A lot of decision-makers feel that they can rely on gut instinct. To some extent, that can be true, and many companies are driven by ingenuity and a knack for predicting what the market demands.
But the more reliable method for making decisions is based on data, not instinct. You may be wondering, what is data-driven decision-making? It means that you gather information. The key to making the right decision is instead based on your interpretation of the data and knowing what to do with it.
What Is Data-Driven Decision-Making?
At its core, data-driven decision-making (also known as DDDM) lets facts, metrics, and data guide your business decisions. It is more than merely looking at data. It involves critical thinking and problem solving about what the data means.
Some organizations have even created senior-level roles around data, recognizing that this is essential for growth and staying ahead of the competition. Data can impact almost every level of an organization, from pricing and sales to delivering a product or service.
While data is essential, it is also very complex. You could have a very high volume of data, and to make sense of it, you need to drill down into what the data is telling you. The data needs to be well-organized so you can access what you need when you need it.
Getting Started with Data-Driven Decision-Making
Data-driven decision-making companies have a deeper insight into their customers. They can use this to power new strategies or opportunities. They can also be more agile and respond to market demands.
But how can you get started with DDDM? Here are some of the essential steps.
Determine the Questions You Want to Answer
From the very beginning, you need to establish what you want to accomplish with your data. Are you trying to increase sales or improve customer retention? Are you looking for a new opportunity or trying to solve a problem?
Without questions as a guide, you are looking at a huge amount of data that serves no specific purpose.
Look for Patterns
Over time, you will be able to use your data to identify patterns and trends. You can use the data to find correlations between business decisions and results. You can also gain insights into customer behavior.
Be wary of making too many inferences. While you may have identified a pattern, ask yourself if you understand the specific cause so you can draw a conclusion. If you do not know the reason, then determine what additional data could help.
Identify Your Goals
You need to have a clear understanding of what you want to accomplish with your data. Is your goal feasible with your time and budget constraints?
It could be that your changes are incremental. Or, if your data reveals a problem that needs to be corrected, that might take priority over other strategic initiatives.
Have Support from Leadership
Your company’s leadership must embrace a data-driven approach for it to be successful. Numbers don’t lie, and managers should learn to incorporate data to tell a story.
Organizations can sometimes fall into a habit of relying on senior leadership based on how much experience they have. This is the opposite of DDDM. Experience has its place, but data reflects what is current.
Benefits of Data-Driven Decision-Making
You may find that data reveals the opposite of what you thought to be true. It can be unnerving at first. You may need to take a step back to understand why you thought the opposite and why the data is telling you otherwise.
But this is exactly why DDDM exists: to prevent your company from making a bad decision. Intuition still has a place if you can justify and quantify it with data.
DDDM has several advantages that can take your organization to the next level.
Have More Confidence in Decisions
It will become easier to make decisions when they are backed by data. Data can be both a benchmark for where you are today and help you understand the impact of decisions made. The confidence can help your leadership team commit more fully to a particular initiative.
Be More Proactive
Too often, businesses find themselves in “reaction” mode. They may not be aware of changes in customers’ behavior or habits until they see a decrease in sales. Instead, you can use data like surveys, user-testing, and demographic analysis to make more proactive decisions.
Realize Cost Savings
Businesses can often find ways to improve productivity and efficiency based on data. These efforts translate into real cost savings. For example, you can use data to meet cost optimization targets.
Data can be an invaluable tool to increase operational efficiency and decrease expenses.
Using Business Analytics
Of course, you can’t assume that the data you get is accurate and of good quality. You need to look at the source and any gaps that may have occurred in receiving and interpreting the data.
Business analytics is the science of arriving at business decisions based on data. People who are skilled in business analytics know how to interpret the data and present it to decision-makers in a meaningful way. If your organization is serious about making decisions based on data, you need someone who can wrangle the data you have collected.
Fuel Your Growth with Data-Driven Decision-Making
Now that you know what is data-driven decision-making, you can put it into practice within your business. There is no doubt that you can gain valuable insights from your data.
You can even use your data to measure success and prove your results. If you have started with a series of questions and goals, your data should be able to back you up. You can use data to gain an edge over your competitors, acquire new customers, or improve your production.