The Advantages of Data-Driven Decision-Making | HBS Online

Data-driven decision-making brings many benefits to businesses that embrace it. Here, we offer advice you can use to become more ... …→ HarvardBusinessSchool→ HBSOnline→ BusinessInsights HarvardBusinessSchoolOnline'sBusinessInsightsBlogprovidesthecareerinsightsyouneedtoachieveyourgoalsandgainconfidenceinyourbusinessskills.   FilterResults ArrowDown ArrowUp Topics Topics Accounting Analytics BusinessEssentials BusinessinSociety CareerDevelopment Communication Community ConneXt Decision-Making EarningYourMBA Entrepreneurship&Innovation Finance Leadership Management Marketing Negotiation News&Events Productivity StaffSpotlight Strategy StudentProfiles Technology Work-LifeBalance Courses Courses AlternativeInvestments BusinessAnalytics CORe DesignThinkingandInnovation DisruptiveStrategy EconomicsforManagers EntrepreneurshipEssentials FinancialAccounting GlobalBusiness LeadershipPrinciples LeadingwithFinance ManagementEssentials NegotiationMastery OrganizationalLeadership PowerandInfluenceforPositiveImpact StrategyExecution SustainableBusinessStrategy SustainableInvesting SubscribetotheBlog RSSfeed Topics Topics Accounting Analytics BusinessEssentials BusinessinSociety CareerDevelopment Communication Community ConneXt Decision-Making EarningYourMBA Entrepreneurship&Innovation Finance Leadership Management Marketing Negotiation News&Events Productivity StaffSpotlight Strategy StudentProfiles Technology Work-LifeBalance Courses Courses AlternativeInvestments BusinessAnalytics CORe DesignThinkingandInnovation DisruptiveStrategy EconomicsforManagers EntrepreneurshipEssentials FinancialAccounting GlobalBusiness LeadershipPrinciples LeadingwithFinance ManagementEssentials NegotiationMastery OrganizationalLeadership PowerandInfluenceforPositiveImpact StrategyExecution SustainableBusinessStrategy SustainableInvesting SubscribetotheBlog RSSfeed TheAdvantagesofData-DrivenDecision-Making 26Aug2019 TimStobierski Author Contributors tag Analytics BusinessAnalytics Decision-Making Societyhasimbuedtheconceptof“intuition”—ofsimplyknowingwhensomethingisrightorwrong—withatremendousamountofprestige,importance,andinfluence. Infact,accordingtosomestudies,morethanhalfofAmericansrelyontheir“gut”inordertodecidewhattobelieve,evenwhentheyareconfrontedwithevidencethatspeakstothecontrary. Theconceptofintuitionhasbecomesoromanticizedinmodernlifethatit'snowapartofhowmanypeopletalkaboutandunderstandthe“geniuses”ofourgeneration.Inscience,forexample,AlbertEinsteinisoftenquotedassaying,“Theintuitivemindisasacredgift,"andinbusiness,SteveJobsisquotedassaying,“Havethecouragetofollowyourheartandintuition;theysomehowalreadyknowwhatyouwanttobecome.” Thoughintuitioncanbeahelpfultool,itwouldbeamistaketobasealldecisionsaroundameregutfeeling. Whileintuitioncanprovideahunchorsparkthatstartsyoudownaparticularpath,it'sthroughdatathatyouverify,understand,andquantify.Accordingtoasurveyofmorethan1,000seniorexecutivesconductedbyPwC,highlydata-drivenorganizationsarethreetimesmorelikelytoreportsignificantimprovementsindecision-makingcomparedtothosewhorelylessondata. Areyouinterestedinlearninghowdata-drivendecision-makingcanenableyoutobeamoreeffectiveentrepreneurormemberofyourorganization?Belowisinformationaboutthebenefitsofbecomingmoredata-driven,aswellasanumberofstepsyoucantaketobecomemoreanalyticalinyourprocesses. FreeE-Book:ABeginner'sGuidetoData&Analytics Accessyourfreee-booktoday. DOWNLOADNOW WhatIsData-DrivenDecision-Making? Data-drivendecision-making(sometimesabbreviatedasDDDM)istheprocessofusingdatatoinformyourdecision-makingprocessandvalidateacourseofactionbeforecommittingtoit. Inbusiness,thisisseeninmanyforms.Forexample,acompanymight: Collectsurveyresponsestoidentifyproducts,services,andfeaturestheircustomerswouldlike Conductusertestingtoobservehowcustomersareinclinedtousetheirproductorservicesandtoidentifypotentialissuesthatshouldberesolvedpriortoafullrelease Launchanewproductorserviceinatestmarketinordertotestthewatersandunderstandhowaproductmightperforminthemarket