2040’s Ideas and Innovations Newsletter, Issue 24: Decision Making in a Digital Age
Intuition, Human Bias an Behavioral Defaults
The debate in management and leadership circles is how to best make decisions in a digital age. Should you be data-driven or intuitive? There are too many variables, including institutional knowledge and bias that limit the value of gut decision making, particularly in a fundamentally and dynamically ever-changing environment. We are the sum-total of our own biases and past experiences, which hinder the effectiveness of intuitive decision-making in the 21st century. A decision-making approach that is based on quality data that represents a complete or close to complete reality can more clearly reveal effective actions, intelligence and strategies.
The Argument for Data-Driven Decision Making
Data-driven decision-making has been popularized by the era of big data and the myriad of technologies and technological solutions that create and capture data. At no other time in human history have we been able to collect data at the rate and depth that we now can. Data can overwhelm, confuse and confound. There appears to be “too much information” to even consider; our default human behavior is to simplify and seek the major point or finding, not conduct a daily analysis of a deluge of information. Becoming data-driven is a necessity for today and tomorrow. We must manage our defaults and grow outside our comfort zone if our organizations are to survive into the future.
Data is, by definition, mostly objective, unbiased information as a byproduct of transactions, process completions, process inputs, behavioral capture and more. Most data results from the past, whether that be a transaction completed yesterday, last month or even an hour ago — or an email that was opened and a click that occurred last week or this week. Applying value to most data requires context and a recognition of the time and place of capture. In today’s quickly changing environment, what happened last week or last month was the result of a variety of factors and variables that were relevant at the time. That data may be subject to change or new factors and variables that are now important for the present and future. We are in a very challenging time where we must learn how to leverage data and become data-driven decision-makers as the data offers our best hope and chance for navigating today’s market dynamism.
Simply stated, data-driven decision-making is the process of studying large amounts of data, analyzing it to identify patterns, obtaining actionable insights, and using that insight to make business decisions. That’s pretty straightforward. Data is dependable and mostly objective.
Too many organizations have gotten on the data bandwagon without a plan. Tech expert Gabriel Swain, Vice President of Marketing & Growth at LinkedIn cautions, “Businesses have data at their fingertips, but how do they organize it in a logical way? Many still struggle to understand how data is used to make decisions. There is so much data in the world today that it would take over 180 million years to download it.”
He adds, “When CEOs champion data-driven business cultures, performance results and revenues increase. A Deloitte survey reveals that when data championing CEOs lead the charge, businesses are 77% more likely to significantly exceed business goals. Plus, they are 59% more likely to gain new insights from the metrics they track and to use data analysis to drive business decisions.”
Why? Leadership supporting a data-driven culture solidifies decision-making that is evidence-based and the result of demonstrable findings leading to the best opportunity for achievement and success. A cautionary note: Analysis of data can be subjective. A data-driven culture must recognize that personal bias, self-promotion, internal politics, personalities, or even external pressures play into how decisions are often considered and made. If decisions are made based on personal interpretation of data, those decisions may not recognize or be representative of the factors and variables at play across a system.
There is of course always more to the story. Organizations that value and embrace data understand that data-driven business decisions inform needed innovation, build or expand a market, optimize operations, identify errors, improve customer service and increase revenue.
As humans, we seek others to gain recommendations, insight into how others make decisions and on what basis, and to confirm our own thinking. We have evolved this behavior as most of us personally lack enough information to consistently form 100% confidence-based conclusions. Our defaults are to maintain our baseline behaviors. However, we would argue that now that we have access to so many levels of data, it’s time to change our own default mental constructs.
Amit Choudhary, Chief Operating Officer, Executive VP, Global Financial Services SBU at Capgemini describes the advantages of data-driven thinking, which we have augmented:
- Data enables clear, evidence-based-focused goals.
- Accuracy and objectivity can help to preclude human biases, institutional filters, and false assumptions.
- Insights from data offer a real-time and historical snapshot of the decision-making rationale and help keep the leader’s vision dynamic.
