Summary
- Understanding the importance of data is crucial, but it’s not enough. To make better decisions, businesses need to make data a priority and have experts responsible for analyzing it and helping inform decision-making.
- Many leaders rely heavily on gut instincts, even in situations where data can provide a more complete picture. This can be unnecessarily risky, especially when there is data available on the outcome of similar situations that have occurred in the past.
- Educating employees on the historical odds of decisions can prevent them from making unnecessarily risky decisions and give leadership a chance to consult the data and weigh the consequences of failure.
- Instinct has its place in business, but it should not be the only driver of decision-making. By making data a focal point of strategic thinking, leaders can safeguard their businesses against unnecessary failure and ensure that the company makes more good decisions than bad.
- By making data a priority, businesses can optimize their operations, improve decision making, and ultimately increase their chances of success.
Making good decisions is the foundation of success in business, and today, with the help of technology and business intelligence, we have access to more data than ever before to guide our decision making. However, despite the wealth of information available, many leaders still rely heavily on gut instincts, even in situations where data can provide a more complete picture.
One of the biggest challenges with decision making is that our memories are inconsistent and fallible. We tend to remember the exceptional results, rather than the expected outcomes. This is known as the “flashbulb memory” problem. For example, an executive may remember a risky hire who turned out to be a star performer, but forget the many other risky hires that didn’t work out.
To overcome these challenges and make better decisions, it’s essential to make data a priority in your organization. You need experts who can analyze the relevant data and help inform decision making.
1. Making Data a Priority
There’s a huge difference between understanding the importance of data and making it a priority in your organization. Every business needs experts responsible for analyzing pertinent data and helping inform employee decision-making. For example, a retail business can use data analytics to understand their customer’s buying patterns, demographics, and preferences to optimize their marketing strategies, which will lead to better sales and customer retention.
2. The Flashbulb Memory Problem
When relying on prior experience, consider that memory is inconsistent and fallible. We are more likely to recall extremely unexpected events, rather than more mundane occurrences, thanks to “flashbulb memory.” In a business context, flashbulb memory causes people to remember exceptional results, rather than expected outcomes. For example, an executive may vividly remember taking a chance on an unconventional hire and watching that employee grow into a star performer. They are less likely to remember when they made a safer bet on an obviously qualified candidate who turned out to be exactly as competent as expected, or the risky hires that did not work out. The exception becomes the legend.
3. Using Data for Better Decision Making
One of the most important business lessons is also the simplest: success is often the result of making more good decisions than bad ones over time. The question is how to do that. This should be easier to do today. Technology and business intelligence (BI) provide a wealth of data to guide even the most nuanced decision-making. For many scenarios, there is data that can show you the outcome of past decisions that were similar and reveal the projected outcomes over time. For example, a financial institution can use data analytics to predict the likelihood of loan defaults and adjust their lending policies accordingly.
Despite this, many leaders aren’t taking full advantage of the tools at their disposal and rely heavily on gut-instinct in situations where data provides a more complete picture. In situations without data or precedent, instinctive decision-making is likely the most viable option. But this strategy is unnecessarily risky in cases where the data shows the outcome of similar situations that have occurred in the past.
An illustration of this is professional gambling. Casinos thrive because many bettors believe they are smarter than the odds, and that they can beat the house with bold betting. These are the gamblers who drive the majority of casinos’ profits. The bettors who win in the long-run clinically assess the odds of each bet and make careful, data-backed decisions, making their biggest wagers when the odds are in their favor.
Statistics tend to normalize over time, eliminating the short-term aberrations that give the false appearance of good or bad luck. The longer you play the same game, the more the odds win out.
4. Taking Ownership of Decisions
It’s important to remember that while data can inform and guide decision making, it’s ultimately up to the leader to make the final call. If a leader decides to go against the data, they must take ownership of that choice if things go badly, and bear responsibility for the outcome. Exceptions need to have accountability because, as the saying goes, “Success has many fathers, while failure is an orphan.”
In conclusion, making good decisions is the foundation of success in business, and today, with the help of technology and business intelligence, we have access to more data than ever before to guide our decision making. However, it is important for leaders to make data a priority in their organizations and rely on experts who can analyze the relevant data and help inform decision making. It’s also important to be aware of the limitations of our memories and the “flashbulb memory” problem, and to take ownership of decisions, whether they are based on data or intuition. By taking these steps, leaders can increase their chances of making more good decisions than bad ones over time, ultimately leading to better outcomes for their business.
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