Everyone operates using two different thought systems when it comes to making decisions: either its fast and based on intuition (System 1) or slower and relies on reasoned thinking (System 2) according to Nobel Laureate Daniel Kahneman.
While the former may have improved our chances of survival in the past by allowing us to act quickly on opportunities and avoid threats, it can also push us towards making poor judgments by ignoring critical analysis.
While intuition can provide a hunch or spark that leads you down a particular path, data allows you to verify, interpret, and quantify your findings. The data-driven decision means ignoring our instincts, instead of relying on hard facts rather than intuition, observation and anecdotal evidence.
According to a survey conducted by PwC, highly data-driven businesses are three times more likely to report significant improvements in decision-making compared to those who rely less on data.
Are you interested in learning how data-driven decision-making can enable you to be a more effective entrepreneur? The following examples highlight some of the many benefits of data-driven decision-making for businesses.
1. Transparency and accountability
One of the main benefits of data-driven decision-making approach is that it allows everyone in your business to see opportunities, risks, and the reasons why certain courses of action are chosen over others.
Organising, managing and prioritising based on facts and information ensures that objectives are clear and results are assessed accurately. This can improve employee morale, encourage everyone to pull in the same direction, and ensure that everyone shares responsibility for both successes and failures.
2. Choosing with confidence
For some, making decisions based on intuition works extremely well. But for others, particularly when the stakes are high, relying on intuition can instead lead to indecision and confusion.
Having a data-driven-decision making process in place allows you to act confidently, knowing that there’s sound reasoning behind your choices. Whether you’re coming up with a new marketing plan, or deciding on discontinuing your product launch, having all the relevant data at hand will allow you to benchmark current performance and forecast potential impacts.
3. Continuous improvement
Another advantage of data-based decision management is that it leads to constant improvement. Once, you’ve started benchmarking your key business metrics, it becomes much simpler to actively work towards improving them. This enhances the overall performance and efficiency of your business organisation.
This notion is especially effective since it can be applied to almost any measurable component of your business, from employee productivity to revenue. Simply establish your baseline, use the information you have to decide on a course of action, measure the results, then continue to optimise your approach.
4. Enhanced consistency
The benefit of having a data-based driven organisation is that you have consistency over time. This approach helps people within your organisation to know how decisions are made. Employees can identify the implications of data that is being collected, analysed, and managed, and they act accordingly.
When every employee is involved in data-driven decision management, they acquire the necessary skills which improve consistency. They can observe whether the revenue is increasing or decreasing, if their customers are happy or not and what is working for the company and other departments. This raises awareness, which helps the organisation build loyalty, engagement, and responsibility.
Finding the right tools to make data-driven decision making
The other key component in implementing data-driven decision-making in your business is possessing the right tools. This is not only to collate data but also to extract insights from it. Even for the most seasoned analysts, having the right tools to process and visualise data is essential, making it much simpler to both identify trends and gaps in knowledge.
Data-driven decision-making isn’t just a passing fad that businesses are striving to hop onto to remain relevant. It’s a statistically validated process that gives businesses a systematic and objective approach to decision-making. It can help businesses improve process efficiency, decision effectiveness, workplace productivity, and business growth.
If you’re considering leveraging the power of data in order to set your business up for success, then rest assured you’re making a sound decision.
Resources and Further Reading
How data-driven decision-making can help businesses rebound faster
The Benefits of Data-Driven Decision Making
How Businesses Benefit from a Data-Driven Culture
THE ADVANTAGES OF DATA-DRIVEN DECISION-MAKING