- Leaders who effectively leverage big data, structured and unstructured data, as well as robust operational information, can stay ahead of the curve and be prepared for uncertainties within an organization, its capacities across its operating systems and the market it serves or intends to serve.
Here’s a quick playbook for a few key moves to transform an organizational model and culture into data-driven decision-making.
- Identify Data Champions
At the C-level, a chief data officer (CDO) can work with leadership to design and implement initiatives to support a data-driven organizational model. Most importantly, however, is that a CDO should be, first and foremost, a strong educator and trainer within and across sectors in an organization to aid co-workers in learning how to use data, decreasing their fears of data, and mastering how to use data to improve execution, planning and reporting.
- Recruit Younger Employees
Next-gens are comfortable with data. Younger decision-makers are terrific champions for the transition to data-driven business culture. Swain explains,” Younger generations are more willing to embrace change; 76% of executives in their 30s or younger look for opportunities to leverage new technology to achieve business goals. Plus, 67% of them see risk as opportunity, not danger, according to an Inavero study.”
- Data Literacy
According to the Harvard Business Review, only 20% of companies actually empower their employees with data. A shift to a data-driven strategy cannot succeed without first being nurtured by a data-driven organizational culture that seeks to create comfort via a learning environment and operational mechanisms that leverage the evidence and facts (data). Words still matter, but action and follow-through deliver results.
- Get Buy-in from Your Sales, Marketing, Product, Experience, and Finance Teams
The majority of data that decision-makers want to see comes from sales, as that data significantly reflects performance that transcends to revenue against the expense and ultimately equates to profit. Marketing data can demonstrate success in acquiring new customers or retaining current customers. Customer service data demonstrates how well the customer is (or isn’t) served. And when data is aggregated across departments, it informs a product team with a roadmap for how products should be structured. Data benefits finance by monitoring expense and profit margins. Clearly, it takes a village for data to be optimized. Data can bring value to the entire organization and its parts, however, without buy-in across an organization, data will be used in silos and an organization will struggle to benefit from holistically using data for decision making.
- Use a Single System
“Centralizing data removes many of the reasons technical issues come up in the first place by streamlining different management styles, maintenance procedures, tools and providers into a single system. A single system reduces friction, making it easier for shared data concepts to actually work properly, thereby improving the chances that your organization will become successfully data-driven,” according to Sroka. Of course, not all centralized systems are the solution. Many data lakes and repositories are downstream curators of data often manifested in silos that remain unconnected. Always remember that humans and the front-end business systems are the entry point for data. Garbage in, garbage out. With a single system unconnected to the data strategy, data might as well exist in a mixed-use landfill.
- Data Fluency and Definition
“Typically, different departments use different vocabularies to refer to the same thing (e.g., “clients” are referred to as “customers” by customer service, “targets” by marketing, and “regions” by strategy), or use the same term to refer to different things (e.g., “group” to mean “customers,” “users” or “distribution partners”). An organization must be willing to realign terms, definitions and naming conventions to prevent confusion and encourage clear understanding and communication,” according to Sroka. Consistent data description and data value across an organization leads to the most fruitful data-driven cultures.
- Technical and Process Standards
How data is technically gathered, managed, computed, curated, and stored must be based on appropriate technical standards and meta-data standards (standards and frameworks of descriptive data about data) that are leveraged across an organization. As with data fluency and definition, shared and consistent technical and process across all data management and collection ensures data achieves desired objectivity. Employees should never have to ask or question where data came from, how it is described, how it was used with other data or how it was calculated. An organization, therefore, to achieve the goal of becoming data-driven, must ensure consistent data standards.
The Argument for Intuitive Decision Making
“Intuition is subjective and effective when you don’t have data or the time to think logically before making a decision. And even though you can develop intuition based on knowledge and experience (a type of data), it’s still risky to use it in business decision-making. Nobel Prize laureate, Daniel Kahneman, says humans formed intuition as a tool to alert us to potential risks. It aids in our survival when we’re faced with fight or flight situations. However, Kahneman claims that using data to make decisions is critically important because it decreases our propensity to make poor ones,” according to Swain.
