The Simple Analytics Equation: Data + Gut > Gut = Better Decision Making

Over the course of my career, I have authored and reviewed hundreds of business cases. And nearly every one of them included the same qualitative benefit: “better decision making”. For most of them, this was nothing more than filler – an additional bullet point in a list of items that really didn’t matter.

But Analytics is different – better decision making is the entire point of it! How this is achieved can be defined by the simple equation below:

Data + Gut > Gut = Better Decision Making

Let’s start by defining the two variables involved:

  • Data – represents the quantitative analysis performed on a relevant set of metrics
  • Gut – represents the cumulative experience, functional/industry knowledge and instincts of the decision maker

Now as a decision maker, let’s assume that you have a choice between alternative A and alternative B. Consider the two scenarios below:

  • Scenario 1 – Your gut/instinct/experience tells you that alternative A is preferable. Perhaps you’ve seen it be successful more often – maybe you have personal experience in a prior similar situation. Or maybe alternative B has never been tried or proven in your field or industry. Regardless, alternative A just feels like the right decision.
  • Scenario 2 – Same as scenario 1, but you also have data to support your decision. After analyzing the appropriate data set, using advanced quantitive methods, your analytics support team advises you that alternative A has a higher probability of a successful outcome than alternative B with a high confidence level.

Scenario 2 clearly represents a approach that will drive a better decision-making process. You’ll have more confidence in your decision, as will your boss, customer, and business partners.

There are two additional questions to think about:

  • What if analyzing the data takes too long or costs too much?” – This is a valid concern an done that the decision maker needs to assess. Is there timeliness or urgency to your decision? How big of a decision is this – a $25k or $25M opportunity? What are the risks of making the wrong decision? In cases where the risk is small, urgency is high, and cost/duration of analysis is also high – then the decision maker should strongly consider going with their gut. But even in this example, you’ve explored the option of using analytics and determined that it was not optimal due to these other factors. 
  • What if the data doesn’t show a pattern or indicate a higher probability outcome?” – This is a common fear, but in reality, not a concern. Even if your analytics team comes back and tells you that “there is no pattern in the data” or “we cannot recommend alternative A or B” – this is still information and improves your decision making process. You’ve looked at the data and determined that is will not influence the decision – the probability of success with either option is 50/50. So go with your gut. Knowing this is still better than simply going with your gut and after the fact, wondering if the data might have helped you make a better decision.

But there is a catch – there is no guarantee that alternative A will in fact turn out to be the better choice. It very well may end up being alternative B. Business happens. Unexpected events occur. Surprise variables influence the outcome. Or it is just a matter of probability – sometimes the long shot beats the odds.

Regardless of the actual outcome, A or B, scenario 2 (data + gut) is clearly the better process. You’ve leveraged your gut/instinct/experience and used it effectively and you’ve also leveraged additional information. You’ve been more comprehensive in your assessment. You’ve made a better decision.

Now you can feel good about that bullet point in the analytics business case…and move it over the the list of quantitative benefits (more on that in a future post)!


4 Keys to Seamless Analytics for Retail

Many retailers are currently struggling to understand how to define a strategy to effectively leverage advanced analytics. More so than the omni-channel imperative (which arguably is simply about keeping up with each other), there is a window of opportunity during which effective use of analytics can be a significant differentiator and a source of competitive advantage. In December 2013, Accenture released an outstanding research report, entitled “Seamless Analytics – Three Imperatives for the Retail Digital Marketplace“, where they state “the choice is clear: the digital marketplace is the future, and the decisive difference is analytics.” That assertion, as well as the three imperatives identified are spot on. However, there is one very important imperative that was missing…more on that later. But first, here are the three imperatives, with my insights added.

