Intuition can be useful in business decision making but making all business decisions using gutfeel can be detrimental. Data driven businesses are better run precisely because they consistently make better decisions faster. The road to becoming a data driven business is often not smooth though, but businesses that make this journey successfully are better positioned for the future.
What Does It Mean to be “Data-Driven”?
You have been making decisions for your business for years. If there was some context by comparison, fact based precedence and research to those decisions, then technically these were data driven decisions. However, to classify as a “Data Driven” business you need to make sure that all decision making in your organization is made relying fully or in part on relevant and right data. This happens because you have put processes in place to formally enable three things:
Data collection: Your company identifies and collects the right sort of data. The right sort of data is related to the business use case you are collecting against. For example, if you need to delight customers and segment them optimally to build better products and run better marketing campaigns you may need to collect demographics data to identify opportunities or threats.
Data processing: Data you collect must then be processed. This means it must be useable, shareable and query-able. This is usually accomplished by formal data management tools. Data collected so the tools can read them is useable. Data from all parts of the organization being collected means it is shareable and not found in silos. Query-able data means tools can slice and dice the data, so you get smaller relevant data from overall data that helps you make specific decisions.
Data reporting and analysis: Data reporting is often done visually using charts. It allows you to see data for a specific metric or business area. You can track performance and see how your business is doing. Data reporting is often used to ascertain business health and identify areas of concern. Data analysis gives you context for that data so you can make better decisions. It helps to describe your problem acutely and look at data closely to identify patterns and interpret them intelligently.
How to Make Data-Driven Decision
While being data driven means you have process driven data collection, processing, reporting and analysis, data driven decisions use that to support business decision making. This decision making often flows from a macro strategic level to a micro tactical level.
The key is to identify what you are trying to solve? Are you trying to find ways to grow? Are you trying to find areas to cut costs without compromising performance?
Once you have identified the high level theme you zero in on questions and goals under that theme. For example, if you want to grow revenue, one way you can do that is improve the performance of your sales team. This clear focus allows you to move forward with purpose and identify the data needed to solve your problem and meet your goal.
Now you use process and technology to collect and analyze the data. Having skilled people to do that is also a key part of doing this and where businesses often struggle.
Lastly make decisions with the data you are viewing. Train yourself to spot patterns and dig until you see the patterns. Then use those patterns to get insights and make decisions. You want to do this so often that such data driven analysis becomes a natural part of your decision making process.
There is no need to do this in a big bang approach. We recommend starting small with one problem statement. Make sure you document and benchmark everything and figure out how to find the right data and ensure its integrity. Finally see the result of data driven decision making and adapt to make the whole process work better. Then you can scale data driven decision making across the company.
Data-Driven Decisions and Organizational Success
Data driven decision making in business leads to organizational success already. However, this relationship will become even more pronounced in the future when companies are managing much more data. Organizational success will come from managing that data as part of the DNA of the organization. Such organizations will consistently have better decisions, better customer experience and satisfaction, an optimized cost structure, better innovation performance, and greater agility in response to market, competitors and launching of products and services.
Data driven decision making examples are becoming more common in every sector. Companies like Amazon base entire business models on data driven decision making but even old economy companies have found success with it. For example, at Southwest airlines management has used data driven decision making to offer a compelling pricing strategy and craft the right customer experiences resulting in greater customer loyalty and satisfaction.
Leaders and management of such organizations will make more confident decisions, become more proactive and run high performance businesses compared to peers.