The Role of Data in Strategic Decision Making

The Role of Data in Strategic Decision Making

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On average, an adult makes approximately 35,000 conscious decisions every day. Some of these choices are as simple as ‘tea or coffee,’ while others have much higher stakes. For business leaders, that number is likely much higher and many of those decisions hold much greater weight. Day-to-day, senior executives are tasked with making choices that impact their business, their people, their customers and – in certain cases – wider society.

Each individual leader will have their own approach to decision making, with some preferring to seek the advice of trusted peers while others rely on their own intuition. In fact, research has found that more than 40% of CEOs make decisions based on gut feelings. But in our increasingly digital age, businesses and their leadership have a powerful weapon in their arsenal that hold incredible value for making smarter, more effective decisions.

Understanding Data-Driven Decision Making

‘Data’ is not unique to the digital age. Before the somewhat recent wave of digitisation and the subsequent migrations to cloud storage, businesses kept physical records locked in filing cabinets or stored in boxes. These methods were not necessarily the most convenient or secure but served their purpose of telling the story of the business via facts and figures.

Data looks rather different in the digital age. With our shift towards smart devices, social media, and e-commerce, businesses today have access to more data than they realise or utilise. The volume of online activity makes it difficult to pinpoint exact figures, but estimates suggest that 2.5 quintillion bytes of data are created each day. Every interaction, every web search, every sale, and every activity between the organisations and its audiences creates a data trail that helps the business to gain a better grip on its standing in the marketplace and among its customers and competition.

The process of using this information to guide the business strategy and validate courses of action is commonly known as Data-Driven Decision Making (DDDM). Organisations may do this by analysing macro trends and research from credible third parties, conducting their own surveys and focus groups, or running tests to generate original insights on specific products or business challenges. These and other DDDM practices have been used for centuries. However, an innately modern phenomenon is occurring wherein an increasing number of companies have begun using advanced technologies such as artificial intelligence (AI) to analyse the wealth of digital data produced by the everyday digital activities of the business.

Combined, these methods provide deeper insights into the activities of the business, its people, and the markets in which it operates.

Why Use DDDM?

According to a PwC survey of more than 1,000 senior executives, highly data-driven organisations are three times more likely to report significant improvements in decision-making. It is easy to understand why.

In the wake of the pandemic and its aftereffects, it has become more important than ever for businesses to develop the right strategy and prioritise actions that drive impact. The challenges in the marketplace have made it imperative for leaders to make wise choices regarding their products, customer experiences, operations, personnel, suppliers, and more. However, the stresses of navigating the tumult amid pressures to deliver business impact can often cloud judgement and create space for irrationality.

Becoming data-driven can help to keep the business on track by creating a stable model for decision-making that can withstand both troubling times and ideal operating conditions. Much of its value can be attributed to the fact that data is inherently objective. At some point or other, all of us will have heard the phrase, “Numbers don’t lie.” Data offers a similar infallibility. While it is possible for biases to creep into data collection methods and taint the outcomes, overall, data lacks the subjectivity and ‘blind spot’ thinking that intuition-based and other decision-making methods possess. When collected properly, data paints a picture of the way things are rather than presenting individuals or the business through the lens of how you perceive or wish them to be. It may not always be what we want to hear, but data will tell us everything we need to know to grow and evolve.

Because of its ability to benchmark the current position of the business, data makes it possible to better understand the potential impacts of any subsequent decisions and track progress along the way. Data can lend credibility to gut instinct or help steer leaders away from paths that may not deliver the desired impact. This is crucial in times of turmoil when every decision carries extra pressure, and resources may be increasingly valuable. Data analytics and insight generation can often highlight issues that may require immediate attention, areas for improvement, develop risk metrics or potential cost savings. On their own, these insights may seem small, but can help inform a wider strategy that pilots the business towards a more favourable position.

Since data is both logical and objective, it is much easier for business leaders to become more confident in their decision making over time. This confidence will be key for generating buy-in for any strategic initiatives and earning trust for the leadership team. Staff, customers, and other stakeholders want the business to be led by leaders who have proven their competence and their ability to make good judgements. Prioritising data in decision making increases the likelihood of achieving the best possible outcomes much more often, thus increasing the credibility of the leadership team in the eyes of their audiences, as well as the leaders’ own sense of conviction.

Top DDDM Challenges

This is not always as easy as it may seem. In the most recent NewVantage Partners annual survey, which tracks the progress of corporate data initiatives, just 26.5% of organisations reported having become data driven. The biggest challenge seems to be a people issue. 91.9% of executives in the survey cited cultural obstacles as the greatest barrier to becoming data driven. Crafting a successful data culture requires shaping collective beliefs and behaviours to unite all levels and areas of the business over a shared mission to lead with insight.

