When it Comes to Important Business Decisions, Should You Trust Your Gut or Follow the Numbers?
Many leadership teams rely mainly on their collective wisdom to drive smart business decisions. Others claim they can achieve more reliable outcomes by primarily using data-driven, science-based predictive analytics. Who’s on the right path?
There’s a lot of talk about the potential, and already documented, value of predictive business analytics to improve operations and inform business decisions. But many executives remain understandably skeptical about how statistical analysis can help them make the tough calls that have been the building blocks of their careers. Can crunching numbers more efficiently really take the place of gut instinct and hard-earned experience?
Here’s the debate:
|Experience trumps data.
It’s impossible to build a formula that takes into account the many nuances that go into smart business decisions. Effective leadership teams draw from human insights tempered by years of experience.
|Data holds hidden truths.
In today’s fast-changing global economy, there’s no way the human brain can absorb all of the factors that go into sound decisions. Statistical analysis often uncovers correlations that no one could have predicted based on their past experiences.
|We’ve proven it’s not for us.
We experimented with predictive analytics and models and the results were totally off base from what we’ve done in the past. We’re back to using tried-and-true methods.
|Nothing is perfect and sometimes fact is counterintuitive to perception.
No single analytical result is perfect, but then, who hasn’t made a poor decision based on gut instinct? Properly done analytics produces methods that, based on the law of large numbers, can be more reliable than prior intuition-based decisions.
|The data is too dirty.
How can analytic results be better than the data it’s based on? Dirty data requires an experienced decision-maker to sort through to determine what’s valid and what’s not.
|Good enough is good enough.
Data can often be cleansed so it becomes good enough to see trends that may have otherwise gone unnoticed. Modern statistical and analytical methods can also often compensate for biases in dirty data and elicit previously unknown business signals and trends.
|Smart people are our competitive advantage.
Hire smart, experienced people and they will make the right calls over the long haul. That’s our competitive edge.
|Smart people need smart tools.
Top talent sticks with companies that provide career-building experiences and exposure to leading methods and technologies used by industry leaders. Analytics is proving to be an essential competitive marketplace tool and its institutional use can help attract and retain tomorrow’s leaders.
John Lucker, Principal, Deloitte Consulting LLP
Analytics doesn’t replace experience – but it’s a reliable tool that can help executives make smarter business decisions.
Behavioral economics indicates that even the best leaders can succumb to human nature by giving extra weight to personal experiences, biases or selective information that can influence their decisions. Analytics can help remove the filters that can cloud even rational minds.
Forward-thinking executives are putting analytics to work to improve competiveness and profitability. The business case for many projects – customer profitability, enhanced pricing, fraud detection, improved business processes, workforce intelligence, risk management and many more – can show potential returns that far outweigh the required investments. A 2011 study published by researchers at MIT and The University of Pennsylvania showed that large corporations using data-driven decision making have 5 to 6 percent higher output and productivity. Furthermore, they also showed higher-than-expected asset utilization, return on equity and market value.1
Of course, statistical analysis isn’t new. What is new is analytic awareness, enhanced training and affordable technology that allows companies to generate, capture and process vast amounts of information – providing actionable insights that can allow leaders to make more effective decisions. This isn’t a story just about tools but rather the development of an end-to-end business capability with analytics at the core (strategy, analytics, operational implementation, technology integration, organizational change management, performance management and other components). Leading companies are putting these capabilities to work, creating competitive advantages that are showing up on their balance sheets.
1 Brynjolfsson, Hitt and Kim, “Strength in Numbers: How Does Data-Driven Decisionmaking Affect Firm Performance?” April 2011.
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