Being data-driven is currently very vogue, with many businesses proudly stating this fact as if it puts them at the leading edge. Even more believe that being data-driven is only a recent development – practically something that has been driven by likes of Amazon and Google. But what does history have to say about this?
Well, it may surprise you to find that the transformative impact of data and analytics goes back much further. To anyone who has enjoyed Harari’s ‘Sapiens’, they will know that the use of data in commerce has been occurring since time immemorial. However, there is an example of data-driven thinking that feels like a much more modern data solution dating back to the 18th century.
In 1744, two Scottish Presbyterian Ministers by the names of Alexander Webster and Robert Wallace wanted to set up an insurance fund for the wives of clergymen, in the unfortunate incidence of them becoming widows. Simple enough – after all, insurance has existed for centuries, with some early examples dating back to 4th century BC (where ships were covered with Maritime loans as an early form of insurance). These two gentlemen wanted more reassurance and wanted to take diligent steps to ensure their enterprise was a success, how were they to judge how long their clergymen would live? How long would the insurance have to pay out for? And on those grounds, what kind of fees do they need to gather?
Luckily, they did not subscribe to the power of a ‘gut feeling’, and instead they approached someone with the necessary skills. They reached out to a Professor of Mathematics at the University of Edinburgh. They used whatever data they could get their hands on, notably life expectancy data from Germany and their own death records from the clergy. They then used Jacob Bernoulli’s Law of Large numbers (a single case can be misleading, but a bigger sample is notably more reliable) as a means of prediction. This may seem to be a simple thought by today’s standard, but this finding was still considered avant-garde thinking for the time. Through using this data, they not only generated estimates on the life expectancy, or how long they would have to pay out before death of spouse or remarriage, but also how much money they would have to pay into the policy to balance the books. Their use of data allowed them to thrive but also plan effectively, and they predicted that by 1765 that the fund’s value would amount to £58,348. Incidentally, they were only £1 shy by that date.
So what happened to this fund for widows of clergymen? Through the twists and tides of business, re-shuffles and re-purposing, it eventually became Scottish Widows, a well-known brand that is part of Lloyds Banking Group and a provider of insurance to over 6 million customers (they branched out a bit from just insuring clergymen).
So, what can we learn from this?
- Data does not have to be complicated to improve decision making and drive efficiencies.
- Data should be used to empower business decisions, not get in the way.
- The term I dread most, “that’s just always the way its been done here”, should not be accepted. A better, and potentially game-changing way of working, could be just around the corner.
- Taking a step back and looking for help outside your typical world of expertise is a great tool that is often under-used. There is a lot of pressure for everyone to be an expert in everything, be bold and put other people’s expertise to work. Remember, a different take on the same challenge could provide simple solutions.
- And finally, as will be a core tenant of our series on business history, most of the challenges we face before are not that new. They may look different, but they are the same in both body and spirit.