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BizReport : Internet Marketing 101 : September 10, 2020

Business decision making: why the data-driven approach fuels growth

Every successful business active today got where it is now through a series of decisions, big or small. Although some success stories may sound like the result of pure luck, happy accidents, or an inspirational movie script, the truth is that, in business, everything happens for a reason and decisions that an executive makes now can have a major impact down the line.

Everyone agrees that a good manager should be able to make the right decisions, but where does this ability come from anyway? For many years, people believed that it's a special talent that you're born with, the hidden "CEO gene" or "gut feeling" that guides you towards the right answer. However, this approach is neither accurate nor productive. In reality, success is rarely the result of chance. Great companies were built on hard work and informed decisions, based on cold, hard data and methodical analysis. With enough time and experience, you will, of course, develop an instinct and, in some cases, that instinct can be a decisive factor but, in general, a systematic process can help you steer away from most things that can go wrong with a business.

How do most enterprises make decisions?
According to a recent survey, most enterprises still rely on old methods to make decisions and don't fully leverage the power of data:

  • Information is ranked as "highly valuable" in less than 50% of companies.
  • Only one-third of businesses use data to identify business opportunities and predict future trends.
  • 58% of executives rely on their gut feeling rather than objective data.
  • On average, companies only use half of all the available data during the decision-making process.

Unfortunately, following this approach rarely leads to success. Multiple studies have shown that people tend to overestimate their abilities, and decisions that we believe to be good are actually based on cognitive biases. The validity and effectiveness of decisions made on a whim or based on incomplete data are questionable, and the process itself can be tiresome and confusing.

So, the question is: why don't more businesses use data in the decision-making process? One challenge would be the sheer amount of data: by one estimate, the average enterprise deals with 347.56TB of data, and most of it is unstructured. Then, companies need to pay attention to the quality of data and its source. The good news is that two-thirds of executives interviewed in the survey said that they plan to use data in the future and work with market research companies for brand tracking and monitoring, as well as relevant market insights.

How can data-driven decision-making help you grow your business?
Data-driven decision making (DDDM) means collecting data based on clear, measurable business goals and key performance indicators, interpreting it, and using it to develop a plan that fuels business growth. Why is DDDM so effective?

1. It yields better results.
Making decisions without having any data to base them on feels like guesswork, and it's usually inaccurate. Meanwhile, using the best data-driven practices boost your chances of success. One study of 100 managers found that those who used data to justify their decisions achieved their expectations 90% of the time and 40% of them even exceeded the initial expectations. Additional research also found that data-backed decisions reduced the failure rate by 50%. And it makes sense because when you use data, you no longer rely on second-guessing. If something goes right, you'll know exactly what you did to achieve that and, if it doesn't, you'll know what needs to be adjusted.

2. It leads to better financial performance.
The average individual makes around 35,000 decisions every day, but most of these are small and don't have a noticeable impact on their lives. In business, however, every little decision matters and when the slightest error slips through, that can cost you. By doing market research, you reduce the risk of errors, and that saves you money. One study even revealed that 95% of companies that make effective decisions also have higher financial performance.

3. It reduces risks.
No business venture is free from risks. No matter how carefully you plan your next steps, something can always go wrong. However, by making rash decisions without understanding their implications and considering all the data, you expose the business to many more risks which could easily be avoided. According to an article published in Harvard Business Review, even the so-called "win-win" situations entail opportunity costs in the form of paths not taken, so businesses need to explore those sophisticated tools that calculate and manage risk.

4. It's more relevant for your organization.
How many times did you make a decision because you heard that other successful CEOs had done it, and it worked out fine for them? While examples are always worth considering, what works for one business might not necessarily work for another. Factors such as location, industry, business size, target customers, or the current state of the economy can change the outcome, and sometimes, it can end up having a negative impact. But, by working with a dedicated company, you will gain only those relevant insights that matter for your particular case and use them to create a sustainable growth strategy.

5. It eliminates conflicts of interest.
When you don't make decisions based on an objective, systematic approach, you can end up with a conflict of interest, and that can escalate tensions within the organization, whereas the data-driven approach guarantees transparency and guards against personal biases.

The latest advancements in Big Data now make it easier than ever before to collect the relevant information you need and use it for accurate decision making. Making the right call is no longer a matter of hope, faith, and guesswork. The human mind is prone to imperfect judgement, and if we also add factors such as stress and deadlines, the decisions we make on a whim can lead to more losses than victories. By treating information as a valuable asset and integrating it into your decision culture not only can you deliver valuable experiences to your audience, but also expand your growth opportunities and mitigate some of the risks that come with running a business.

Image source: Pixabay


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