Chief executives' challenge: evaluating how much information is too much

Business leaders grapple with an overload of data; developing good designs to uncover important patterns

By JAVIER ESPINOZA

LONDON—For Justin Clark, executive director of security-services company Gotham Digital Science, having access to the right information can help save a business.

Every month, he is presented with revenue figures, head-counts and industry data, which sometimes are abundant but often scarce.

"The worry is that if you have too much information you won't be able to find anything useful. It's frustrating. But I would prefer to have a bit more information," says Mr. Clark, who is based in London.

He says, however, that data on its own is of no use.

"Industry data is at least one month old and you take a risk when making decisions based on it. You take a calculated risk based on your experience," he says. "Sometimes it works and sometimes it doesn't."

Like Mr. Clark, business leaders across Europe are constantly dealing with information—often vast quantities of it—and are grappling with efficient ways of making sense of numbers.

Recent research by McKinney Rogers, based on a pool of 150 senior executives from Europe and around the world, showed that boards are relying too heavily on backward-looking financial information, which is undermining their ability to react quickly to business conditions.

"There is too much emphasis at senior levels on reviewing recent past performance and not enough on identifying and monitoring early indicators that warn when plans are already thrown off track," says McKinney Rogers Chief Executive Damian McKinney.

The research also revealed that businesses mostly use internal data to measure their performance—like financial and operational measures—despite the importance of keeping an eye on external factors like competitors, input prices, exchange rates, brand reputation and market share. The report said the absence of a link between the external environment and internal goals prevents companies from being able to quickly adapt their plans and strategy.

But CEOs are also facing the problem of data overload, which is often combined with skepticism toward the accuracy of much of it, the report said.

"Often management information comes in the form of a monthly reporting pack prepared by management accounts. These tend to be an inch thick and cover everything ad nauseam. Often the data is less than fresh," McKinney Rogers said.

As chairman of McKinney Rogers, Sir Robert Fry handles a great deal of information. He says getting the best data is what defines a successful businesses.

However, Sir Robert admits that business leaders become "too seduced and too fixated with the availability" of information to make decisions that will impact the future of a company.

"Data by itself is worthless. It is merely an undifferentiated resource," Sir Robert says. He says managers can have data available and may simply be unable "to derive the correct decisions from it."

How should businesses be dealing with data to become sharp decision makers? Experts say executives should place a lot of effort on obtaining the best information possible to make decisions quickly. Unfortunately, that's not always the case.

Presentation is important to make data work.

"Good designs enable managers to see important patterns quickly by enabling comparisons, highlighting trends and putting related information together and in context," says Steve Black, business-intelligence specialist at London-based PA Consulting Group.

But companies should also be wary of too flashy ways of digesting data.

Mr. Black warns of "relevant and useful information" that is "overwhelmed by distracting, but cool, visual adornments." The expert also highlighted that not all businesses need information with the same speed and that this will depend on the nature of the industry.

"There are mix time scales on the need to access information for different decision makers," Mr. Black says.

Supermarkets need daily input of data to make essential decisions on what to put on their shelves, while fashion retailers might need information on a weekly or monthly basis, he says.

Data face another problem in that they are inherently messy, so management needs to make sure information all comes together in an organized system.

"Data is all over the place and there isn't one single owner of the information," says Kurt Thearling, head of decision sciences with Vertex, a customer management service provider based in the U.K.

Once collected, it needs to be managed in a consistent way" so it is then "ready to analyze," Mr. Thearling said.

Data, however, are only as important as the people making the key decisions.

"Decision-making is an experienced-based expertise. In the words of golfer Gary Player, 'the more you practice, the luckier you get.' Good decision-making is all about pattern recognition," says Michael Mankins of San Francisco-based Bain & Co., a business consulting firm.

"The more patterns—or experiences—an executive has to draw on, the better they are at decision-making, particularly under tumultuous condi