As with any major organisational change, there needs to be effort invested into communicating objectives, creating alignment, and ensuring the right values and priorities are embedded into the organisation’s practices. Leaders may experience pushback or resistance and will have to work through these changes collaboratively with their people. Data is a fluid asset that flows throughout the business and transcends organisational boundaries. Therefore, it can at times become difficult to assign clear ownership to it, which increases the complexity of managing the business’s valuable information. Communication is critical for assigning responsibility and creating the necessary alignment across teams.

The nature and sheer volume of the data itself presents obstacles as well. The majority of this information is unorganised with experts predicting that by 2025, 80% of global data will be unstructured. This form of data is more difficult to analyse, quantify, and search through. Common examples include email communications, photos and videos, social media posts, websites, and open-ended survey questions. When you consider how many of these items are generated each day, the burden of data analysis becomes much heavier. That is why many businesses looking to become more data driven have begun rapidly adopting advanced technological tools that are capable of assigning meaning and gleaning insights from this mess of information.

How data is collected, managed, and shared creates a major challenge both internally and externally. Customers are not naïve to the fact that the organisations they do business with collect and use their data. Over time, consumers and businesses reached an unspoken social contract in which customers agree to surrender their data in exchange for better products, services, and experiences. But as part of this agreement, it is also expected that the business will use and store this data in a way that safeguards their customers. In recent years, we have seen companies including British Airways, Yahoo, Marriott Hotels, and various social media platforms experience major backlash when this trust is breached. We have also seen the introduction of specific laws, such as GDPR, designed to provide additional protections to consumers in the data age. Navigating the ethical and regulatory considerations of fair data use is a challenge every business needs to take very seriously.

Becoming Data-Driven

But how can leaders overcome these obstacles and put DDDM into practice successfully? At Rialto, we consult with C-suite executives, Non-Executive Directors, HR Directors, Board members, and other senior leaders on strategies to enhance their capabilities and keep pace with the evolving marketplace. Our experts are advising senior leaders to develop a greater focus on the following:

• Maintain an Open Mind: The first step to becoming more data-driven is to be willing to take it on board. Data will not always tell you what you want to hear or confirm the beliefs you may have, which can be uncomfortable. This discomfort may be especially strong for leaders who have historically relied on gut instinct in their decision making. To reap the benefits of data, you need to think of it as an ally. Leaning into your organisation’s data can make you and your business more efficient, more effective, more strategic, and more targeted than ever before.
• Take a Proactive Approach: DDDM is most often reactive in nature. An insight is presented by the data which in turns triggers a decision to either remedy it or follow in the direction it leads. While this is often fine, sometimes the insight is gleaned too late for the subsequent action to make a real impact. Therefore, leaders should aim to use data proactively to become more strategic. Data does a great job of presenting what is, but it is also very useful for assessing what could It is possible to leverage insights in a way that enable the business to test potential courses of action, predict trends, or identify budding problems before they worsen. Learning to use your data in this way will help you navigate the present while setting your organisation up for the future.
• Keep Data at Your Core: Of course, for DDDM to be effective, it needs to be consistent. Your organisation’s data needs to be at the core of all decisions, not just the larger or more strategic ones. When deciding anything, leaders should reflect on the data rather than reverting to gut instinct or previous behaviours. Make it standard practice to tie all decisions back to the data to support your thinking. Use all any data sources available whether it is your digital data, research your organisation conducts itself, or simply the latest macro trends and stats. Over time, referring to the data and applying relevance to your decision making will become a habit that can support more analytical ways of thinking.
• Understand Where DDDM is Headed: While AI and other technologies are not the only way to assess or collect data, these tools are unrivalled for the depth and efficiency they can produce. Therefore, DDDM is relying more heavily on the insights created and presented by advanced technologies. AI is capable of analysing all the organisation’s digital data constantly in real time, a feat no human worker could replicate. This technology can also process and make sense of millions of data points in a matter of seconds. It would take a human worker months of nonstop work to get through this volume of information, and by the time they finish, it is likely that the trends and market conditions will have changed. To keep abreast of ever-changing consumer habits and economic fluxes, businesses will increasingly rely on digital DDDM tactics moving forward. Understanding this now will help to prepare for this inevitable shift.
• Upskill as Needed: That said, it is critical for leaders to have the right digital capabilities for navigating the future of DDDM. Given where DDDM practices are headed, a baseline understanding of AI will be of value to any leader possessing decision-making responsibilities. To support data-driven mindsets, leaders should also look to increase their analytical thinking capabilities. Being able to make sense of patterns, spot anomalies, and derive meaning from charts and figures is a crucial aspect of becoming data forward. The ability to translate raw figures into business relevance and commercial thinking will also serve you well. Additionally, honing softer skills like communication and collaboration are crucial for creating data driven cultures. The most effective data-driven leaders are those who empower their teams to become active contributors the business’s growth. Focus on improving these areas to get the most of your DDDM activity.

If you would like support with strengthening your capabilities through Leadership Development executive coaching or creating a data-driven culture within your organisation via our Business Transformation services, please get in touch with our team.