Why Businesses Need Data To Make Better Decisions
In just about every area of life, we are increasingly generating ever-larger volumes of data, and one of the most valuable uses businesses are finding for it is helping them to make better decisions.
This happens all the time and can be a manual process – for example, taking the time to review the LinkedIn profiles of job applicants to help make better hiring decisions. Or identifying markets where our products are popular in order to target sales resources. The most exciting applications of data, however, are automated and used to solve big problems that businesses are facing. For example, UPS made massive savings in fuel and wage costs and hugely reduced its energy footprint when it started using location data and traffic information, combined with artificial intelligence (AI) to route its network of delivery trucks. Similarly, retailers including Amazon and Walmart use customer purchase history to predict, with increasing levels of accuracy, what products customers want to buy. Netflix learns about its users purely from how they use its service, learning about what content they enjoy and what makes them switch off, in order to keep them hooked on its service. This happens automatically, without any human employee having to lift a finger!
Smarter decision-making means making decisions that are most likely to help companies move towards their goals. Traditionally, the driving force behind decision-making has been the experience and instincts of business leaders. And unfortunately, that’s one of the primary reasons behind the unsettling statistic that 90% of small businesses and start-ups fail. Experience and instincts are valuable, of course, but research confirms that businesses that base decisions on data – not instincts or experience – are 19 times more likely to be profitable.
There are lots of reasons for this – one of the biggest is that the world changes, as do customer expectations and behaviors. Our own individual beliefs and ideas, on the other hand, tend not to. That is, once we hit on something that works, we don’t expect it to stop working. And we can’t always trust that we will have the presence of mind and forethought to predict every disruptive event or competitor that could emerge and turn our world on its head. Think of Blockbuster Video turning down the opportunity to buy Netflix, or even Yahoo turning down the opportunity to buy Google’s PageRank algorithm for $1 million.
In both cases, and many more that happen every day, bad decisions were made because business leaders – successful ones with proven track records, who had taken their companies to new heights of success – based decisions on their instincts and experience.
Today most companies claim to be data-driven to some extent – it’s a very trendy thing to say. But I am sure many people reading this will have had the experience, at some point in their careers, of working for a company that says it is data-driven but is only really data-driven when the data happens to align with the beliefs or instincts of the leadership!
Becoming truly data-driven means looking to your data as the single point of truth when it comes to making decisions. This means all decisions, from high-level ones about strategy and objectives, right down to issues involving individual customers or employees.
There are four key areas where data can help make better decisions. Those are:
Decisions relating to customers, markets, and competitors – This involves understanding as much as you possibly can about who your customers are and the choices that are available to them. This is how companies like Amazon, Walmart, and Tesco learn how to advertise particular products to particular people, how they should be priced in order for the business to be competitive, and how habits may change over time as the world changes and people move through different stages of their lives.
