Communicating Sophisticated Analytics

I've got a problem with our client group...


Marketing analytics must include, finally, communication with other parts of the firm. As anybody who performs sophisticated analytics can attest, communication is not necessarily the easiest part of the process, not least because it involves a strategic interaction between the analysts (Senders) and the client groups (Receivers). This strategic interaction is filled with places where even the best analytics can wind up being discarded. So, we want to avoid that. How?

The communication effort should be built to manage the incentive alignment concerns of the recipients of the analysts and also take into account the fact that there is a moral hazard in this sort of communication.

One intuitive example of incentive alignment is when new analysts show up and begin looking at a process that has been active for a while. Newbies tend to find all sorts of places where the process seems sub-optimal to them and make recommendations on how to improve the process. It is very difficult for others to evaluate these recommendations because the incentive for new employees is to over-state the degree to which old processes need to be fixed. Finding problems puts them on the map, so they tend to find more than they should.


Well, we aren't newbies.  So what's the real problem?

But the moral hazard is the real problem. 


Side explanation: moral hazard

Moral hazard is the name economists use to talk about the problem that creeps up whenever costs are borne privately but benefits are shared: people tend to not want to invest in those costs.  So, to use a typical example, car insurance is subject to moral hazard: we'd all benefit if I drove carefully, but since my personal cost of an accident is low, I might drive faster than I ought.  Similar thing with communication: we both benefit if a good project gets implemented, but I might want to skimp on the cost of understanding the analysis that lets us understand the project.

It’s like this: getting knowledge from the head of the researcher into the head of the group that needs it requires investments from both sides. The analyst needs to make a good and effective presentation (which might very well involve multiple presentations, background conversations, multiple presentations given to multiple groups, etc.), but the group receiving the analysis needs to make investments, too. Understanding sophisticated analysis isn’t easy, especially if it uses unfamiliar techniques.

So, the payoff to the communication depends on the effort the other team puts in to understanding the analysis. And that creates room for moral hazard.

So, what do you do? Dewatripont and Tirole (2005) have a very interesting paper on this problem, which develops a model for this sort of communication. Like a lot of papers which deal with cooperative solutions, they wind up with a fairly large set of sub-cases, depending on the receiver’s assumptions about the degree to which his interests are aligned with the sender’s, the type of oversight (supervisory or executive) the receiver will ultimately have to exercise over the recommendation, the level of certainty the receiver has about the sender’s payoff associated with the project, etc.


Sounds complex

It gets dicey, for sure. The key insights are that a decrease in either party’s stake in the project will lessen the total communication effort. If there are communication “set-up costs” (new analytical techniques being introduced to the discussion, for example, that not everyone is familiar with), then we can see sudden and discontinuous breakdowns in communication. Senders of information should invest in positive cues about their credibility; that way, Receivers will be more likely to invest in the joint communication.

These cues come from sources you might expect: people who know the history of the Sender, people who have done some investigation of the analytical claims, etc. The goal of obtaining these cues is to convince the client to engage and evaluate the analysis. Once that happens, the analyst’s job is made much easier.



So,  need other people to endorse the analysis?  Where have I heard that before?

OK. Sounds obvious, I know. But it is a mistake I’ve made in the past and I’d bet it’s one others have made as well. Client can’t / won’t engage the analysis because he doesn’t have the skills to do so and doesn’t want to just rubber-stamp my project. So what do you do? If you are naïve, you ask him again, only using more flattery this time. Won’t work. What you need is some borrowed credibility – that’s the key.  Without it, you simply can't expect to win -- communication is broken and can't be fixed.