  1. The Insights Imperative: Applying retail analytics to data for sharper customer insights.” – Retailers need to get a handle on their internal data and establish data governance processes to cleanse, manage and monitor the quality of their data. Most have shortcomings in their current data environments and this initiative can be long and tedious. It is important, but it is also not a complete impediment to leveraging analytics. The fact is that data will never be perfect and monitoring/cleansing will become a normal operational process. Measuring data quality and using quantitative methods to adjust for issues can be employed to enable effective analytics while data quality is being improved to acceptable standards.
  2. The Actions Imperative: Turning insights into actions, at speed and at scale.” – Analytic insights must drive actions to be effective. Without a specific decision or action, analytics are merely interesting and not nearly worth the investment or attention. But once a decision point is identified, many retailers become overly reliant on their experience, instinct and gut. And for good reason…those are likely what has helped them be successful. But now with the availability of advanced analytics, decision-making is vastly improved. Consider the following equation: data + gut > gut. When you add an understanding of the data (assuming it was developed with a reasonable effort, cost and duration) to gut feel, the end decision is better than one made on gut feel alone. Those retailers that understand this equation will soon, and significantly, outperform those that rely on their historical methods.
  3. The Outcomes Imperative: Focusing on business outcomes.” – To be truly transformational, analytics must be employed to support specific business outcomes and strategies. Once a retailer understands how they plan to differentiate, be it customer service, product quality, scale or something else, then metrics and analytics can effectively be employed to support the strategy. More metrics and more analytics are not necessarily better…but having a smaller set of the right measurements that support and drive the overall business strategy is imperative. And these metrics must become embedded in the ongoing operational mindset of the enterprise.
  4. The Missing Imperative – Leadership – In my opinion, this imperative is by far the most important, and without it, the value of analytics in the organization will be limited. Senior leadership, starting at the CEO and extending throughout the executive leadership team, must be strong advocates and active supporters of analytics. With that foundation, a retailer can change the culture from gut-driven to data-driven decision-making. Without it there is little chance of success. So the initial focus for any retailer must be on understanding these key stakeholders, educating them and confirming their commitment to analytics. Once this is accomplished, no small feat, then strategies and tactics around the other three imperatives can be defined and executed.

 

And then, as Accenture confirms, “when retailers routinely start making data-driven and analytics- supported decisions with the seamless customer experience in mind, they will increasingly see the impact in their bottom line.”    


My Job Is To Make Your Job Easier

Welcome to the Cherry Advisory blog!

I have long been a strong advocate and practitioner of servant leadership – an approach that prioritizes the needs of others, helps individuals develop and perform as successfully as possible. Throughout my career as a consultant, it’s always been about making my client as successful as possible and enabling them to be successful once I’m gone. Early in my career a senior partner once shared with me that “the mark of a good consultant is that they make themselves expendable” through knowledge sharing to their clients. On the client side, a deep caring for my organization across all levels created a natural tendency towards servant leadership – my success would be measured based on the collective success of my leaders, peers and reports.

As my career has progressed, my views on servant leadership have transformed into a somewhat utopian view of leadership. In every organization, in every relationship, in every role…we should all act as if we had the same job. My job is to make your job easier. What’s your job?

Sounds simple enough, but how does it apply? If we each just took an extra moment to think before we act, “how can I make this easier for my business partner”?

  • Do I need to win this argument? Or can I compromise?
  • How can I best brief my boss on the situation, options, risks and recommendation?
  • Should I share a great 20 page article? Or can I summarize the main points?
  • How can I put my direct reports in a position to be successful? Can I be more explicit in my expectations?
  • Should I demonstrate my expertise by making things sound complex? Or rather, prove my skill by simplifying a difficult subject?

That last point reminds me of one of my favorite quotes, from C.W. Ceran: “Genius is the ability to reduce the complicated to the simple”. Sometimes our most challenging problems can be solved with simple solutions. It reminds me of the myth that the U.S. spent millions on an “astronaut pen” that would write in outer space, while the Russians simply used a pencil. Although proven false (both countries initially used pencils), the moral of the anecdote still holds.

So with that introduction…Cherry Advisory is here to make your job easier by:

  • sharing knowledge and experiences;
  • providing simple insights into advanced analytics, omni-channel, retail, business and IT strategy;
  • delivering value; and
  • helping you and your organization become as successful as possible.

Thank you for reading and please share your feedback and questions, as I promise to personally respond to every one.