Analyzeshiftsindemographicdatatodeterminebusinessopportunitiesorthreats Howexactlydatacanbeincorporatedintothedecision-makingprocesswilldependonanumberoffactors,suchasyourbusinessgoalsandthetypesandqualityofdatayouhaveaccessto. Thecollectionandanalysisofdatahavelongplayedanimportantroleinenterprise-levelcorporationsandorganizations.Butashumanitygeneratesmorethan2.5quintillionbytesofdataeachday,it'sneverbeeneasierforbusinessesofallsizestocollect,analyze,andinterpretdataintoreal,actionableinsights.Thoughdata-drivendecision-makinghasexistedinbusinessinoneformoranotherforcenturies,it’satrulymodernphenomenon. ExamplesofData-DrivenDecision-Making Today’slargestandmostsuccessfulorganizationsusedatatotheiradvantagewhenmakinghigh-impactbusinessdecisions.Tobetterunderstandhowyourorganizationcanincorporatedataanalyticsintoitsdecision-makingprocess,considerthesuccessstoriesofthesewell-knownbusinesses. 1.LeadershipDevelopmentatGoogle Googlemaintainsaheavyfocusonwhatitreferstoas“peopleanalytics.”Aspartofoneofitswell-knownpeopleanalyticsinitiatives,ProjectOxygen,Googlemineddatafrommorethan10,000performancereviewsandcomparedthedatawithemployeeretentionrates.Googleusedtheinformationtoidentifycommonbehaviorsofhigh-performingmanagersandcreatedtrainingprogramstodevelopthesecompetencies.Theseeffortsboostedmedianfavorabilityscoresformanagersfrom83percentto88percent. 2.RealEstateDecisionsatStarbucks AfterhundredsofStarbuckslocationswereclosedin2008,then-CEOHowardSchultzpromisedthatthecompanywouldtakeamoreanalyticalapproachtoidentifyingfuturestorelocations. Starbucksnowpartnerswithalocation-analyticscompanytopinpointidealstorelocationsusingdatalikedemographicsandtrafficpatterns.Theorganizationalsoconsidersinputfromitsregionalteamsbeforemakingdecisions.Starbucksusesthisdatatodeterminethelikelihoodofsuccessforaparticularlocationbeforetakingonanewinvestment. 3.DrivingSalesatAmazon Amazonusesdatatodecidewhichproductstheyshouldrecommendtocustomersbasedontheirpriorpurchasesandpatternsinsearchbehavior.Ratherthanblindlysuggestingaproduct,Amazonusesdataanalyticsandmachinelearningtodriveitsrecommendationengine.McKinseyestimatedthat,in2017,35percentofAmazon’sconsumerpurchasescouldbetiedbacktothecompany’srecommendationsystem. BenefitsofData-DrivenDecision-Making 1.You’llMakeMoreConfidentDecisions Onceyoubegincollectingandanalyzingdata,you’relikelytofindthatit’seasiertoreachaconfidentdecisionaboutvirtuallyanybusinesschallenge,whetheryou’redecidingtolaunchordiscontinueaproduct,adjustyourmarketingmessage,branchintoanewmarket,orsomethingelseentirely. Dataperformsmultipleroles.Ontheonehand,itservestobenchmarkwhatcurrentlyexists,whichallowsyoutobetterunderstandtheimpactthatanydecisionyoumakewillhaveonyourbusiness. Beyondthis,dataislogicalandconcreteinawaythatgutinstinctandintuitionsimplyaren’t.Byremovingthesubjectiveelementsfromyourbusinessdecisions,youcaninstillconfidenceinyourselfandyourcompanyasawhole.Thisconfidenceallowsyourorganizationtocommitfullytoaparticularvisionorstrategywithoutbeingoverlyconcernedthatthewrongdecisionhasbeenmade. Justbecauseadecisionisbasedondatadoesn’tmeanitwillalwaysbecorrect.Whilethedatamightshowaparticularpatternorsuggestacertainoutcome,ifthedatacollectionprocessorinterpretationisflawed,thenanydecisionbasedonthedatawouldbeinaccurate.Thisiswhytheimpactofeverybusinessdecisionshouldberegularlymeasuredandmonitored. Related:3ExamplesofBusinessAnalyticsinAction 2.You’llBecomeMoreProactive Whenyoufirstimplementadata-drivendecision-makingprocess,it’slikelytobereactionaryinnature.Thedatatellsastory,whichyouandyourorganizationmustthenreactto. Whilethisisvaluableinitsownright,it’snottheonlyrolethatdataandanalysiscanplaywithinyourbusiness.Givenenoughpracticeandtherighttypesandquantitiesofdata,it’spossibletoleverageitinamoreproactiveway—forexample,byidentifyingbusinessopportunitiesbeforeyourcompetitiondoes,orbydetectingthreatsbeforetheygrowtooserious. 