Making business decisions – Is gut instinct extinct?

By Keshav R. Murugesh

Decisions are the perennial facet of the human psyche – should I or shouldn’t I? While the consequences of making a poor choice when deciding which sandwich to make for lunch or which film to watch at the cinema are relatively immaterial, the wrong move in a business context could have significantly worse implications. With more data at our fingertips than ever before, surely the need for making ill-informed decisions has been eradicated.

And yet, many business leaders do not choose a path based on solid analysis of data, but on pure intuition. Whether due to laziness, need for speed or scepticism as to how meaningful insights from data can be used is another debate altogether. While there are pros and cons to making use of the plethora of data available or relying on instinct, the art of making decisions has undoubtedly changed forever.

Dealing with dilemmas - harnessing the data deluge
From improving the customer experience to reducing costs, organisations of all sizes are using data analytics to make smarter business decisions and plan for the future. IDC estimates that the big data technology and services market will grow at 23.1% per year between 2014 and 2019, with annual spending reaching $48.6bn in 2019. Whether through internal sources such as CRM or via external sources such as social media, what is clear is that businesses have the potential to utilise a vast amount of diverse information.

If properly used, businesses can use the data from their most valuable asset, customers, to understand their mindset and make the appropriate strategic decisions to benefit them. After all, today’s restless consumer has no qualms in moving on if their needs are not exactly catered for.

Accrued data can show how customers respond to different touch-points across different parts of their buying journey, improving business understanding of the customer mindset. An important factor is to ensure these decisions occur quickly and in real-time, so as to affect the customer journey while you still have their attention. Businesses are even appointing chief analytics officers, to manage data-based initiatives and assess the return on investment of data, as its importance to the decision-making process increases.

Let me take the example of a global consumer goods manufacturer that used data to grow its consumer base. As a first step, data was collected on non-users of the company’s products from a large consumer survey. Then using 'factor analysis', an exhaustive list of consumer needs was drawn up and categorised into broad themes. These non-users were then clustered into distinctive segments, and a comprehensive profiling of each segment was conducted based on demography, needs, usage, and purchase and brand sentiments. The final step was to rank and identify the ‘most attractive’ segment. Using this data analytics framework and customised insights, the company was able to draw out effective sales strategies, including personalised advertising and promotional campaigns, and thereby expand its consumer base.

In the words of Napoleon Bonaparte, “War is ninety percent information.” Although the context has shifted somewhat, the level of competition across all sectors means that businesses surely need all the help they can get.

Data challenges – clouding the picture
Despite the obvious insights businesses can glean using analytics, harnessing huge amounts of data is a big challenge, as the quantity grows exponentially - 90% of the data currently in existence was created in the last two years. Therefore, it is vital for businesses to ensure that data is high quality, by which we mean relevant and accurate. Without this, it is impossible to bring meaningful insights back to the business. Along with concerns over data privacy and a worrying skills shortage, obstacles remain before some businesses adopt an entirely data-driven strategy.

At the very heart of the motive for using data is that it removes all risk from decisions. However, some would argue that not all decisions need big data and there are some contexts in which intuition may be the better option.

Going with your gut
Decision-making is sometimes described as a combination between logic and emotion. Avoiding the use of data doesn’t necessarily mean that a decision is bad and even the most data-savvy business leaders rely on estimates and averages occasionally. Furthermore, it would take a poor leader not to apply previous experience to decisions and be completely dictated to by facts and figures.

Regardless, it is undeniable that making gut decisions can be completely wrong, given that they are subject to natural bias and subjectivity. Personal perceptions of a specific customer or product has the potential to sway business choices one way or the other. In the data age, it is possible to quantify most criteria – instinct, however, is not quantifiable. Therefore, to act on instinct alone is to ignore long-term patterns and gamble with your future.

We all know how important loyalty programs are for the hotel industry. But how does a hotel ensure its loyalty program is utilised well? A top hotel chain used data analytics to segment its loyalty member base so as to target members with the right incentives and promotional offers. The hotel saved money by optimising its marketing efforts, increased annual revenue by approximately USD 20 million and increased loyalty member registrations by 17 percent annually.

Making smarter decisions
Whether your boss prefers deliberate decisions based on solid fact or making choices on a whim, the decision process is undoubtedly changing. Workforces around the globe are having to learn new skills and ways to cope with decisions (although many still don’t understand how to use analytics, despite the proven benefits). The ability to learn from real-time, actionable data is critical, as technological advances and increasing competition require innovation at speed.

The key transition that businesses are making is from a knowing culture to a learning culture that is more objective, flexible and data-driven. While great leaders have always possessed both elevated levels of insight and the ability to see trends before they happen, the evolution of technology means that data must be central to business strategy, and to ignore it would be foolish.

(The author is Group CEO, WNS and Chairman, NASSCOM BPM Council)