Businesses that utilise big data reap a number of benefits. According to research, big data can provide an estimated 8% increase in revenues and a 10% reduction in costs. This was because of better strategic decisions, improved control of operational processes and enhanced customer understanding.
Data-driven decision making means to decide businesses strategy based on hard data, not intuition. As the leading statistician and business consultant, Edward Deming said, ‘Without data, you’re just another person with an opinion.’ However, while 91% of companies believe that data-driven decision making is important to their business, only 57% implement this process. So, how can organisations utilise the power of data?
Enabling a data-driven culture
In a fantastic interview with McKinsey, Sam Yagan, CEO of ShopRunner (and former CEO of Match Group), emphasises the importance of culture for successful data-driven decision making. He describes the importance of making your data-driven approach clear from day one and making sure senior employees model the desired behaviour. This is a frequently endorsed approach — top-down change trickles down through the company structure. Executives can model data-driven behaviour in the following ways: daily usage of data to ensure familiarity with the process, clearly make decisions with data and communicate these to others, highlight data metrics in communications and meetings and participate in data skills training.
Ask the right questions
With the vast amount of data available, it’s easy to fall down a data-driven rabbit hole. Before you jump in, identify exactly what you need to know. Having clear questions will help you find the most useful data without wasting time and resources (especially if you are collecting your own data). Two case studies from Walmart and Google highlighted the importance of formulating a specific question in enabling efficient analysis and allowing the data teams to provide a clear answer.
Don’t believe the data blindly
‘The numbers don’t lie’ — ever heard this? It’s easy to become over-confident in a decision because it’s based on data. However, as mentioned above, the answer you get depends on the question you asked. Ignoring the wider context can lead to assumption-based decision making. For example, Adidas described how focusing on the wrong data (attribution modelling based on last-click rather than brand tracking) caused them to focus on short-term gains and over-invest in digital advertising. They have since changed their strategy to focus on long-term emotional brand recognition.
It’s vital to encourage critical thinking and scepticism in your driven-data decision making. It's difficult to argue in the face of what appears to be clear data. Encouraging employees to disagree can help mitigate the groupthink that leads to blindly following data.
Communicate data effectively
You might have spent hours familiarising yourself with the data and coming to an informed decision, but that doesn’t mean others have. Data can be inaccessible, and people often lack the confidence to speak up when they don’t understand. Research has shown that we find it much easier to focus and understand visual information, so focus on communicating with data visualisation techniques such as infographics, charts and graphs.
If people understand the data your presenting, they are more likely to provide their own insights. This can help you avoid making a decision based on biased data or assumptions.
Overall, data-driven decision making offers a host of benefits. Companies such as Twitter, Amazon and Google regularly emphasise its importance and the results can be impressive. However, it’s wise to exercise caution. Data isn’t a magic solution. Effectively using data requires organisational culture to change, for employees to engage in critical thinking and to communicate insights effectively.