BUSINESS ANALYTICS

Data Two, Gut One

Joe Maglitta | Date: 05-19-11 | Comments

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• Filed Under: Business Analytics




• New research shows data-driven decisions improve organizational performance and company value. After hours, it’s a different story.
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  Table of Contents:

  Data Two, Gut One The Gut Isn't Always Right

• Data Two, Gut One

  It seems intuitively obvious: Better data leads to better decisions. But new research, for the first time, claims to provide solid quantitative proof.

  Researchers from MIT’s Sloan School and the University of Pennsylvania’s Wharton School studied 179 large companies employing “data-driven decision making,” or DDD—their term for data and business analytics. Conclusion: DDD increased asset utilization, market value and productivity, 5 to 6 percent higher than explainable by other factors, including technology investment.

  That’s big. While there’s much anecdotal evidence about the benefits of smartly leveraging good data, the authors say there has been virtually no systematic, quantitative study of business benefits. Until now.

  For you quant/MBA hotshots, here’s a nugget of their regression analysis: 

  
  

  Where m is material, k is physical capital, IT-Employee is the number of IT employees, Non-IT Employee is the number of Non-IT employees, and DDD is our data-driven decision-making variable.

  That seems pretty authoritative. (Okay, I have no idea.) Ordinary mortals can read or download “Strength in Numbers: How Does Data-Driven Decision Making Affect Firm Performance?” for more perspective. You can also speed through a recent article in The New York Times.   
  

  Whichever you choose, a few things should be clear.

  ● The way organizations decide which new products, markets or customers to pursue will never be the same as business intelligence, I mean DDD, continues taking root. There will always be room for decisions made by gut instincts, but just fewer of them. That can only enhance the value of IT—specifically, of analytic specialists—to their organizations.   

  ● All the great sloshing vats of CRM, ERP, HR and SCM data you slaved to create over these last years will become much larger, much more important and much more valuable. Take a bow. And that’s only the start. Mobile phones, smart devices, social media, click streams and trillions of new sensors, among many others, will greatly deepen and widen the flow into enterprise decision ecosystems.

  ● A new chapter has begun. The researchers Erik Brynjolfsson and Heekyung Hellen Kim (Sloan School of Management) and Lorin M. Hitt  (Wharton School) are pioneers in quantitatively determining IT value. There will be more independent and vendor-sponsored studies that will provide needed, deeper, actionable insights into effective use of DDD.

  ● The authors, citing peers, note: “Objective, fine-grained data are now replacing HiPPOs (Highest Paid Person’s Opinions) as the basis for decision making at more and more companies.” Depending on where you sit, that can be very good or not so good news. 

  Next: The Gut Isn't Always Right >>