You know it, often we drive on long-term experience and gut feeling. We like to stick to our accustomed approach. But what if you are dealing with declining sales and imminent disruption due to new competition? Could it be that you have developed blind spots and biases? A data driven mindset can help to prepare more effectively for an unknown future of continuous change.
Every company has data. Whether it is company data, sales, customer, website visit, delivery, or external data. Yet, if you can believe research, companies waste a lot of money because they don’t make full use their data. Personally, I think that there are only very few companies that don’t use data. But there is a big difference between an operational data project, for example to save costs, and a truly data-driven strategy. What is the reason why so many entrepreneurs just ‘wait and see’ when it comes to a truly data driven mindset?
The Nobel laureate Kahneman has a plausible explanation. When it comes to act on predictions, people often take an emotional, rather than a rational decision. Research shows for example, that if people have a 95% chance of winning 10.000 euros, they often accept an offer of 9500 euros with 100% certainty. The aversion to risk and the preference for certainty is the guiding principle, not the probability of the outcome.
To the surprise of the researchers, the opposite happened in an high risk situation: In case someone has a 95% chance of losing 10,000 euros, people tend take risks and reject a more favourable deal. To avoid a big loss, they are willing to gamble, even when they risk to worsen their situation. That way initially still manageable problems turn into disaster through desperate speculation. According to Kahneman, this is the environment in which many companies are defeated by superior technology and waste their last resources to close the gap. They continue to fight even though it is clear that they are beaten.
In many cases we are not aware of our own biases and a suffer from a tunnel vision (confirmation bias). It makes us feel better to be right and that influences our thinking process. We tend to recognize only the data that fits our vision and direct experience. Also events that are mentioned more often and we remember easily get more attention than others that have disappeared from our memory. The reason is that mental effort costs energy and our brains tend to choose the easy path. A confirmation bias through sloppy thinking is the typical way all our brains tend to work.
The most important learning from this is that you always have to be aware of your bias. Always challenge each decision and substantiate it with facts and data. Always test and examine your assumptions. Because, only when you have a complete overview, you can make the right decisions.
Even though we like to think that we make our decisions based on a rational, cognitive process in our brain, fear and emotions often determine our decision. When confronted with complex or contradictory information, our cognitive skills become overloaded and our gut feeling takes control.
A data-driven mindset means to think outside of yourself, to put personal prejudices aside and instead to focus on concrete evidence. The willingness to drop deep-rooted assumptions when data show that the reality turns out to be different than expected. You can still trust your gut feeling, but you no longer act blindly. You challenge assumptions, collect as much information as possible and only then do you take action.
In short, a data driven mindset helps you to do things better and faster. That sounds easier than it is. Most companies have the data needed to address business problems, but do not know how to use this information to make the right decisions. Data richness is therefore not synonymous with insight and knowledge. In addition, an insight obtained through data is not an end in itself. It must lead to action. If an insight is not actionable or is not focused on a business outcome, it is useless.
Often, data silos prevent that real value can be created from available data. Autonomously operating departments like to protect their own data, whether or not because of justified concerns, read emotions, based on past experiences. This requires a culture change. You can overcome resistance by working on mutual trust and demonstrating the added value: that only if you combine all available data you can filter out the noise that real new insights emerge.
A data driven strategy should also not be determined by the technology that the company happens to use. That is easier said than done. If every department has invested in its own IT systems, it is not easy to reverse. But suppose, all departments merge all their customer data into an integral customer view, so that client attitudes, emotions and intentions are linked to a broader data ecosystem. Only then you will create real predictive power on customer preferences and behaviour and that enable actions with real impact.
For years we are used to make decisions based on our expertise. This makes it often difficult to accept hard data that claims otherwise. We don’t like to be reduced to a dumb executor of algorithms. Our aversion, read emotion, against algorithms is deeply rooted. According to Kahneman, this stems from our preference for the natural above the synthetic or artificial. We sympathized more with Gary Kasparov, when he lost the chess game from the computer Deep Blue, than the other way around. Nevertheless, in more and more situations an algorithm takes better decisions than humans. This does not mean that we now have to leave all decisions to algorithms. An airplane flies on autopilot, but still has pilots to intervene when necessary.
So check your data driven mindset to drive the growth of your company. What can be improved, how can data be used to solve a real challenge, e.g. a large cost item, dissatisfied customers, or the launch of new data-related services? If you want to know more about how to become more data driven, please contact: Irene.vanderKrol@leapstrat.com.