized during the 20th century. In such a system, individuals should be able to view and benefit from their "data account", stored with a "data bank", and see which types of personal data they own and decide for themselves whether to make it available to companies wanting to process it for analytics purposes.
Unfortunately, this is not the case yet: the handling of personal data has not yet progressed to a stage where it can be overviewed so smoothly. Therefore, the question of what you can do with your big data will often come down to (i) whether it constitutes personal data and (ii) whether the person to whom it relates did at the time it was originally collected agree or was informed of the fact that your company may use the data for one purpose or another, be it marketing, statistics, business intelligence, or otherwise.
With great power comes great responsibility
When, therefore, a data analyst comes to you with grand ideas for plotting massive amounts of different types of data into an algorithm to show how your business should be run in the future (even though, as Roger L. Martin points out, there is no data except that which relates to the past), it really should be top of mind that not all data analysts focus on the responsibility that comes with having access to great amounts of, often sensitive, data. You, as a CEO, should, in addition to Roger L. Martin's questions, ask the following:
- Which data are we looking to process? The key question here is, of course, are we talking about personal data in any way and if so, has it been aggregated or anonymized in such a way that it is no longer personal data? This will give you much more freedom in terms of legal processing.
- How and from whom did we get the data? Data can be collected in many different ways, for example by the use of website cookies, by people agreeing to give their geolocation data, and by actually purchasing data from a third party that has collected the data.
- What will the data be used for? Often, data analysts will seek to receive and process large quantities of your company’s data for all kinds of purposes, some pertaining to the specific task they are performing for you, but also in some cases for other projects on their own behalf or for benchmarking purposes. The restrictions on what may lawfully be done with data that a company is data responsible for, are not to be taken lightly (especially having in mind the new penalty levels that will come with the GDPR), and it is very important that your company is clear on (i) what you are allowed to do with the data, especially if it has been collected from your customers, and (ii) what the data analysts intend to do with the data, as their actions will ultimately be your responsibility.
Carelessness in these aspects may be driven by the pressure to be a modern CEO, and not a "Neanderthal", and the potential consequences can be grave. First, reliance on historic data is unlikely to help you innovate or protect you from disruption. Second, the damage done to your company’s public image, not to mention potentially very substantial fines, from any wrongful use of personal data would be severe.
Lau Normann Jørgensen, partner, Kromann Reumert
The most pressing challenge facing the CEOs of today’s corporation is incursion into corporate decision making of data analytics, commonly referred to using the fashionable moniker ‘Big Data.’ The state of play is that data analytics is considered fully above reproach: something that modern CEOs simply must embrace. If a CEO doesn’t show unqualified reverence for data analytics, it is assumed that the CEO is a Neanderthal and/or Luddite. What has changed is that data analytics has migrated from the fringes of CEO life to the very epicenter. It is now the hottest thing in business.
CEOs are increasingly faced with an endless string of well-meaning but unreflective data analytics enthusiasts telling them that the ‘data prove that X is true’ or the ‘correct decision based on the data analytics is to do Y.’ The absolutely dominant prevailing wisdom is that CEOs should thank the messenger profusely and affirm that the decision based on data analytics is right. Instead, CEOs should instead ask the messenger the series of the following five questions:
- Question: From what era does all data in the world come?
Answer: From the past. There is no data about the future – yet.
- Question: What is the full extent of what data analytics tell us?
Answer: What has been operative in the past based on how the world has worked in the past.
- Question: What is our implicit assumption each and every time we use data analytics to decide what to do going forward?
Answer: We implicitly assume that the future will be a direct extrapolation of the past. It will either identical to the past or an extrapolation of the observed past trend into the future.
- Question: What is the probability of making choices to create a future that is different from the past using data analytics?
Answer: Zero. Data analytics has zero ability to chart out a course that is anything other than an extrapolation of the past into the future.
- Question: What is the probability that making a choice about the future based on data analytics will turn out badly?
Answer: High. Last time I checked, frequently the future turns out to be unexpectedly different from the past – annoyingly so, in fact.
The strong likelihood is that the big data enthusiast will not be able to answer any of the five questions, be baffled by the nature of the questions, and declare the CEO to be ‘anti-analytics.’ But by asking the questions and insisting on answers that demonstrate that data analytics are appropriate for the situation in question – and data analytics is appropriate when the future is likely to mirror the past – the CEO will be saving their companies from the modern day vandals.
Instead, CEOs need to use the only methodology that has ever been useful in making decisions about the future: first, imagine possibilities and second, pick the one for which the most compelling argument can be made. In deciding which is backed by the most compelling argument, CEOs should indeed take into account all data that can be crunched. But in addition, CEOs should also use imagination, judgment, and experience of numerous data points from the past that the data analysts wouldn’t consider ‘objective data’ to decide in what way to shape the future – like all the great CEOs in the history of business have done.
In doing so, CEOs will have to accept widespread ridicule in their organizations among the legion of big data enthusiasts, who will say that their CEO lacks rigor and makes decisions on ‘gut feel’ and is ‘old school. But these enthusiasts are likely to be blind and to have never asked questions concerning the logical limits of their methodology. So CEOs need to stand strong and make decisions that can create a better future for their organization and for humanity.
Roger L. Martin