3.YouCanRealizeCostSavings Therearemanyreasonsabusinessmightchoosetoinvestinabigdatainitiativeandaimtobecomemoredata-driveninitsprocesses.AccordingtoarecentsurveyofFortune1,000executivesconductedbyNewVantagePartnersfortheHarvardBusinessReview,theseinitiativesvaryintheirratesofsuccess. Oneofthemostimpactfulinitiatives,accordingtothesurvey,isusingdatatodecreaseexpenses.Oftheorganizationswhichbeganprojectsdesignedtodecreaseexpenses,morethan49percenthaveseenvaluefromtheirprojects.Otherinitiativeshaveshownmoremixedresults. “Bigdataisalreadybeingusedtoimproveoperationalefficiency,”saidRandyBean,CEOandmanagingpartnerofconsultancyfirmNewVantagePartners,whenannouncingtheresultsofthesurvey.“Andtheabilitytomakeinformeddecisionsbasedontheverylatestup-to-the-momentinformationisrapidlybecomingthemainstreamnorm.” HowtoBecomeMoreData-Driven Ifyouhaveagoalofbecomingmoredata-driveninyourapproachtobusiness,therearemanystepsyoucantaketoreachthatgoal.Here'salookatsomeofthewaysyoucanapproachyourdailytaskswithananalyticalmindset. 1.LookforPatternsEverywhere Dataanalysisis,atitsheart,anattempttofindapatternwithin,orcorrelationbetween,differentdatapoints.It’sfromthesepatternsandcorrelationsthatinsightsandconclusionscanbedrawn. Thefirststepinbecomingmoredata-drivenismakingaconsciousdecisiontobemoreanalytical—bothinbusinessaswellasinyourpersonallife.Whilethismightseemsimple,it’ssomethingthattakespractice. Whetheryou’reintheofficepouringoverfinancialstatements,standinginlineatthegrocerystore,orcommutingonthetrain,lookforpatternsinthedataaroundyou.Onceyouhavenoticedthosepatterns,practiceextrapolatinginsightsandtrytodrawconclusionsastowhytheyexist.Thissimpleexercisecanhelpyoutrainyourselftobecomemoredata-driveninotherareasofyourlife. 2.TieEveryDecisionBacktotheData Wheneveryou’representedwithadecision,whetherbusiness-relatedorpersonalinnature,doyourbesttoavoidrelyingongutinstinctorpastbehaviorwhendeterminingacourseofaction.Instead,makeaconsciousefforttoapplyananalyticalmindset. Identifywhatdatayouhaveavailablethatcanbeusedtoinformyourdecision.Ifnodataexists,considerwaysinwhichyoucouldcollectitonyourown.Onceyouhavethedata,analyzeit,anduseanyinsightstohelpyoumakeyourdecision.Aswiththepattern-spottingexercise,theideaistogiveyourselfenoughpracticethatanalysisbecomesanaturalpartofyourdecision-makingprocess. 3.VisualizetheMeaningBehindtheData Datavisualizationisahugepartofthedataanalysisprocess.It’snearlyimpossibletoderivemeaningfromatableofnumbers.Bycreatingengagingvisualsintheformofchartsandgraphs,you’llbeabletoquicklyidentifytrendsandmakeconclusionsaboutthedata. Familiarizeyourselfwithpopulardatavisualizationtechniquesandtools,andpracticecreatingvisualizationswithanyformofdatayouhavereadilyavailable.Thiscanbeassimpleascreatingagraphtovisualizeyourmonthlyspendinghabitsanddrawingconclusionsfromthevisualization.Youcanthenusetheseinsightstomakeapersonalbudgetforthenextmonth.Aftercompletingthatexercise,you’llhavesuccessfullymadeadata-drivendecision. 4.ConsiderFurtheringYourEducation Ifyou’reuncomfortablewiththeideaoflearninghowtoincorporatedataintoyourdecision-makingprocessonyourown,thereareanumberofeducationaloptionsyoucanpursuetodevelopthedatascienceskillsneededtosucceed. Whichoptionmakesthemostsensewilldependonyourpersonalandprofessionalgoals.Forexample,individualsconsideringaseriouscareerchangemightdecidetopursueamaster’sdegreewithanemphasisondataanalyticsordatascience.Butforeveryoneelse,simplytakinganonlinebusinessanalyticsordatasciencecoursecouldbeenoughtolaythefoundationnecessaryforsuccess. UsingDatatoAnswerCriticalQuestions Whiletherearemanybenefitstodata-drivendecision-making,it’simportanttonotethatyoudon’tneedtotakeanall-or-nothingapproachtogetthere.Bystartingsmall,benchmarkingyourperformance,documentingeverything,andadjustingasyougo,youcanbecomemoredata-drivenandthriveatyourorganization. Doyouwanttolearnmoreabouthowtousedatatoinformbusinessdecisionsatyourorganization?DownloadourBeginner’sGuidetoData&Analyticstolearnhowyoucanleveragethepowerofdataforprofessionalandorganizationalsuccess.ThispostwasupdatedonFebruary19,2021.ItwasoriginallypublishedonAugust26,2019. AbouttheAuthorTimStobierskiisamarketingspecialistandcontributingwriterforHarvardBusinessSchoolOnline.