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Data-driven Decisions a Best Practice, but Still Not Mainstream

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Posted May 13, 2011 By Ann All     Feedback

Technology itself provides few game-changing benefits. It's all in how organizations apply technology to improve their business processes. Business intelligence is a case in point.

In 2003 Nicholas Carr created a stir among tech professionals by writing a Harvard Business Review article, titled "IT Doesn't Matter" (that he later extended into a book, "Does IT Matter? Information Technology and the Corrosion of Competitive Advantage"). As he wrote on his website:

... It doesn't enable individual companies to distinguish themselves in a meaningful way from their competitors. Essential to competitiveness but inconsequential to strategic advantage: that's why IT is best viewed (and managed) as a commodity.

I think he's right in a sense. Technology itself provides few game-changing benefits. It's all in how organizations apply technology to improve their business processes. Business intelligence is a case in point.

Writing on his blog, Andrew McAfee, a principal research scientist at the Center for Digital Business in the MIT Sloan School of Management, discusses research produced with colleague Erik Brynjolfsson that shows a strong connection between business performance and emphasis on data-driven decision making. Companies that were one standard deviation higher in being data-driven had 4 percent higher productivity and 6 percent higher profits than their peers, the two men found.

But isn't BI a commodity? Apparently not. McAfee notes (and provides a graph to illustrate) most companies rated themselves somewhere between 3 and 4 on the men's aggregate 5-point scale, and many others said they were below average. While most companies no doubt agree data-driven decision making is a best practice, a good number of them have yet to adopt it. Others are trying, but are struggling with it.

Writes McAfee:

... Good exploitation of technology leads to good business performance. Good exploitation of technology depends on a set of best practices. These practices are not widely adopted. Therefore not all firms will be able to exploit technology well. And therefore firms will have different levels of performance.

I got a similar story last summer when I interviewed Jeanne Harris and Robert Morison, co-authors along with Tom Davenport of "Analytics at Work: Smarter Decisions, Better Results." They found that about 40 percent of business decisions aren't based on data. Harris told me:

Very few companies are very thoughtful about how they make decisions. That's the most far-reaching implication of our new book. Companies need to really look at which decisions are strategically important to them, and become a lot more thoughtful about how they make them.

 

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