Laura Huang, associate professor of business administration in the Organizational Behavior Unit, Harvard Business School believes,” When making an important decision, should you trust your gut, or gather more information before deciding? There are two factors to consider:
- Could more data actually help you pick the right option? If your organization is considering a new product idea, for example, you can do market research and assess your competitor’s offerings — but that information won’t guarantee that people will buy your product. In a situation like this one, you may consider the data at hand and then rely on your gut.
- The second factor is the context of the problem you’re facing. If successful mental models and schemas exist for this kind of decision, it’s probably a good idea to use them. If you’re trying to differentiate yourself from competitors who have followed those models, gut instinct may be the way to go. And remember: Intuition draws on the objective and subjective information you already know — so your gut feel is, to some extent, data-driven. If data has already been available and you and your organization are data-driven, intuition is more informed.
Leadership Decision Making in the Digital Age
Do you run an organization with the “father/mother knows the best approach? Or do you give away personal control and trust your customers and teams to lead the way? There are several fatal errors in judgment a leader can make running an organization in today’s complex, digital, data-empowered marketplace. The rules of engagement are changing, but what remains constant is that if your operations are not a customer and data-centric, they will surely fail.
Transitioning from an analog mentality to a digitally enhanced data-driven and based perspective can be uncomfortable and anxiety-provoking. In a searchable online universe, the adage is true, “you don’t have to know everything, but you need to know how to find it.” And the first step to finding it is to be well informed and surrounded by mindful, curious, talented individuals that simply are not afraid of data and understand how data inform sound decision making.
Data and Intuition on the Balance Beam
Reed Hastings, CEO of Netflix has been quoted. “We start with the data. But the final call is always gut. It is called informed intuition.” Choudhary adds, “Data is a driving force in the 21st century. A decision can be considered a hit, or a miss based on its resultant data. At the same time, a leader is expected to deliver both quantitative and qualitative results. A combination of the two approaches has the power to make the individual a balanced leader.” He adds, “Truly impactful decision-making leverages data analytics as well as intuitive skills. There must be an element of informed risk and an aptitude for it. A leader who weighs both their gut feeling and trusted data is using informed/intuitive decision making and is better positioned than one who closes their eyes to one of the two aspects.”
Situations favoring data-driven and intuitive decision making:
Data-Driven Decision Making Situations
- Conflict Resolution
- Properly Defined Goals
- Structured and Processed
- Big-bet Decisions
- Infrequent and Unfamiliar Situations
Intuitive Decision Making Situations
- Quick Decisions
- Ambiguous Situations
- Unstructured Problem Solving
- Ad-hoc and Daily Decisions
- Familiar Situations
Source: Amit Choudhary, Capgemini
Imam adds, “In life and in business, we all have to make difficult decisions. How much information do we consider before deciding something that isn’t clearly black and white? How much do we rely on our gut intuition? What should we leverage more? Data? Or intuition? My answer is simple: rely on both. Great decision-making is not about leveraging one over the other but instead using them in tandem.
“Analytical decision making goes hand in hand with utilizing data. Facts are concrete and give us useful jumping boards to start on. But then intuition comes into play. And this is where we look at patterns, what is right and wrong, should we go left or right, etc. To neglect one would be an error. To utilize both are strategic.”
Ultimately, any decision-making has to factor in people: customers, clients, stakeholders, employees. We agree with Forbes writer Chris Westfall: “Without insights into intuition, companies and executive decision-makers will miss the most important factor in business: the human factor.”
We invite you to reach out to us at 2040. We use both data and intuition in helping clients solve problems and leverage their assets to be competitive in the digital marketplace. We can help you find the perfect balance between the two.
2040 helps organizations navigate the sea changes of finding their new normal. We offer actionable expertise in the strategy and operations of digital growth and engagement, empowering an empathetic workplace culture, strengthening your value proposition and driving revenues. We’ve been in your shoes and we know what impedes transformation … and what unlocks it.
Onward and upward from the 2040 Team