Published24. Oct. 2018
Balancing Guts and Data Analytics in Decision Making
How business leaders can employ data-based gut feelings to make strategic business decisions?
With the deluge of data coming from every corner of modern enterprises, where does instinct fit into the business strategies? We have come to learn that intuitive or impulsive decisions often lead us astray, hence the exploitation of data in virtually any part of a business.
In this article, we will assess both perspectives: Whether gut-based decisions or data-driven insights are the ultimate answers to success.
THE SCIENCE BEHIND EVERY DECISION
In most cases, decisions are based on the predictability of the market condition in accordance with an organization’s rational decision-making model, a bias-free and completely data-driven thought process.
It’s obvious that data is the key to unlock tremendous insights that could change the course of an industry, but is that all there is?
Scientists have found that gut is, in fact, better than analytical thinking when the decisions involved risk calculation and uncertainty. In a world with too much information, yet highly unstable, complicated information parsing process may lead to even more confusions. So ideally, leaders should not omit intuition altogether in the face of doubts.
It’s worth noting that certain tasks would require different approaches. The closest to that of gut-based decisions, which often deliberately ignores data, is known as heuristic. This method relies on an individual’s repertoire of trials and errors in past experiences, or also defined as: “a process that enables a person to discover or learn something for themselves.”
Take a product manager role for example.
Data is fundamental to determine the product development roadmap, typically includes processes and user experience designs. But when it comes to deciding on the technology or platform for the developers, he would likely use the heuristic framework as it eliminates complex information search, given the time constraint. This is drawn from his experience building various products, so he’d know best which technology is ideal without relying on data.
Some of the common forms of heuristics include the rule of thumb logic, educated guess, stereotyping, and common sense among others.
On the other end of the spectrum, intuition makes up a whole different picture.
There are many business icons credit their success to instincts, oftentimes against conventional wisdom. They think of it as a vehicle that direct businesses off the development trajectory, to introduce new solutions on top of what’s already available in the market. These intuitive decisions are backed by the calculation of value at risk, rather than prediction of consequences. This is where data scientists and business intelligence come in – to gather data, get relevant insights from the dashboard and more importantly, identify significant variables that could lead to major ramifications.
In short, analytical skills play a far more important role than data itself in the decision-making process.
Now, the conundrum remains: “How leaders can employ data-based gut feelings to make business decisions?”
DATA-DRIVEN VS DATA-INFORMED APPROACHES
In the analytics realm, big data is fueling predictive models that allow businesses to make decisions beyond statistical thinking. Which makes it extremely powerful to explore untapped opportunities within a market.
However, to rely solely on figures might not be a wise move.
For leaders to make logically sound decisions, there is a “gut check” moment that is triggered whenever there’s a stimulus that requires attention.
In the world of big data, repetitive patterns may result in “illusion of certainty”. It means that raw data can only bring emergent trends to the surface in a given period. While eliminating assumptions, data visualization doesn’t tell the complete story without a business analyst to give a context to those findings.
The rise and fall of bitcoin trading is a good example of data-driven behavior.
Based on the above valuation chart, trading volume surged significantly from November 2017 to January 2018, following a steady increase since May 2017. Bitcoin traders recognized investment opportunities at the point when bitcoin and the like made headlines virtually everywhere on the internet. To many people’s surprise, the bubble eventually burst with a 70% loss in value as of July 2018.
The bitcoin hype was set against an extremely volatile market with lack of regulations. Without relevant financial knowledge, bitcoin followers were exposed to higher risks of the illusion of certainty when they only relied on internet data.
As such, is data-driven a better option to make foolproof decisions? Or rather, to infuse a higher level of analytical thinking?
Market watchers are experts in assessing trends and apply subjective judgements to yield more reliable insights depending on the market condition. These decisions are essentially shaped by sentimental factors.
RECOGNIZING BUSINESS GUT FEELINGS
Many organisations today rely on data to optimize customer experience, from content curation (Netflix and Spotify) to online advertisements (Facebook). But when it comes to strategic business decisions, 62% of senior executives trust their gut feelings, as reported by Fortune Knowledge Group.
It may sound superficial to some, but these instincts are basically cognitive abilities shaped by an individual’s knowledge, judgement, experience and senses.
Cognitive skill is an unconscious form of intelligence – the deeper understanding of the industry, combined with data-based analytics, the more effective decision making is going to be.
To develop a strong business instinct, leaders must pay attention to their organization’s cultural aspect. In an environment with limited room for new ideas to spark, employees simply don’t have the courage to experiment the “new”. When there is no one breaking the norms, it’s unlikely for businesses to go forth with new innovations. As gut intuition is wired into the thought process by evolution, without an experimental culture, there is hardly a business case to test one’s gut feelings.
To leverage that intuitive capability, business leaders would need to learn to justify their decisions based on data. That said, both assessment points must be employed when it comes to mapping out long-term strategies. Meanwhile, when dealing with critical situation that is highly unpredictable, gut feelings can pave ways for much greater possibilities.