What Type of Decision-Maker are You?

May 6, 2014

You’re probably hearing a lot about data these days – big data, little data, BI, business analytics. There’s a huge interest in the vast amount of data available to organizations – both from within and outside.

And this interest is for good reason.

Data-driven organizations (and on a smaller scale, departments and managers) are shown to have distinct advantages. They craft better strategies, uncover new markets, have superior customer relations and keep operational costs low.

With access now to bigger and better data streams and the right organizational support, companies can reach new levels of performance using analytics to achieve deeper insights and value.

Today, more than ever, organizations can measure and manage more precisely, allowing them to make better predictions and smarter decisions.

Smart leaders across all industries are embracing data as a way to bring their organizations into the lead. And lead they have. Harvard Business Review states that organizations in the top tier of their industry in data-driven decision-making were, on average, 5% more productive and 6% more profitable than their competitors.

They found that the more companies characterized themselves as data-driven, the better they performed on objective measures of financial and operational results.

Data allows organizations to target more effective interventions and enable people to identify opportunities and solve problems they haven’t been able to solve before due to a lack of information. Data shines a light into areas once dominated by gut and intuition and allows all decisions to be made with confidence.

Leaders (and those below them) can know profoundly more about the workings of their organizations and this results directly into improved decision-making and performance.

And while the benefits of being a data-driven organization seem clear, many have not made the change, relying still on outdated methods of decision-making. This makes an even bigger advantage for those who adopt evidence-based decision-making into their organizations now and are able to climb ahead of the rest.

Stuck in the Dark: Data-Less

In a survey of HBR readers, while 85 percent of executives said that information was essential to the growth of business, less than half said they were actually utilizing the data they are now collecting effectively. Only 7 percent of the respondents thought they were doing a great job using data to retain customers and create new products and services.

If these leaders aren’t using logic and evidence to make important decisions that chart the course of their organization, what are they using? There are many reasons organizations have turned a blind eye to becoming evidence-based.

Many leaders choose to stick with what has worked for them in the past and apply this to current and future situations. They choose to rely on their experience and intuition and not on data.

With the pace of change we are experiencing in business (and the world in general) it is just not possible to rely on what happened in the past or a gut feeling. Beliefs and ideologies are no longer sufficient to get by on, let alone use to get to the top.

Organizations need to question decisions and practices and apply hard logic before moving forward. While this can be difficult when you are questioning something everyone is comfortable or familiar with or the decisions of higher ups and experts, but there is no other way.

Seasoned business leaders tend to make decisions based on their experiences, patterns and relationships they’ve observed. While undeniably useful, many tend to lean towards their strengths and ignore data that might contradict them.

The fact is that people are not better at making decisions, judgments or predictions on their own. This is clearly demonstrated by the late Paul Meehl and William Grove. They analyzed 136 research studies directly comparing the predictions of humans, many of them ‘experts,’ against those coming exclusively from data algorithms. Humans were clearly better in only 8 of the cases. And Meehl and Grove figured that those 8 human victories might have been due to the fact that people were “provided with more data than the actuarial formula.”

People are too influenced by their past experiences, beliefs and biases to make solid decisions without the benefits of evidence.

Another decision-making practice that is prevalent today is casual benchmarking, whereupon organizations follow the practices of those at the top of their field without questioning why something is being done, if it will be right for their organization, its impact on their mission and clients, and how it will affect them now and in the future. This is hazardous to the health of an organization.

While it might seem difficult, complicated and time-consuming to pull data together and set up the right processes for evidence-based decision-making (and let’s be clear – it’s not), there is no choice if you want to compete in today’s fast-paced business environment. You must be able to make quick, confident decisions and the only way to be able to do that is to be able to back them up with logic and evidence.

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